Israel Should Export Half Its Natural Gas, Government Panel Recommends

Inter-ministerial committee, tasked with establishing official policy on gas, proposes increasing the amount of gas available to the economy by 7%.

Israel will allow energy companies to export 57% of the country's natural gas while ensuring that reserves equivalent to 25 years of domestic use are set aside for the local economy, a draft report of the Tzemach committee obtained by TheMarker recommends.

The inter-ministerial committee, tasked with establishing official policy on gas, proposes increasing the amount of gas available to the economy by 7%, to 450 billion cubic meters, compared with its own interim recommendation.

But the panel retreated from an earlier demand that the energy companies keep an operational capacity of 15% of the gas reserves.

"The central question the committee deliberated was how and by how much can we limit the ability of the rights holders to export our natural gas resources," the committee said, adding that it was working on the assumption that there is a need to export.

The committee said its proposals gave precedence to the needs of the Israeli economy in what it said is a "balanced" way and do nothing to "hurt in any unrestrained way" the value of the reserves.

Israel faces critical choices about the immense gas reserves that have been found off its Mediterranean coast, with pressure from the developers, led by the Texas company Noble Energy, to export energy, while others are urging the country to preserve its energy resources for domestic use. Meanwhile, the economy faces a severe gas shortage as Egyptian supplies have been cut while Israel's biggest fields don't go on line until next year. The Tzemach committee said the current shortage would not be fully alleviated until 2016.

Yesterday, Environmental Protection Minister Gilad Erdan told TheMarker he wants to delay any decision on exports for three years. But the committee shot back against postponing critical decisions.

"Unclear government policy makes it impossible for the [natural gas] developers to make the necessary decisions and get the financing they need to develop the reserves, which causes uncertainty alo" the panel said.

"The price of uncertainty is delay, underperformance, and even the cancellation of planned operations in the gas industry," it said.

The panel cited the example of the Leviathan field, Israel's largest to date. A one-year delay in its going on line would lead to lost income totaling $400 million to $700 million.

The Tzemach committee was formed in October 2011 to formulate natural gas policy. Headed by Energy and Water Resources director general Shaul Tzemach, the panel examined the energy policy of 12 other global gas producers. Most of the 12 place no limits on gas exports, the committee noted, but in many cases the government itself was directly involved in energy production and therefore needed to declare energy policy.

"Countries that chose to severely limit the ability to export, without considering the economic implications, are characterized by less developed energy sectors, and a slowdown, or even a halt to, exploration activities and the loss of potential revenues to the state," it said.

The committee estimated that Israel's domestic gas needs would reach 450 billion cubic meters over the next 25 years, up from 420 billion in the interim report of last April. Justifying its decision to set aside 25 years of gas for domestic use, the committee said that increasing the time span would discourage investment in gas. However, the Gas Authority, recently said gas needs would reach 500 billion cubic meters in that period.

Israel now has some 800 billion cubic meters of gas to exploit, including its Leviathan, Tamar, Tanin, Shimshon and Dolphin fields, although not all have been proven to be commercially exploitable. The committee accepted an estimate made by an outside group that another 680 billion cubic meters of gas can be found offshore Israel's coast. Of that, some 150 billion has a 90% chance of being commercially exploited.

If that is the case, there are 950 billion cubic meters of gas that can be utilized by Israel, of which 500 billion will be designated for export, the panel recommended.