How much do the Gas Producing companies in Israel Earn?

Tamar

The average price of gas in Israel is $5.60 per mmbtu, lower than in the rest of the world. Before the cabinet meeting, Minister of National Infrastructure, Energy, and Water Yuval Steinitz showed a graph displaying the price of natural gas for electricity producers and industry in 34 Organization for Economic Cooperation and Development (OECD) member countries. Based on figures from the IHS International consultant firm, the graph shows that only three of the 34 have lower gas prices than Israel. While the price of gas for electricity producers is $18 per mmbtu in Switzerland and $6.13 in Iceland, the price in Israel is $5.80 per mmbtu.

Does the relatively low price mean that consumers in Israel should thank their lucky stars and keep their peace? From the gas companies’ perspective, the answer is yes. “When considering which countries to operate in, one of the main things that international gas companies look at is the price they can get for the gas,” a senior gas company executive asserted.” “Obviously, they also look at the gas reserves, their quality, and the regional geopolitics, but if a company can get $14 in France and $19 in Japan, why should it come to Israel?”

At the same time, the fact that the price of gas in Israel is lower than in the rest of the world is because gas was found in Israel. While Europe and Japan have to import gas and pay the cost of transporting it (and sometimes also liquefying and gassifying it), all Israel has to do is pipe it a few dozen kilometers from the Tamar reservoir to shore and consume it. The right question is therefore whether the state is getting its fair share of the gas profits.

Regular costs and development costs

According to the gas companies’ reports, the average regular production cost is $0.50 per mmbtu. This cost, however, does not include the cost of developing the Tamar reservoir included in the price paid by the gas consumer. The development costs for the Tamar reservoir to date have totaled $4 billion, and future investments in development are expected to total $2 billion more. If you divide the total cost by the total number of mmbtu in Tamar, the cost of development per mmbtu is $0.60.

The state’s share

The state’s share of the gas profits is 40% to 60%, or logically in the middle. The state’s share of the gas profits is derived from three elements: 12% royalties on revenue from the sale of gas at the wellhead, an excess profits tax, which the gas companies pay after they have made back 150% of their expenses (in order to encourage rapid development of the Tamar reservoir), and a 26% corporate tax, also on profits.

What the oil companies are left with?

If you deduct the total operating and development cost and the state’s share from the gas price, the developers are left with $2 per mmbtu. As in any estimate, here, too, the calculation can move 10% in either direction. Is the distribution reasonable? If you look at Egypt, it appears that the answer is yes. In the new gas contracts signed by Egypt with gas companies ENI, BG, and Edison in recent months, it was willing to recognize a price of $5.88 per mmbtu. $1 of this price is considered the gas companies’ expenses. The $4.88 profit is divided between the private gas companies (40%) and Egyptian national gas company Egas (60%). The private gas companies do not pay taxes in Egypt; Egas pays the tax for them. In the end, the developers are left with $1.95 per mmbtu.

Source: Israeli Media