Posted tagged ‘gas’

Happy days for Israel’s economy

November 9, 2010

What would you do if you woke up in the morning and saw that somebody was offering you US$16 billion – give or take a billion?

Well that is the estimated direct benefit to the Israeli economy years from new energy reserves – around 2 billion shekels per year for the next 25 or 30 years.

It has been established beyond doubt that just off Israel’s shores are commercial supplies of gas. There may even be some oil as well. The government appointed Sheshinski Committee on the future tax structure of these finds is about to report.

The politicians and the groups of vested interest will work out the final details – taxes, dividends and the rest. But the bottom line is lots of extra income for the Finance Ministry. And of course, there will be knock-on effects – new side industries, employment, exports, etc etc.

What to do with this extra cash? Some quick calculations in the newspaper Yediot point to several options:

  • 0.5% reduction in VAT
  • 3 new hospitals
  • A train line from Ashkelon to Beersheba

And what else was in today’s newspaper. 1.7 million citizens now officially live below the poverty line, roughly 23% of the population. Of these, about 50% are children.

Now let’s think again what to do with that money.

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Israel: a long term investment prospect

May 11, 2010

In June 2010, Israel will become a full member of the OECD. Prime Minister, Netanyahu, led the self-congratulations.

For the proverbial average person in the street, nothing has changed. There will be no bonus in next month’s wage packet. Unemployment will not dip a percentage point overnight. However, for the foreign investor, a thundering wake up call has gone out from the Holy Land. So what really is the news?

In the past few months, there have been several discussions on the financial newswires about Israel – its use of innovation and a centre for economic growth. Even during last week’s Greek crisis, Israeli financial markets reacted with relative calm. A catch phrase in recent years is that Israel has discovered the path to economic stability despite diplomatic and military strife – elements that normally restrict any country’s development.

It is relatively easy to sing Israel’s praises; the excellent reputation of the central bank under Stnaley Fischer, the successes in communications and cleantech, the number of patents or even nobel prize winners per capita. However, over the next 3 to 5 years, it seems that some key fundamentals of the Israeli economy and its financial markets are about to undergo a significant overhaul for the better.

Yes, joining the OECD will expose Israel to new lines of credit and on better terms. In addition, more international tenders will be available for bids from Israeli companies. Israel’s credit rating should improve. It can be assumed that together, these moves will allow the government to finance more public sector projects without increasing the budget deficit.

Nice, but not amazingly wowish on its own.

Now add in factor number two: The Tel Aviv Stock Exchange is about to be accepted as a member of the leading group of international share centres. Over time, it is expected that this will ensure a greater interest than before in Israeli shares, which converts into more jobs, better infrastructure, exports, and other economic benefits.

The icing on the cake is the energy sector. Over the coming decade, Israel will cease to import natural gas. It is conceivable that the reserves are high enough to allow for exports. (It is too early to talk about new oil reserves). The off-shore drillings will decisively alter Israel’s balance of payments, again releasing resources to other sectors such as education and health.

Even volcanic ash should not stop  wave of new investors visiting Jerusalem and Tel Aviv in the immediate future.

Gambling on Israeli energy shares

February 3, 2010

Does Israel own commercial quantities of black gold? And so I asked a few days back.

Since then, the potential energy reserves seemingly continue to grow exponentially by the second. The latest gas revelations could be worth up to US$6 billion, give or take a million.

Nevertheless, I wonder. With all this modern tech, why were none of these finds discovered years ago? And is there a true justification for the price rises in energy shares?

Matters were not helped when it was revealed today that the shares of  Delek Real Estate Ltd. (TASE: DLKR) are at the centre of a suspected scandal.

