Natural Gas: A Big Win For Israel And Its Producers

By Aaron Levitt | April 02, 2013 AAA

Israel, which is most known for its prowess in the technology sector is quickly becoming the place du jour for oil and gas investors. The unconventional drilling revolution has kicked off a series of major discoveries both onshore and off in the little Middle Eastern nation. The latest of which, began flowing energy this past weekend.

For investors, Israel’s offshore natural gas wealth could be a game changer for the country as well as the nation’s partners in producing that energy.

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Tamar & Leviathan
Once energy poor, Israel is expected to become a gas exporter by the end of the decade as some of the biggest natural gas finds in history begin to produce energy. Natural gas from Israel's offshore Tamar field began to flow into the country's energy grid this past weekend after two years of gas shortages. That field- which is located roughly 90 kilometers off Israel's northern coast- has an estimated 10 trillion cubic feet of natural gas. That’s roughly enough reserves for Israel to meet its own needs for decades.

However, the nation has had more natural gas discoveries in recent years.

Back in 2010, the larger Leviathan field was first unearthed. This field boasts an estimated 16 to 18 trillion cubic feet of gas and has been considered of the one of the world’s largest offshore gas finds in nearly a decade. Overall, the Leviathan is expected to go online in 2016. These two fields, plus the Dalit, are just a portion of the huge reserves that lie in the Levant Basin. According to the United States Geological Survey (USGS) this region in the Mediterranean holds an estimated 122 trillion cubic feet of recoverable natural gas and roughly 1.7 billion barrels of crude oil.

With the potential from the Levant Basin right in its back yard, Israel is quickly moving on the path to energy independence.

The newly started natural gas flows from Tamar field is expected to contribute about 1% to Israel’s gross domestic product (GDP). Including the contribution from gas, the Bank of Israel is now forecasting that the economy will grow 3.8% this year. The Bank of Israel also expects natural gas production to improve the nation’s current-account balance by as much as $3 billion this year. Additionally, the Israeli government expects to save $274 million each month on costs related to importing energy.

SEE: Oil And Gas Industry Primer

Great News Equals A Great Investment
Given that the Tamar filed is having such a profound impact on Israel’s economy, extrapolating what will occur when the Leviathan begins pumping out natural gas is certainly game changing for the small nation. As such, investors may want consider playing Israel’s future. While it’s not without its risks- it is the Middle East after all- the rewards could be great.

Potentially, the best play could lie in the broad iShares MSCI Israel Index ETF (NYSE:EIS). Energy only accounts for roughly 5% of the fund- with top holdings including Teva Pharmaceutical (Nasdaq:TEVA) and software firm NICE Systems (Nasdaq:NICE). However, the GDP boost from tapping these resources and potentially exporting them down the road could do wonders for its economy. That will trickle down to other sectors of the economy and strengthen Israel’s position as a powerhouse in the Middle East. The ETF –along with the closed-end Aberdeen Israel Fund (NYSE:ISL) -could be winners in the long term.

Also a big winner in the long term is oil and gas producer Noble Energy (NYSE:NBL). Noble Energy has been operating in offshore Israel since 1998 and the firm holds the largest stakes in the Leviathan and Tamar fields. More importantly, the firm continues to prospect in the region and has continued to add acreage and exploration blocks.

While it currently isn’t as cheap as some of its other independent competitors like Apache (NYSE:APA) or Anadarko (NYSE:APC), Noble still has plenty of room to run as these fields in Israel really begin pumping out production. For investors, shares of the firm could be equally as good of a bet as Israel’s entire economy.

SEE: A Guide To Investing In Oil Markets

The Bottom Line

While it’s a tech powerhouse, the natural gas game is quickly changing Israel’s economy for the good. The recent prolific discoveries and new production will be a game changer for its economy. Investors should follow suite into the nation either through a broad Israel fund or Noble Energy.

At the time of writing, Aaron Levitt did not own any shares in any company mentioned in this article.

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