In recent months it seems like the natural gas sector is flourishing. There have been so many reports of gas export deals and talks with neighboring countries. But are these deals that the Israeli economy can rely upon?
In the past five years, Israel has discovered natural gas reserves of 1,000 billion cubic meters (BCM), mainly in the Tamar and Leviathan fields, which have been two of the biggest offshore gas discoveries worldwide over the past decade. In the wake of the conclusions of the Tzemach Committee, the Israeli government decided that up to 50% of the gas discovered can be exported.
Estimates are that revenue from gas exports could bring the State about $70 billion over decades (according to today's values). But the government has additional reasons to encourage signing agreements with foreign customers. Israel, like the gas exploration developers themselves, wants to justify the huge investment in developing the offshore fields. For example, the Leviathan field requires an investment of $6.5 billion for just the first stage of development. Such a small market as Israel cannot justify such a huge investment just for it. Moreover, gas exports have a major geopolitical importance and can help Israel consolidate its position in the region.
However, to date Israel has still not put in place the required arrangements for realizing these exports: what tax rates will be imposed on the gas exploration partnerships, if gas prices will be supervised, how and by whom will the export licenses be given.
With this uncertainty, only one small binding gas export agreement has been concluded so far to sell 4.75 BCM of gas to the Palestinian Authority. There are many letters of intent with three separate bodies in Jordan, and two major multinational companies in Egypt - British Gas (BG) and Union Fenosa. There is also talk of deals with Turkey and Cyprus.
Published by Globes [online], Israel business news - www.globes-online.com - on November 11, 2014
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