As usual, when a share market is running wild with speculation, caution is in short supply. And with no lack of irony, I received an e-mail earlier today from a long-time oil industry analyst. To quote with their permission:

The costs and expenses (of exploration) go quickly into millions. That is assuming things go well. Then if you actually find oil or gas, you have to make sure the quantities are worth it for production! Right now, a lot of speculators are making a lot of money on hype and they are making sure part of the money they raise goes into their pockets and keep the developments as slow and stretched out as possible…

The fact is that it always been like this in petroleum and gold. There are phases. First there is the rush. Then the reality quickly requires structure of all kinds. Then there is need for further investments and then comes production. Usually a major comes in when the smaller companies have done the footwork. Every phase washes out a lot of the companies. It is a very tough business and you really need a tight team with petroleum investors who understand exploration, otherwise it is pure gambling.

For all of Israel’s competitiveness in Cleantech, it lacks significant energy reserves. If only half of the supposed finds are converted into reality, the country’s economy will benefit in a major way. Let us hope that there will not be too many desolate speculators along the way.

Black gold in Israel?

January 25, 2010

There is an old joke in Israel. When Moses wanted to enter in to the promised land, he pointed the children of Israel towards the West and not the to the East. He chose Mount Moriah over oil. Imagine how the world geopolitical map would have looked if it had been otherwise.

For decades, people have been looking for fuel reserves in Israel. In commercial terms, zilch, nothing; but the commentary has filled out many lines of the newspapers. Is that all about to change?

It is almost a year to the day, when large quantities of gas were discovered off the coast of Haifa. Due to reach the consumer in a further 2-3 years and with potential export orders on the cards, this find alone will substantially alter Israel’s balance of payments.

In parallel, the past year has seen a string of reports about potential oil finds. Each time, the region is a different one, pointing to an alternative geological base. The most recent discovery focuses on land north of the Dead Sea. It also involves the Delek Group, which is leading the gas development near Haifa

Other reserves under consideration include a site near Rosh Ha’ayin, east of Tel Aviv, and on the Carmel mountain, close to Haifa. Although Israel’s total annual need is around 80m barrels, barely 0.1% of world consumption, none of the finds have proven conclusive.

Shares in local energy companies, such as Avner and Zerach, have catapulted hundreds of percentage points since early 2009. Some warn that this is a bubble

The fact is that significant gas reserves seem a real possibility. That gives real belief to hope that oil will be found. In any event, Israel’s economic development will shoot forward. The questions are how fast and how will the change be managed?

And the immediate moral? Time for others to re-examine what made Moses such a great leader.

Why Israel’s economy is doing well

November 1, 2009

Look for articles on the web about Israel’s economy, and you will find little to choose from. As Britain wallows in recession and the rest of Europe is gleeful at a few meagre micro points of growth, Israel is plodding along nicely.

For five consecutive years, Israel recorded excellent export led growth – about 5% annually – and this achieved despite wars in Gaza and in Lebanon. Israel has been one of the first countries to emerge from the global recession.  I am involved in preparing two courses for manages of new businesses.

There are several reasons for this continuous success. Israel has had some very able macro managers. Bibi Netanyahu was considered a successful Finance Minister, even by his local political opponents. And the current governor of the Bank of Israel, Stanley Fisher, has a brilliant track record in international banking.

On another level, Israel’s industrial growth has been in the right place at the right time.  Amdocs, Teva, Nice and others are world leaders in the various branches of high tech.  Several Jerusalem-based companies are driving the revolution in solar technology. And significant gas reserves have been discovered off the coast, which will lead to a major improvement in the country’s balance of payments.

On a third level, demographic factors are providing the economy with a potent consumption boom.  Elah Alkalay describes this as a “feel good factor”.  Comparing Israel’s position to OECD averages, she writes: –

The fact that Israel has more children, fewer single-parent families, more women with university degrees, and more woman apparently in joining the workforce (assuming that it is possible infer this from these data), it presumably contributes to Israel economic soundness and the domestic growth engine.

Problems? As with the previous 61 years, the geopolitical outlook remains uncertain. The shekel is too strong for the country’s exporters. A sickening “politically correct” economic boycott is finding a home in parts of Northern Europe.

