"Noble Energy knows how to play the Washington game"
Former adviser to the Bush administration David Wurmser warns that, in its concern with the taxation question, Israel is overlooking the strategic implications of its gas discoveries.
In its current incarnation, the US Congress is a supporter of Israel and its government, but hates taxes and the bureaucratic mechanisms for collecting them. This is one of the messages that David Wurmser, once a senior adviser to former US Vice President Dick Cheney on the Middle East, seeks to convey to Israel. In an interview with "Globes", against the background of the Sheshinski Committee recommendations on taxation of gas discoveries, he warns that congressmen are liable to respond furiously if they are persuaded that a certain company has fallen victim to unfair treatment by a foreign country.
"I have no doubt that Noble Energy will recruit legislators, especially from Texas, where it has its headquarters, to promote its interests and to exert pressure on Israel. These are the rules of the game. Noble Energy has ties in Washington, and it knows how to play," he says. Wurmser, currently an executive member of the Delphi Global Analysis Group, which he founded, was, in 2002 and 2003, a senior adviser to then Deputy Secretary of State John Bolton, and further back in his career he was a consultant to Noble Energy. He says that he now has no connection with the company and does not speak for it.
Do you see a situation in which legislators will threaten to use the doomsday weapon, US aid to Israel, in protest against unfair treatment of Noble Energy by the Israeli government?
"I find that hard to believe, but, theoretically at least, it seems to me that that weapon has now lost its power, when Israel has huge gas fields. A threat to cut aid needn't frighten Israel. What are $3 billion a year compared with the massive receipts that the gas fields will yield?"
Israel lacks experience
In Wurmser's eyes, the public and political groping in the dark around the Sheshinski Committee's conclusions is an unavoidable, if dirty, process. The chaos, he says, arises from the fact that Israel has no experience in energy and in financing energy production projects on such a large scale. "In the end, the existing laws in this area are 50 years old," he reminds us.
Wurmser, who speaks Hebrew, has extensive connections among Israel's military and political elite, and he demonstrates expert knowledge of the ins and outs of the politics of the Sheshinski recommendations. He expects the wrangling to worsen because of the pressure groups for which the argument over gas royalties is an opportunity to promote agendas that have little or no connection to the energy industry.
"MK Shelly Yacimovich, for example, has an agenda," he says, "She is trying to use the dispute as a weapon in her battle with the Labor Party leadership, and as a device for shifting the party leftwards. As far as she is concerned, the gas question is only a political tool. All the concern about the problem of the tycoons and equitable distribution of the national cake is completely legitimate, but it has no connection to energy matters."
How do you think Israel should behave over the gas taxation question?
"The most important thing is to examine closely what promises were given to Noble Energy and to other partners in the Mediterranean gas project. It is important that Israel should have a strong record as a country that abides by its commitments to investors. If the State of Israel caused the investors to have certain expectations, it must not retract the promises that aroused these expectations. Such a retraction, after money has been invested, is a risky step."
Are you prepared to predict how the struggle will end?
"I believe that the Israeli government will not want to sabotage the Israeli gas industry. I'm aware of the views of the minister of finance, Yuval Steinitz, and his supporters, but I expect that the government will do what it needs to do. It will arrive at a formula that the producers can live with. Note that I said 'can live with,' not a formula that they will like. Even Steinitz knows that 40%, or 60%, or 80% of nothing is still nothing."
Noble won't get up and leave
The end of the struggle between the developers and the government is as yet unknown, but in Wurmser's opinion, there is no cause to be concerned that Noble Energy might say, "that's it, we're going home." "It's important to listen to what Noble Energy says, and not to what they say it says," he says calmingly. "Noble Energy has never said that it won’t produce gas under current conditions. It has never threatened to halt production. Of course, anything could happen in the future, if, say, the Knesset were to impose taxation levels of 80%. There is always a point at which continued production is not worthwhile. At the end of the day, the right decision will be made following rational negotiations between reasonable people, despite what Steinitz says now. The horse trading currently taking place in the Knesset is not enough; that's only one level. There has to be a discussion between economists and producers, such as Noble Energy, and the government of Israel."
In general, Wurmser thinks that we are missing the really important things. In his view, the feverish concern with the Sheshinski recommendations and with the financial aspects of the projects overshadows the strategic aspects of the gas field discoveries, aspects of existential mportance to Israel. The strategic implications are immense, he says, and without clear information about them, decision makers in Israel fail to see the full picture.
What strategy should Israel adopt in the light of the gas discoveries? Wurmser lists five points:
1. Lebanon is not a serious competitor
Voices are heard in Israel saying that, unless Israel hurries, it will miss a historic opportunity to export gas to Europe, because of competition from Lebanon, but Wurmser refuses to be fazed. "I have my doubts about whether Lebanon will be a serious competitor to exports of Israeli gas to Europe. In effect, Lebanon is ruled by Iran and Syria, and neither of those countries has any interest in contributing to economic prosperity there, because Lebanon as a gas exporter would slip from their hands. Apart from that, it will be tremendously difficult to find a formula for sharing the profits between the different sections of the population, and, more importantly, the massive presence of the Hezbollah terrorist organization in Lebanon will deter potential investors."
2. Setting up a flexible facility for exporting gas
Israel's geopolitical situation means it must have a flexible facility for exporting its gas, one that does not rely only on Greece and Cyprus, Wurmser says, because of the constant danger that Europe will decide that the gas fields are not in Israel's waters, and so it cannot export to European destinations from them. Similarly, Greece could prove unreliable, because the cloud of possible insolvency hangs over it.
According to Wurmser, Israel should base its exports on liquid natural gas production installations, even if the cost of constructing them is higher than the cost of laying a pipeline. "The oil pipeline from Ashkelon to Eilat could serve as the basis for transporting liquid natural gas to Eilat, and from there on ships to export destinations in Asia. At the same time, it will be possible to transport liquid gas by ship to Europe from Israel's Mediterranean ports."
3. Obtaining strategic assistance from the US
Israel will need strategic help from the US in defending the gas fields and the ships moving in the Mediterranean and the Red Sea, Wurmser says, and so it will have to convince the Obama administration that the gas fields, with their potential for exports to Asia and Europe, are also an American strategic asset, and that the US should therefore beef up its presence in the Mediterranean. "The Israeli government must understand that insistence on high royalties from the gas companies will not exactly help it in negotiations with Washington on the strategic issues. No American legislator will push the administration to reinforce the Sixth Fleet if he perceives that Israel is not behaving properly towards an American company," he declares.
4. A direct threat to Iran
According to Wurmser, Israel must warn Iran, unambiguously, that any threat to Israel's gas infrastructures will represent the crossing of a red line that will mean Israeli retaliation against Iran, not against Hezbollah, even if the threat comes from Hezbollah.
5. Reaching understandings with Russia
Russia is liable to see Israel as a competitor to Gazprom is supplying gas to Europe, Wurmser claims. "What will you do if Medvedev phones Netanyahu and says, 'You don’t want us to sell S-300 missiles to Iran? No problem. Don’t sell gas to our customers in Europe,'" he says, and adds that the Russians could even threaten their European customers that they shouldn't buy gas from Israel. Israel, he says, must reach understandings with Russia on gas exports.
Published by Globes [online], Israel business news - www.globes-online.com - on January 10, 2011