Gas exports: Is the government with us, or against us?

The High Court of Justice views petroleum and natural gas as ‘limited, non-renewable, publicly-owned resources.’ So how is it that our own government violates the basic rules of public policy?

By Ofer Sitbon (translated from Hebrew by Miriam Erez)

Gas exports: Is the government with us, or against us?
The Tamar natural gas platform (Photo: Noble Energy)

In a 2011 ruling handed down by the High Court of Justice (Bagatz 3734/11), Justice Miriam Naor wrote:

Petroleum and natural gas are limited, non-renewable, publicly-owned resources.

It’s a short sentence that speaks volumes, and contains within it everything needed to understand the public interest regarding gas exports. The following is an in-depth analysis of the quote.

A publicly owned resource

The gas reserves discovered off the Israeli coast are part of the Israeli “public domain,” i.e., its owners are Israel’s citizens. Therefore, while a law was enacted that codifies the gas issue – the Petroleum Act of 1952 – it is an old law whose legislators never dreamed of a situation wherein Israel would become a small gas emirate.

This situation is reminiscent of the matter of drafting full-time yeshiva students into the army: the High Court ruled in the Rubinstein case (Bagatz 3267/97) that despite the law authorizing the defense minister to exempt yeshiva students from the draft, the growing scale of its application changed the situation. In other words, the court decided the government couldn’t exempt tens of thousands of men on the basis of a law enacted when the IDF exempted only a few dozen. The yawning disparity in our present situation demands a “preliminary arrangement,” a new law, the backdrop for the Tal Act, which ultimately was also declared unconstitutional.

Similarly, the codification of gas exports is basically a matter of distributive justice, cannot take place on the basis of an antiquated law and we certainly cannot entrust the matter to a cabinet decision, as Benjamin Netanyahu and Energy Minister Silvan Shalom intend. It is only proper that such a matter be debated and decided in the Knesset, in the form of official legislation. (Note: On May 24, 2013, Shalom announced his decision to publish the minutes of the commission’s meetings, effective the subsequent week.) Moreover, Justice Mishael Cheshin, in his eloquent turn of speech, ruled in another case (BaGaTZ 11163/03):

Numerically speaking, it can be said: allotting NIS 100 lies in the administrative purview. Allotting NIS 100 million lies in the legislative purview.

It goes without saying, then, that Cheshin’s words apply a millionfold when we are talking about billions of shekels.

A limited resource

Gas, like every natural resource, is limited. As such, basic policy and legal rules apply to its use and allocation:

Equal-opportunity allocation – Public assets are supposed to be allotted via a public, transparent bidding process. Yet this is not done regarding our gas. Various entrepreneurs received exploratory licenses without a bid. In the case of Yitzhak Tshuva, this even occurred after British Gas began drilling due to the high probability of finding gas reserves.

Transparency – A basic principle of public policy is transparency of state agencies. Yet despite repeated requests, a Freedom of Information petition to the Administrative Court was necessary to order Minister Shalom to publish the minutes of the Tzemach Committee. These minutes revealed, among other things, that the committee decided to allow the gas producers to export even more than they requested.

Gas exports: Is the government with us, or against us?
Israelis in Tel Aviv protest against the privatization of natural gas, June 15, 2013 (Keren Manor/

Distributive justice – In the High Court ruling on the Mizrahi Democratic Rainbow case (Bagatz 244/00), Justice Theodor Or wrote on the matter of gas exports:

The law has an important role in all matters relating to oversight over decisions on division of wealth in society. This role is to develop a normative system that ensures that decisions that have distributive implications are the result of a just and open process, particularly in light of the danger that distribution shall work to the advantage only of well-organized pressure groups.

A non-renewable resource

Gas is not only limited, like any natural resource it is ultimately finite. Therefore, a societal decision is necessary regarding its use. The entrepreneurs’ interest is clear: maximum export by signing long-term contracts (up until now, gas companies have reportedly been conducting negotiations with parties in China, Russia and Australia) that maximize their shareholders’ earnings. Yet this short-term interest runs counter to the public interest, which obligates cautious, considered study of the matter of exports on several levels:

The economy – The Tzemach Commission barely took into account the gas needs of domestic transportation. Moreover, a study conducted by the Institute for Economic Planning shows that if Tzemach’s horizon had been the year 2050, and not 2040, then the present quantities of gas would cover domestic needs. Claims that Israel has no domestic market for gas are unfounded.

What happens when the gas runs out? – As far as the Tzemach Committee is concerned, in 2040, Israel will again need to import gas (unless more gas is found or we go over to alternative energies, scenarios whose likelihood are unknown), at high costs that do not take into account the many calculations thrown about regarding income from gas taxes. In addition, the demand for natural gas — like other energy resources — is on a steady worldwide rise due to population increase and economic growth, and its price is rising commensurately. Who among us can guarantee that by then Israel will be at the head of the line to purchase gas? On the contrary: It is more likely that the needs of countries such as China and India will exceed ours, suggesting a future hit to our energy security.

Monetary advantage considerations – The entrepreneurs claim that the taxes that they will pay on exported gas will inject billions into the state coffers. While this is true, the export tax is capped at a sum collected on domestic gas sales. In other words, taxes will constitute mainly a rebate on high consumer gas prices (in the case of monopolistic behavior on the entrepreneurs’ parts), and will not compensate the Israeli public for the loss of a precious resource: The value of the quantity of gas that the Tzemach Committee recommends for export is $300 billion.

Geo-Political considerations – It is likely that Israel will find it favorable to export small quantities of gas to its neighbors — the Palestinian Authority, Jordan and Turkey — which raises questions of geo-political implications and decisions that have the power to strengthen Israel’s position in the region. Therefore, in light of the economic, social, environmental and strategic importance of natural gas, if we should decide on its export, it’s hard to imagine the state not being involved in its management.

Dr. Ofer Sitbon is director of the Institute for Corporate Responsibility at the College of Law and Business. This post was first published in Hebrew on Haokets.