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- The upward trend in natural gas consumption in Israel continued in 2015, increasing 11% compared to 2014, to 8.4 BCM (billions of cubic meters). The Israel Natural Gas Authority expects natural gas consumption will reach over 9 BCM in 2016. Natural gas consumption for electricity production equaled 6.6 BCM in 2015, while natural gas consumption for industrial purposes amounted to 1.77 BCM.
- Since April 2013 the primary source for the supply of natural gas in Israel has been the “Tamar” reservoir, and the supply from this reservoir has been trending upwards. However, over the longer-term, the demand for natural gas is expected to outstrip this reservoir’s supply capability; therefore, the development of additional gas reservoirs is required.
- On this regard, it appears the development of the “Leviathan” reservoir is close to being initiated. This comes against the backdrop of a number of deals signed during 2016 involving the supply of gas from this reservoir to various customers. These deals underscore the economic feasibility of developing the reservoir. According to the owning partnership of “Leviathan”, the first stage of development of the reservoir, which is supposed to supply gas to the Israeli market, is expected to be completed by year-end 2019.
- Furthermore, in the beginning of December 2016 the Israeli Ministry of National Infrastructures, Energy, and Water Resources (hereinafter “MoE”) officially approved the sale of the “Karish” and the “Tanin” reservoirs to the Greek energy company Energean. This company has targeted the beginning of 2020 to begin the production of gas from these reservoirs.
- The development of gas reservoirs has been delayed primarily because gas owners lack an “anchor client” (in the local market or an export agreement) that will take upon itself the obligation to purchase a fixed set quantity (“take or pay”) of natural gas over a period of years. Apparently no "anchor clients" exist in the local market because, among other reasons, the Israeli economy has not gone through the necessary adjustment process required for the broad consumption of natural gas.
- The main bottlenecks delaying the development of the natural gas sector in Israel are: the fact that there is only a single pipeline connecting the offshore gas reservoirs to shore; and the limited deployment of a national gas distribution network.
- The expansion of a national distribution network holds the potential to increase the local demand for natural gas, such that it will include many additional consumers from a variety of sectors within the economy. However, the process of establishing a natural gas connection infrastructure in Israel has been proceeding sluggishly until now.
- Other factors weighing on the development of local natural gas demand include: high costs for the conversion / establishment of equipment for the use of gas, cumbersome pricing of natural gas that is not necessarily attractive to customers, low oil prices since mid-2014, a number of years of regulatory uncertainty on the issue of natural gas, and more.
- One cannot rule out that the current structure of the local natural gas market, which includes the granting of gas exploration and production rights to private companies, together with the granting of transport licenses to private companies, is not optimal. In light of the great importance of expanding the use of natural gas and developing the gas sector in the Israeli economy, it would have been worthwhile to act in this realm within the format of a “national priority”. It is quite possible that in this circumstance, it should be considered to give preference to a government monopoly, through the establishment of a government gas company, similar to the Israel Electric Corporation (IEC), which will be able to serve first and foremost the long-term interests of the Israeli public. This preference is also in-line with economic theory, as well as the actual experiences of other countries.
- Growth of the Israeli economy is expected to be positively affected by the accelerated development of the local natural gas sector, both directly and indirectly. In our opinion, the contribution of the broad use of natural gas, excluding gas exports, is expected to amount to an additional 0.5 percentage points to the potential economic growth rate of Israel in the "steady state".
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