Citi analyst David Lubin says today that the Leviathan natural gas reserve, which may also include oil, is worth as much as $4.8 billion per year to Israel's economy.
Tests have shown that the Leviathan structure contains 16 trillion cubic feet (450 billion cubic meters) of natural gas. Lubin says that Leviathan now appears to be worth the equivalent of 2.97 billion barrels of oil, or 74.25 million barrels per year for 40 years, or 203,000 barrels per day. Using an oil-equivalent price of $65 per barrel (which he says is a big discount on the price of oil to account for the difference between the price of gas and oil), he reaches his valuation of $4.8 billion, or 2.2% of 2010 GDP.
Lubin's earlier estimate was for an impact worth 1% of GDP. Since then, he explains, two things happened to change the figure - the price of oil has jumped, and there is now much more clarity about the size of Israel's reserves.
The analyst takes pains to point out that there are some uncertainties about Israel's gas situation, such as whether the gas will be exported or used to reduce Israel's energy imports, the final tax and royalties arrangement now that the Sheshinski recommendations are headed to the Knesset, the extent of infrastructure costs, and how any state revenues will be used (to reduce the debt, as the Treasury wants, or to set up a Sovereign Wealth Fund, as the Bank of Israel suggests).
All in all, says Lubin, it is likely good news for Israel's economy and balance of payments - which should support the shekel in the long term.
Published by Globes [online], Israel business news - www.globes-online.com - on January 5, 2011
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