Report says offshore gas "a huge opportunity" for IsraelNews // December 13, 2011
Within a decade, tens of billions of cubic metres of natural gas will be being produced along Israel's Mediterranean coast, according to a new report.
The resulting "bonanza" could lead to an annual increase in GDP of more than 2 per cent -- but also a rise in the shekel to levels that could endanger Israel's export success.
In a new report, "Structuring Israel's Sovereign Investment Fund: Financing the Nation's Future," the Milken Institute explores the policies necessary to turn a temporary resource boom into a lasting national advantage.
"Israel has a unique opportunity to transform a sudden and temporary bounty of natural resource wealth from its offshore natural gas discoveries into an intergenerational endowment - an investment fund that will strengthen national economic security by insuring against risks of natural, geopolitical, or economic catastrophes while investing in Israel's most important resource - its human capital," said Glenn Yago, one of the report's authors and Senior Director of the Milken Institute Israel Center.
"Our report is a roadmap for policy makers on how they can most effectively accomplish this, as well as the pitfalls for them to watch out for."
Last January, Prime Minister Benjamin Netanyahu and Bank of Israel Governor Stanley Fischer called for Israel to create a sovereign fund to manage the anticipated billions in revenues derived from the development of natural gas resources.
The report is based on a Milken Institute Financial Innovation Lab held earlier this year, conducted at the request of Israel's National Economic Council in conjunction with the Bank of Israel and the Ministry of Finance.
Participants included Karnit Flug, Deputy Governor of the Bank of Israel; Eugene Kandel, head of the Israel National Economic Council; Haim Shani, Director General of Israel's Ministry of Finance; Eran Heimer, Senior Deputy Accountant General of the Ministry of Finance, and other experts from the private and public sectors.
Even before the anticipated natural gas revenues begin, Israel possesses considerable financial resources that argue for a national investment fund, with more than US$70 billion in existing foreign exchange.
The energy bounty from the offshore Tamar and Leviathan gas fields alone will add to that considerably: when they reach full output, the fields should generate more than 20 billion cubic meters (BCM) of natural gas each year.
If the government of Israel enacts policies to allow for exportation, processing and gas-related industry production, Israel could be ready to export at least 10 BCM annually within a decade.
This could raise the country's trade surplus by one-third, or approximately US$2 billion, which in turn could add considerable pressure for currency appreciation.