Increasing Leviathan Gas Exports: Potential Risks and Promising Economic Benefits for Israel

by | Jun 27, 2024 | Economy | 0 comments

In a major development, the oil commissioner at the Ministry of Energy has indicated that the Leviathan partnership could potentially export an additional 118 BCM (billion cubic meters) of natural gas, more than doubling current levels. While not an official export permit, this indication marks a pivotal step for the Leviathan partnership, comprising New Med (45.33%), Chevron (39.66%), and Ratio (15%). This prospect is expected to catalyse their investment plan of approximately $500 million, aiming to boost annual production to 21 BCM.

Currently, Leviathan’s annual production stands at 12 BCM. With ongoing infrastructure upgrades, this rate is projected to increase to 14 BCM next year. For Israel, this increase means allocating 15% of its proven reserves for exports, a decision with significant implications for the country’s energy security, economy, and geopolitical stance.

Economic Impact and Revenue Increase

This initiative comes at a crucial time, as Israel grapples with a growing deficit of 7.2%, surpassing the 6.6% target for the end of 2024. In 2023, gas royalties alone generated NIS 2 billion for the state. Doubling Leviathan’s production is expected to yield additional revenues in the billions of shekels, significantly aiding in deficit reduction.

Ratio CEO Yigal Landau emphasized the financial benefits for the state, noting that the reduced initial requirement for the export permit suggests potential for further increases. He highlighted the planned transportation routes for the gas: through EMG pipelines to Egypt, via Fajar to Jordan and then to Egypt, and the anticipated completion of the Nitsana pipeline. Landau estimates that the ramp-up to 21 BCM annually will conclude between 2028 and 2029.

Energy Security Concerns

However, this expansion raises concerns about Israel’s energy security. Initially, the Leviathan partnership sought approval for a 175 BCM export quota over 25 years, sufficient to recoup their investment. Ariel Paz-Svitsky, director of Lobby 99’s research department, warned that meeting this demand would necessitate Israel resuming gas imports by 2038.

The Ministry of Energy’s current stance extends Israel’s energy independence by four years, now projected until 2042. Paz-Svitsky cautioned against over-reliance on natural gas, citing Egypt’s experience with the Zohar reservoir, where excessive production led to malfunctions. Increased production rates heighten the risk of similar issues for Leviathan.

Despite these risks, expanding exports also enhances Israel’s energy resilience. For example, the Tamar reservoir’s production was halted for a month after the October 7 attack due to rocket threats from Gaza. This disruption, though significant, did not lead to shortages, thanks to the regulation of gas supplies from Leviathan to the local economy, compensating for the shortfall.

Geopolitical and Market Reactions

Leviathan’s target production rate of 21 BCM per year is substantial. In 2023, Israel’s total gas production was 24.7 BCM, divided between domestic consumption and exports. Such an increase would ensure surplus capacity, providing a buffer during emergencies or operational disruptions, thereby securing the local gas supply.

The stock market has responded positively to this development. Following the Ministry of Energy’s announcement, the Tel Aviv Oil and Gas Index rose by 2.6%, outpacing the Tel Aviv 35 and Tel Aviv 90 Indices. Leading this surge were Ratio and New Med Energy, with midday jumps of 7% and 6%, respectively.

Over the past six months, the Tel Aviv Oil and Gas Index has climbed 5.3%, compared to a 5.9% rise in the Tel Aviv 35 Index and a 4.5% drop in the Tel Aviv 90 Index. Notable contributors to this growth include Navitas, with a 44.7% increase, and significant gains by Tamar Petroleum and Tamar Energy 25% and 18% respectively.

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