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Featured Economic Papers

November 2021

 

Author: Bnayahu Bolotin

 

Main Points:

 

  • Natural gas production from the Leviathan reservoir started in late 2019 and this enabled the increase of Israel's natural gas export during 2020.
     
  • Israel exports natural gas to its neighbors, Egypt and Jordan. So far, agreements have been signed for the export of about 132 BCM of natural gas for a period of about 15 years, approximately 8.8 BCM per year.
     
  • Europe, is Israel's main future export destination and implementation of the East-Med natural gas pipeline agreement between Israel, Greece, and Cyprus, will allow Israel to export natural gas to Europe.
     
  • The upward trends in consumption and exports of natural gas, have accelerated since the connection of the Leviathan reservoir.
     
  • Gas production increased by 43% in 2020 due to the substantial rise in Israel's natural gas exports.
     
  • Natural gas consumption in the domestic market (excluding exports) increased in 2020 by about 7%, with an increase in demand by manufacturing being greater than by the electricity generation sector.
     
  • The main use of natural gas in Israel is for electricity generation and in the industrial sector. However, natural gas has also recently been introduced to households for use as well.
     
  • In the future, natural gas is expected to be used for transportation and the transition of some heavy vehicles from the use of diesel to the use of compressed natural gas (CNG)
     
  • The baseline scenario for domestic demand projects that between 2018-2042 the aggregate demand for natural gas will be 452 BCM.  However, due to a high degree of uncertainty the government decided it must maintain 500 BCM of natural gas to fulfill domestic demand in Israel throughout 2042.  In the short-term, annual domestic demand for natural gas is expected to increase gradually from 11.8 BCM in 2021 to 14 BCM in 2025, and to 18 BCM by the year 2030.
     
  • So far, the state revenues from the levies on oil and natural gas profits, which will be deposited in the Israel Citizens' Fund (the sovereign wealth fund), reached more than NIS 1bn, yet there are disputes between the Israeli Tax Authority (ITA) and the gas companies estimated at over NIS 577m of this sum. In our view, during 2022 the total sum of levies actually collected will be more than NIS 1bn, which will trigger the establishment of the sovereign wealth fund. State revenues from the levies on oil and natural gas profits up to 2030 are expected to be US$8.0-10.3bn and by 2064 the revenues are expected to be US$44-53bn.
     

 

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