UBS: Oil could have impact

Finding oil could boost GDP growth, cause larger appreciation potential for shekel, require carefully managed sovereign-wealth fund.

By NADAV SHEMER
May 11, 2011 23:42
2 minute read.
Leviathan gas site.

Leviathan drill 521. (photo credit: Albatross)

 
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Although there is a low probability of finding sizable quantities of oil in Israeli waters, its discovery could have a bigger impact on the economy than recent discoveries of natural gas, global financial-services firm UBS said Wednesday.

“Our calculations suggest that, in the event of success, oil could potentially deliver a boost to GDP growth, the budget and the external balance that might potentially be even bigger than the impact from natural gas,” UBS analysts Roni Biron, Ziv Tal and Reinhard Cluse wrote in a report on the Israeli gas and oil sector.

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“This would also imply a larger appreciation potential for the shekel and an even greater requirement to manage the resulting macroeconomic challenges through a carefully managed sovereign-wealth fund,” they said, adding that the picture would become clearer after more meaningful results of geological tests on oil are released later in the year.

Regarding natural gas, they referred to recent acts of sabotage on the pipeline between Israel and Egypt.

“The exploration of its natural-gas resources has become a strategic priority for Israel, particularly given the political turmoil in the Middle East and North Africa, and specifically Egypt, which provides Israel with 40 percent of its gas-fired power needs and 20% of its electricity generation needs,” they wrote.

Two huge natural-gas reservoirs have been discovered off the northern coast of Israel in the past two years, and together they are the two biggest deep-water gas discoveries in the world in the past decade: Tamar, which measures in at 8.7 trillion cubic feet and which analysts believe will be used primarily for domestic consumption, and Leviathan, at 16 trillion cubic feet, which it is believed will turn Israel into a natural- gas exporter.

According to the UBS scenario, natural- gas exports from the Leviathan field will begin in 2017 at almost $3 billion per year, before rising to almost $6b. in 2020. This would correspond to revenues of 0.7%-0.8% of gross domestic product in 2017-2019 and 1.3%-0.7% of GDP in 2020- 2030, the analysts said. The decline in the decade beginning 2020 would be due to the fact that export revenues would remain constant as GDP rises.

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