The paper presents and analyzes the Israeli government’s policy in the natural gas production industry over the past decade, with an emphasis on the period following the Tamar discovery in the beginning of 2009. An analysis of the decisions by policymakers indicates the utilization of the government’s power to improve the situation of the public in Israel at the expense of the investors. When such a policy is conducted in moderation, and with taking into account the entrepreneurs’ investment considerations ex ante—an approach that was reflected in, for example, adopting the conclusions of the Sheshinski Committee to increase taxation on profits in the industry—it is not out of line in an international comparison and is likely to be beneficial to the citizens over the long term as well. However, making numerous decisions that adversely impact entrepreneurs is liable to negatively impact investment in the industry. An analysis of the developments leading up to the discovery of the Tamar and Leviatan reservoirs indicates that the formation of a monopoly in the natural gas production sector reflects, to a large extent, the difficulty in raising funds and recruiting top-tier operators for deep sea exploration in Israel. In such a situation, when few reservoirs are found, there is a considerable probability that they will be held by one of those operators. The government’s demand that the Tanin and Karish reservoirs only provide natural gas for the domestic market reduces the probability of their development in the short term, and highlights the conflict of interest between the State, which is interested in developing reserves and domestic market competition, and potential entrepreneurs, who are not interested (and possibly not able) to finance the development of a reservoir for a market that has a surplus supply of natural gas.

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