Israel’s take from its natural gas reserves over the next three decades will be far less than earlier predicted and may reach just $58 billion (220 billion shekels at current exchange rates), according to an internal Finance Ministry forecast obtained by TheMarker.
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The estimate, which is the most conservative of the recent treasury projections, would be less than half the amount then-Bank of Israel governor Stanley Fisher estimated in 2013, which put the amount at $126.2 billion (440 billion shekels).
Revenues between now and 2018, which Fischer had said would reach $2.9 billion, will probably be just $1 billion, the treasury forecast said.
Others had put the estimated government take as even higher. Adi Brander, the head of the central bank’s economics division, had said it could reach 590 billion shekels, while the National Economic Council put it at 430 billion shekels.
Prime Minister Benjamin Netanyahu offered an estimate of 600 billion shekels a month ago. “Of every one billion shekels of income from the gas fields, 600 million shekels will go to the welfare, health and education of Israel’s citizens,” he told a meeting of the Likud Knesset faction.
But the estimates for the government take are based on the 2011 Oil Profits Law, popularly known as the Sheshinski law for the committee chairman, Prof. Eytan Sheshinski, that devised the formula. Since then, however, as part of the controversial gas framework compromise with Israel’s energy companies, the government has offered a package of tax concessions and benefits.
Unlike the early projections, the internal Finance Ministry forecast includes not only the windfall taxes in the Sheshinski law, which set rates of 20% to 50%, but all royalties and revenues from ordinary corporate income tax.
The treasury said the government take of profits from the Tamar field would be significantly lower – about 40% of all income from Tamar, not counting individual tax. That is down from the 52% rate envisioned by the Sheshinski law and the 48% estimated after the Tamar partners were awarded tax breaks, including individual tax.
As a result, the treasury estimates that tax revenues from Tamar will amount to $22 billion through 2036.
Regarding the much bigger Leviathan field, the government will receive an estimated $38 billion in revenues from when it begins production through 2045, which amounts to a take of just 30%.
The treasury forecast doesn’t explain the gap between its forecast for Leviathan and earlier projections. However, TheMarker has learned that treasury studies – even the ones concluding that the government’s take will be higher than the $58 billion figure – have concluded that earlier forecasts are no longer relevant.
Nevertheless, more generous estimates put the government take at just $92.8 billion. They assume the state’s share will not exceed 50% of profits.
One reason for the lower take is that the global price of natural gas has declined, which has cut sharply into profits from exports and into the energy companies’ tax liability. A second reason is that estimated reserves of gas have proven to be more modest by a significant amount. Much uncertainty remains about proven reserves and production.
The third reason is that the development of the Leviathan field and smaller satellite fields has been delayed – in part due to the controversy surrounding the gas framework accord. Finally, the costs of extracting the gas from Leviathan are proving to be higher than originally forecast, which will in turn reduce taxable profits.
Moreover, the estimates are based on prices of $5.40 per million British thermal units, while export revenues and profits are based on a price of $6 per million BTUs. The $5.40 rate is the ceiling price now set in the framework agreement with the gas cartel, but with the framework still awaiting approval and public pressure to cut the price, that may yet change.
The treasury forecast also assumes that Leviathan will only begin production in the middle of 2020, a year after the framework deadline. It also assumes that reserves at Leviathan will prove to be 560 billion cubic meters, less than the 610 billion the government is expecting.