Israel to get billions in tax revenue from Egypt natural gas deal

Of the $15 billion, the Israeli government should get around 50% of the revenues according to one private energy consultant.

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February 20, 2018 20:28
2 minute read.
An offshore natural gas rig in the Mediterranean Sea

An offshore natural gas rig in the Mediterranean Sea. (photo credit: GUSTAV NACARINO / REUTERS)

With Monday’s announcement that the operators of Israel’s natural gas reservoirs will export $15 billion worth of fuel to Egypt, Israel could be set for an unexpected windfall.

Nearly two years after approval of the controversial government gas outline, the consortium managing Israel’s Tamar and Leviathan natural gas fields will pay back major proceeds to the public.

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Israel announces new agreement to export natural gas to Egypt, February 19, 2018. (GPO)

The companies operating Tamar and Leviathan – which include Israeli Delek Drilling and Texas-based Noble Energy, among other smaller partners – have signed decade-long contracts with Egyptian company Dolphinus Holdings.

Of the $15b., the Israeli government should get around 50% of the revenues, according to Miki Korner, a private energy consultant and former chief economist for the Natural Gas Authority.

As soon as one of the pipelines is activated – which could take a few years – operators of Israeli natural gas be getting around $1b.-$1.5b. annually, or between NIS 3.5b.-NIS 5b. The Finance Ministry will directly collect NIS 2b. to NIS 3b. a year.

The state gets to impose a 12.5% royalty on the revenue from natural gas. Income tax will take some 23% on the profit, Korner said, while the Sheshinski tax – or the excess revenue tax – ranges from 22 to 24%.

Some of the Sheshinski tax proceeds will go to Israel’s sovereign wealth fund. The Bank of Israel will be setting up the fund, according to Globes, and it will begin operating after the government collects at least NIS 1b. in revenue from the natural gas reservoirs and other natural resource depositories.

The companies managing Israel’s natural gas will sell some 7 billion cubic meters of gas annually to Egypt, with 64 billion cu.m. in total – barring major obstacles such as delayed pipeline installations.

Half of the gas will come from the Tamar reservoir – already up and running – and half will come from Leviathan – currently under development, with plans to begin operations in 2019. The deal still needs to be formally approved by regulators in both countries. And the total amount of gas being supplied comprises less than 10% of the reserves of either field.

The operators of Israeli natural gas reservoirs – notably Delek and Noble – will also soon be able to cover the capital expenditures from the Tamar gas field, Korner added, which has been up and running since 2016.

The deal with Egypt comes in addition to agreements signed in 2016 to supply neighboring Jordan with gas from the Leviathan field, in a 15-year contract with the Jordanian utility Nepco worth some $10b. A large pipeline to Jordan from Leviathan is currently being constructed.

With the news, Israel is now set to provide both Egypt and Jordan with natural gas, cementing ties with its two neighbors despite historically “cold” peace treaties.

The deal with Egypt is a sign of good relations, not necessarily a harbinger.

If anything, gas exports could create complications, with commercial disputes and supply problems possibly shadowing otherwise strong security cooperation between Israel and Egypt.


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