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Featured Economic Papers

August 2018

 

  • The upward trend in natural gas consumption in Israel continued in 2017, increasing 7% compared to 2016 to 10.4 BCM.  Natural gas consumption for electricity production amounted to 8.5 BCM in 2017, whereas gas consumption for industrial purposes equaled 1.8 BCM.

 

  • At the end of 2017 there were 15 large industrial customers connected to the gas transmission system, 57 relatively small customers connected to the distribution network, and another eight customers of compressed natural gas (CNG). It is important to note that 33 out of 36 customers that consumed natural gas in 2017 via the distribution network are located in the Negev and southern distribution regions.  This finding displays the concentration of natural gas customers in the southern region, a development that highlights the relatively slow connection of potential customers to the distribution network in other regions.

 

  • To this day, natural gas has still not been adopted for use by other customers, such as:  small- and medium-sized industrial factories, natural gas filling stations, military bases of the Israeli Defense Forces (IDF), government compounds, residential neighborhoods, and more.  It is important to note that any expansion in the use of natural gas in the local economy is closely linked to acceleration in the deployment of the gas transmission and distribution networks across the country, in a manner that will make natural gas accessible to all potential customers.

 

  • The Israel Natural Gas Authority forecasts natural gas demand will equal 447 BCM over the next 25 years, with this being dependent on a number of assumptions detailed in the relevant section.  In light of the findings, the team reviewing the findings of the inter-ministerial committee to examine the government’s policy regarding natural gas in Israel (the Tzemach Committee) recommended that the volume of gas to be retained for the local economy will remain equal to 540 BCM (similar to what was decided by the Tzemach Committee) minus 40 BCM that were consumed since 2013, or 500 BCM in total.  This means the quantity of gas produced above this amount may be directed to export, and in this manner will increase the potential growth rate of the economy.
  • The “Tamar” reservoir is expected to continue to be the primary source of supply of natural gas for the economy until the “Leviathan”, “Karish”, and “Tanin” reservoirs will be connected.  The initiation of gas production from the “Leviathan” reservoir (Stage 1A) is planned for year-end 2019, and the beginning of gas production from the “Karish” reservoir is planned for the first quarter of 2021.  Thus, the total supply of natural gas that will be available to the Israeli economy from local sources will equal 26 BCM per year starting in the beginning of 2021 (10 BCM from “Tamar” plus 12 BCM from “Leviathan”, and 4 BCM from “Karish”).
     
  • The main macro-economic effect of the initiation of natural gas production from the “Leviathan” reservoir, together with the continued deployment of the national gas distribution network, involves a reduction in the import of energy products into the country.  This reduction is expected to lead to a decline in the country’s trade deficit and consequently is likely to support an increase in the current account of the balance of payments (towards 2020), representing a fundamental factor supporting the strength of the shekel.  Furthermore, this development is expected to make a positive contribution to GDP growth, on a one-time basis with the drop in the amount of imports.
     
  • The OECD estimates that the effect of the initiation of gas production from the “Leviathan” reservoir on the Israeli economy is expected to be more moderate compared to the effect of the “Tamar” reservoir, this in light of the limited domestic demand for natural gas, which is supplied mostly by the “Tamar” reservoir.  The expected contribution to Israel's GDP, according to the OECD, is approximately 0.3% of GDP, compared to 1.1% of GDP (in the years 2013-2014) caused by the initiation of gas production from the “Tamar” reservoir.  Looking forward, it was noted that the main opportunity to increase the contribution to GDP over the longer-term is via an increase in natural gas exports.  Therefore, it is very important for policy makers to continue to encourage the development of the natural gas sector in Israel.
     
  • Expansion in the use of natural gas in the local economy is dependent on the investment of tens of billions of dollars in areas such as:  the completion of the deployment of the gas distribution network, the conversion of certain vehicles to fueling with natural gas, the creation of production facilities using natural gas and renewable energy facilities, the connection of industrial factories and other customers to the gas distribution network, and more.  Financing for the investment projects noted will apparently come in part from grants and incentives from the Israeli government, and also from foreign financial institutions and from the local financial system.

 

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