For all that, what remains clear, Israel’s current economic position is stable and solid growth can be predicted for the medium term.

Israel’s economy – future prospects

February 25, 2009

A stream of bad economic data has been released in Jerusalem in the past few days. GDP shrank by 0.5% in 4Q08. 18% fewer tourist nights were recorded in January 09 compared to 12 months previously. Intel announced a sharp drop in exports.

The Economist Intelligence Unit recently updated its predictions for 2009. The current forecast highlights a 1.9% real drop in global GDP. Taking the USA as an example, it explained that:

The US economy is in freefall. The 3.8% contraction in fourth-quarter GDP was the worst showing since the opening months of 1982, when the economy contracted by more than 6%. Business spending dropped by a stunning 19.1% at an annual rate in the three months to December.

So Israel is better placed? Well, I have long argued that Israel entered the recession with numerous structural positives, which are still true today. Naturally, that does not make the country immune, especially when the political system is neutered due to post-election coalition gamesmanship.

There is one stunning major bonus, clearly identifiable on the horizon. About a month ago, commercial quantities of gas were discovered in the Tamar field just off Israel’s coastline. This week, two hugely important pieces of information were released to the press.

First, it is very likely that the find is larger than initially thought. Second, spurred on by the American partner, Noble, the gas will brought to the market within 3 years, and not 5 as originally thought.

The knock on effect here – increased revenue for the treasury, employment, export possibilities, etc – will have a substantial and positive effect on the Israeli economy.

The Economist concluded its report with a “subdued outlook for the global economy in 2011- 2013”. Israel has a chance to be a special exception to that forecast.

Israel and Gaza – gas economies

January 19, 2009

The Gaza war may have cost Israel around US$3b, but the economy has not collapsed. And yesterday, it was announced that commercial quantities of gas have been found off the coast of Haifa. It could be enough to meet Israel’s needs for decades, as well as help to further a greener energy policy.

So what’s the connection to the Gaza economy?

Step back. Since 1993 and the Oslo Accords, the Palestinian economy has been bolstered by overseas support, particularly from Europe. On average, 25% of the revenue of the Palestinian Authority has come from taxpayers from overseas governments. Although the World Bank has called this the largest support per capita of a population since World War II, there has been little effective accountability and transparency.

The Gaza economy in particular is heavily dependent on agriculture and the public sctor. Unfortunately, the quality greenhouses left behind after the Israeli evacuation in 2005 were soon ruined and became training grounds for military recruits.

Interestingly, despite opposition from the World Bank and Hamas’s animosity with Fatah, it is the civil service payroll that has risen significantly in the past two years. How?  Dr Rachel Ehrenfeld, an expert on the funding in international terror, provides some answers. She notes that:

Despite Fatah-Hamas disagreements, the Palestinian Authority’s Fatah-led government announced on Jan. 15, 2008, its intentions to give Hamas 40% ($3.1 billion) of the $7.4 billion pledged in December 2007 by international donors. In October 2008, despite the crackdown on Fatah members in Gaza, the Palestinian Authority was paying the salaries of 77,000 “employees.” In December 2008, under U.S. and international pressure, Israel delivered between $64 million and $77 million in cash to Gaza.

In the past 2 weeks, Gulf States and UNRWA have promised around US$200m to repair Gaza. Yes, it is needed, desperately so. But will all the money go the the proper destinations? Given past experiences, that must be doubted.

There is an alternative to this economic waste. Step forward and recall what is now known about new gas fields near Haifa. In the summer of 2007, British Gas tried to reach an agreement with the Palestinian Authority to develop proven gas reserves in Gaza. The value to the local economy could be at least US$1 billion.

Since then, Hamas has invested in drilling and digging ……..tunnels, tunnels that smuggle weapons and contraband in order to satisfy their hatred against their enemies.