Israeli Energy Minister Silvan Shalom has put a number on the natural gas windfall, predicting the newfound resource will save the nation as much as $1 billion a month by 2015, and that starting a sovereign wealth fund for the revenue will help limit gains by the shekel.
In an interview with Bloomberg News this week, Shalom said, “We have already cut our energy expenses by about $300 million a month. This will bring a huge improvement to the economy because gas will be much cheaper.”
The yield on Israel’s benchmark 10-year bond has fallen about 24 basis points since the end of March, when production at the Tamar field off the Mediterranean coast began. Combined with the much bigger Leviathan, scheduled to come on line in 2016, the two deposits are expected to meet nearly all domestic demand for 25 years, with plenty left over for export, according to government estimates.
The creation of an Israeli sovereign wealth fund for gas revenue will help the government manage currency-market expectations, said Eugene Kandel, head of the National Economic Council.
Gas production is already strengthening the nation’s current-account balance by as much as $3 billion this year, according to the Bank of Israel. For every $1 billion improvement in the current account, the shekel appreciates about 1 percent, the bank’s estimates show.
Some experts think Shalom’s forecast is premature.
“While Israel will save considerably by exporting rather than importing its energy resources, projections of $1 billion a month in savings are still quite a few years out,” said Daniel Hewitt, an economist at Barclays Plc in London.
Houston-based Noble Energy Inc. owns about 40 percent of the gas fields. The biggest Israeli stakeholder is Netanyah-based Delek Group Ltd.
Shalom said he isn’t concerned that the gas find will further strengthen the shekel because Israel’s sovereign wealth fund will mitigate the impact.
“We are taking the Dutch disease very seriously,” said Shalom. “We will bring the money in, invest it overseas and use the interest for income.”
The term “Dutch disease” describes a surge in revenue from new natural gas fields in the Netherlands during the 1960s that triggered a currency gain and eroded earnings for other exporters.