Israel: The Macroeconomic Benefits of Gas Discoveries

For over 65 years, Israel had been energy dependent relying on expensive energy imports to satisfy its domestic needs. The lack of energy security put Israel in a very precarious position. Things promised to change dramatically when substantial discoveries off Israel’s coast put the country on its path towards energy independence and possibly becoming a gas exporter. The Tamar reservoir, a discovery made by Noble Energy in 2009 and containing a gross resource estimate of 10 trillion cubic feet (Tcf), came online in April this year. Tamar contains enough gas to supply Israel’s domestic demand for decades. The Leviathan, twice as big as Tamar, is expected to come online in the next few years and will allow the country to become a net gas exporter. Noble Energy announced in March 2013 the results from its second Leviathan appraisal and estimated the gross mean resources of the field at 18 trillion cubic feet (Tcf). The estimate was later increased to 19 Tcf. 

The newly found gas will contribute tremendously in allowing the country to shift from expensive heavy-fuel products to a cleaner and cheaper energy source. Israel's vision to increase the share of natural gas in its energy portfolio started back in 2000. Natural gas constituted 16% of its energy portfolio by 2009. Today, 40% of Israel’s energy supply comes from natural gas. The proportional increase led to a reduction in CO2 emissions in the country and added 1% to Israel’s GDP this year.  

Geo-political obstacles might stand in the way: the maritime disputes in the region, the rapidly changing energy markets and the complicated export routes needed for Israel to export its gas. There is however no question that Israel will be better off with its hydrocarbon wealth than without it. Exporting the gas will generate billions of revenues, significantly boosting the economy.  

Drilling and exploration activities require a significant human capital. The employment market will benefit directly through oil and gas jobs and indirectly through the supply of goods and services to the industry. The market will see a decline in energy prices and enjoy a reliability of supply. Tax revenues will no doubt fill the state’s coffers with billions of shekels that could be allocated to finance domestic projects such as infrastructure, education, defense and health. Additionally, exporting the gas will create a substantial inflow of foreign exchange that will hedge an eventual fluctuation in the balance of payments. Israeli officials believe that revenues from the Tamar and Leviathan fields could reach up to USD 130 billion by 2040 (or 2% of the GDP). Improving the trade balance is also a major positive consequence not to be neglected: exporting the gas will increase the value of Israel’s exports. 

Israel is definitely convinced that the new riches will improve the shape of its economy on various levels. Debates on where to spend the money are already on-going. Some might say that it is burning the steps to discuss how to spend cash that has not yet been made at a time when Israel is still debating export quotas and the legitimacy of export decisions in front of the High Court of Justice. Export routes, markets and means are yet to be decided. The constantly changing energy markets and the complicated geopolitics of the region will certainly keep us interested for a while.  

Karen Ayat is an analyst focused on energy geopolitics in the Eastern Mediterranean.  Follow Karen on Twitter: @karenayat