Bank of Israel: State Revenues From Tamar, Leviathan Half Previous Forecast

The fight over the approval of the natural gas regulatory framework in Israel is getting hotter. During the last two days, former and current top government and regulatory bodies' officials gave testimonies in front of the Knesset's (Parliament's) economic committee. And while former officials claimed the framework is flawed, officials that are still in office, supported the framework even if sometimes hesitant to do so.

Karnit Flug, the Governess of the Bank of Israel, supported the framework. She warned that gas from Tamar field will be in short supply; hence the central bank was supporting the implementation of the framework as a way to increase gas supply and energy security. She also warned that, even if the framework is approved, it will be at least four years before natural gas from Leviathan will flow to Israeli shores. Therefore, she said, the energy security of the country will be compromised for a least another four years. In order to shorten that period, she said the government has to find a solution by laying a second pipeline from Tamar gas field to Israel's shores.

Despite Mrs. Flug support for framework, she supplied ammunition to its opponents, particularly in financial and fiscal aspects of the framework. She said that during the lifetime of the gas fields their taxation will be 47%-54% less than what proponents of the framework claim at more than 60%, and according to various calculations above 70%. Mrs. Flug estimated the state's revenues from the natural gas industry for the next few decades will be in the region of $70 billion, according to calculations based of gas prices of $4.5-$6.7 million British Thermal Units (MMbtu), though the actual amount is dependent on actual prices. In the past, the Bank of Israel estimated government revenue from those projects at $126 billion.

Mrs. Flug also said if the framework will not create competition in the natural gas market and the entrepreneurs won't fulfil their obligations, then the framework will be aborted and the state will have to look at other solutions, including price control. When she was told by one of the MPs that in the framework there are no sanctions against entrepreneurs who don't (or won't) fulfill their part in the bargain, she responded by saying that in such a case, the state will be legally better positioned.

The governess also said that if the gas producers concerned can't find enough customers to secure financing for the gas fields' development, the government will have to step in and provide financial guarantees.

In another testimony, the former Chief Economist at the Finance Ministry claimed that extensive gas exports will be a huge mistake that will cause damages in billions of dollars to the public coffers. "If we are to export 400 bcm [billion cubic metres], as is proposed in the framework, we will lose," said Dr. Michael Sarel. "The future damage to the public will amount to many billions of dollars, in comparison to an alternative scenario in which exports either will be banned or limited to 200 bcm." Israel has estimated natural gas reserves of less than 1,000 bcm. However Dr. Sarel is still supporting the framework but in a less extreme version.

The current Budget Director at the Financial Ministry, Amir Levi, estimated in his testimony that the damage to the state if the reservoirs aren't developed at $1.8 billion in 3 years. He said that during the lifetime of the Leviathan field, the government revenues will amount to $70 billion. He also said that if the energy companies do not fulfil their commitments, the government will be able to impose price controls.

The economic committee will end its hearings on 10 December and is supposed to publish its findings, conclusions and decisions a few days later. The committee's opinion has no binding legal status, and therefore, cannot stop the Economy Minister, currently also the Prime Minister, Benjamin Netanyahu, from signing article 52 into the antitrust law, which will bring the saga to a close.

Ya'acov Zalel