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E&Y: Tamar And Leviathan Gas Fields Worth $52 Billion To Israel

E&Y Israel partner Shlomo Alfia estimates the savings at $42 billion and the government’s take at $10 billion in capitalization value.

Tamar,    The Natural Gas Production Platform Off The Israeli Coast,    Is To Begin It's Natural Gas Production

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The natural gas in the Tamar and Leviathan fields is worth $52 billion to the Israeli economy, says Ernst & Young Israel in a new report. The CPA firm will present the findings at a gas and energy conference in Tel Aviv next week. The Tamar gas field, which began production in April 2013, boosted Israel’s GDP by almost half a percentage point, and it is projected to boost GDP by 1.5 percentage points in 2014. Leviathan will begin supplying gas from 2017.

Ernst & Young Israel found that the main component of the gas’s value is not the government’s expected tax revenues from oil and gas, but the savings to the economy from the purchase of cheaper natural gas for electricity production, industry, and transportation. Gas currently costs Israel Electric Corporation (IEC) (TASE: ELEC.B22) $6.50 per million BTU, a third of the cost of the alternative fuels – diesel, industrial oil, and liquefied natural gas (LNG) – all of which are imported.

The switch to natural gas also affects the balance of payments and the shekel exchange rate. The Bank of Israel estimates that each $1 billion reduction in imports boosts the shekel by 1% against other currencies. E&Y Israel partner Shlomo Alfia estimates that Israel saves NIS 15 billion annually on the price differential between natural gas and other fuels. He estimates the capitalization value of the savings over the next 28 years (Tamar’s lifespan) at $42 billion. Such a large savings in manufacturing inputs should lower prices, improve competitiveness, and boost companies’ profits.

The second component is royalties and taxes on the gas suppliers’ excess profits, which Alfia estimates at $10 billion in capitalization value.

The study does not take into account other costs to the company, such as the need to invest NIS 3 billion in protecting offshore gas infrastructures by the Israel Navy. On the other hand, it also does not take into account environmental and other benefits, such as reduced greenhouse gas emissions and hazardous particles from the burning of coal, diesel, and industrial oil. The study also did not quantify higher tax revenues from the increase in companies’ profits and the economic benefit from the extra employment for the hundreds of employees of the gas suppliers and their service vendors.

The study estimates the value of the rights of Delek Group Ltd. (TASE:DLEKG), controlled by Yitzhak Tshuva,  Noble Energy Inc. (NYSE: NBL), and their partners in Tamar at $11-13 billion in capitalization value. A year, the value of the rights in Leviathan were estimated at $5 billion, on the basis of the purchase offer by Woodside Petroleum Ltd. (ASX: WPL). This week, “Globes” reported that Woodside has improved its offer, boosting Leviathan’s value.

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