CEO of Epsilon Mutual Fund says that Tamar natural gas field will contribute NIS 12 billion to Israel’s economy in 2013 alone.
By Eran Azran | Dec.12, 2012

The Tamar natural gas field could contribute as much as NIS 12 billion to Israel’s gross domestic product in 2013, considerably more than the NIS 6 billion to NIS 8 billion estimated by the Bank of Israel and the Organization for Economic Cooperation and Development, according to Idan Azoulay, CEO of Epsilon Mutual Funds.

Azoulay predicted that 2013 will be a turning point for the energy market.

“That will be the first year in which the gas discoveries start becoming a major factor for Israel’s economy, and the sector’s influence will escalate in the years to come,” he explained.

“In surveying forecasts for the upcoming year, one gets the feeling that the extent of the energy sector’s looming impact on the local economy hasn’t been fully assimilated in macroeconomic analysis circles,” he said.

Gas, which was discovered in the Tamar license area in 2009, is expected to begin flowing in April 2013. Azoulay thinks gas revenues will add about 1.5 percent to Israel’s NIS 790 billion GDP.

Where Azoulay said his forecast differs from others is by taking into account gas production’s indirect contribution to the economy through anticipated energy cost savings. Using gas to produce power cuts fuel costs by two-thirds compared with petroleum, he explained.

“In monetary terms, this means NIS 9 billion to NIS 10 billion in savings in 2013,” Azoulay said. “This will at least double by 2017. Since national accounting subtracts the cost of imports from GDP, the contribution from reducing imports can reach about 1% of GDP.”

In addition to a reduction in dependence on imported oil, more taxes will flow into government coffers due to a surge in expected profits by energy-consuming concerns that switch to using gas, Azoulay noted.

“At a rough estimate, the boost to tax revenues could reach NIS 1 billion within three years,” he said.

This is in addition to expected government revenues from direct taxation on gas production of NIS 0.8 billion to NIS 1.6 billion a year.

The boost in GDP and the reduced need to import fuel should also lower government debt service costs, Azoulay said. This would be similar to what Norway experienced in the decades following its discovery of oil. The government could issue debt at lower interest, driving down yields on its long-term bonds.

The boost to the economy, however, will likely be mitigated by a strengthening of the shekel against the dollar due to reduced oil imports. This would impact exporters, whose revenues are measured in dollars, Azoulay noted.

“Since exports account for 40 percent of Israel’s output, the shekel’s appreciation could lower GDP by 1 percent,” he said, adding that it’s difficult to determine at what point the rise in the shekel’s value would become evident.

But the main fear is a rise in the “sense of wealth” that could overtake the country and lead to an easing of fiscal restraint, he warned.

“Norway is an excellent example for optimal utilization of energy discoveries,” Azoulay said. “But on the other end of the spectrum, there are many countries where the discovery of resources benefited only a handful of individuals. As in any business, the most important thing is how the proceeds are managed.”