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Israel Oil and Gas Report Q2 2011

Israel Oil and Gas Report Q2 2011

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Additional Information

Price	$530.00
Publisher	Business Monitor International
Date of Report	Apr 8, 2011

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Quick Overview

The latest Israel Oil & Gas Report from BMI forecasts that the country will account for 3.14% of Middle East (ME) regional oil demand by 2015, while making no appreciable contribution to rising oil supply. Middle East regional oil use rose to an estimated 7.4mn b/d in 2010. It should average 7.7mn b/d in 2011 and then climb to around 8.70mn b/d by 2015. Regional oil production was 22.83mn b/d in 2001 and averaged an estimated 24.90mn b/d in 2010. After an estimated 25.21mn b/d in 2011, it is set to rise to 27.24mn b/d by 2015. Oil exports are growing steadily, because demand growth is lagging the pace of supply expansion. In 2001, the region was exporting an average 17.85mn b/d. This total eased to an estimated 17.50mn b/d in 2010 and is forecast to reach 18.54mn b/d by 2015. Iraq has the greatest export growth potential, followed by Qatar.
In terms of natural gas, the region consumed an estimated 392bn cubic metres (bcm) in 2010, with demand of 482bcm targeted for 2015, representing 23.0% growth. Production of an estimated 467bcm in 2010 should reach 612bcm in 2015 (+31.0%), which implies net exports rising to 130bcm by the end of the period. Israel in 2010 consumed an estimated 0.69% of the region’s gas, with its market share forecast at 1.45% by 2015. It contributed 0.21% to estimated 2010 regional gas production and, by 2015, will account for 1.14% of supply.
The 2010 full-year outturn was US$77.45/bbl for OPEC crude, which delivered an average for North Sea Brent of US$80.34/bbl and for West Texas Intermediate (WTI) of US$79.61/bbl. The BMI price target of US$77 was reached thanks to the early onset of particularly cold weather, which drove up demand for and the price of heating oil during the closing weeks of the year.
We set our 2011 supply, demand and price forecasts in early January, targeting global oil demand growth of 1.53% and supply growth of 1.91%. With OECD inventories at the top of their five-year average range, we set a price forecast of US$80/bbl average for the OPEC basket in 2011. The unprecedented wave of popular uprisings in the Middle East and North Africa (MENA) that followed the removal of Tunisian President Ben Ali on January 14 has obviously fundamentally altered our outlook, particularly since the unrest spread to Libya in mid-February.
Taking into account the risk premium that has been added to crude prices in response to actual and perceived threats to supply, we have now raised our benchmark OPEC basket price forecast from US$80 to US$90/bbl for 2011 and from US$85 to US$95/bbl for 2012. Based on our expectations for differentials, this gives a forecast for Brent at US$94/bbl in 2011 and US$99/bbl in 2012. We have kept our long-term price assumption of US$90/bbl (OPEC basket) in place for the time being while we wait to see what path events in the MENA region take. We have also retained our existing supply and demand forecasts until the scheduled quarterly revision at the start of April.
Israel’s real GDP rose by an estimated 3.4% in 2010, with forecast average annual growth of 3.1% in 2010-2015. We expect oil demand to rise from an estimated 254,000b/d in 2010 to 273,000b/d in 2015, although the state would like to minimise dependency on imports and exploit fully the country’s growing gas resources. A lack of serious upstream oil prospects and limited international oil company (IOC) participation mean Israel is likely to continue importing virtually all the oil needed to supply its domestic refineries. Israeli gas production is set to rise dramatically, providing self-sufficiency and the longer-term potential for exports, thanks to the Tamar and Leviathan finds. Gas imports could be as high as 2.5bcm per annum by 2011/12, before easing as domestic production volumes rise.
Between 2010 and 2020, we are forecasting an increase in Israeli oil consumption of 16.1%, with demand rising steadily from an estimated 254,000b/d to 294,000b/d by the end of the 10-year forecast period. Refining capacity between 2010 and 2020 is set to increase by 59.1%, reaching 350,000b/d by 2020. Gas production is expected to climb from an estimated 1bcm to a potential 12bcm. With 2010-2020 demand growth of 270%, this provides an import requirement peaking at 2.5bcm in 2011/12, before being replaced by rising domestic supply. Details of the BMI 10-year forecasts can be found in the appendix to this report.
Israel now shares second place with Qatar in BMI’s composite Business Environment (BE) ratings, which combine upstream and downstream scores. The country holds fourth place in BMI’s updated upstream Business Environment ratings, in spite of the state’s limited upstream potential. Bahrain below has the medium-term potential to challenge for fourth place. Israel’s score benefits from the lack of state involvement in the upstream segment, the licensing terms and privatisation progress, plus a healthy country risk outlook. The overall score is dragged down by limited oil resources and growth prospects. Israel currently tops the league table in BMI’s updated downstream Business Environment rating, with a few high scores but limited potential to retain regional leadership over the longer term. It is five points ahead of Iran, thanks largely to excellent country risk factors that outweigh a modest showing in terms of oil/gas demand, oil demand growth and likely refining capacity expansion.

Table of Contents

Executive Summary ........................................................................................................................................ 7
SWOT Analysis ................................................................................................................................................ 9
Israel Political SWOT ........................................................................................................................................................................................... 9
Israel Economic SWOT ....................................................................................................................................................................................... 10
Israel Business Environment SWOT ................................................................................................................................................................... 10
Israel Energy Market Overview ..................................................................................................................... 11
Global Oil Market Outlook ............................................................................................................................. 13
Balancing Act .......................................................................................................................................................................................................... 13
Oil Price Forecasts .................................................................................................................................................................................................. 14
Table: Oil Price Forecasts .................................................................................................................................................................................. 15
Short-Term Demand Outlook ................................................................................................................................................................................... 15
Table: Global Oil Consumption (000b/d) ........................................................................................................................................................... 16
Short-Term Supply Outlook ..................................................................................................................................................................................... 17
Table: Global Oil Production (000b/d)............................................................................................................................................................... 18
Longer-Term Supply And Demand ........................................................................................................................................................................... 18
Regional Energy Market Overview ............................................................................................................... 20
Oil Supply And Demand ........................................................................................................................................................................................... 20
Table: Middle East Oil Consumption (000b/d) ................................................................................................................................................... 21
Table: Middle East Oil Production (000b/d) ...................................................................................................................................................... 22
Oil: Downstream ..................................................................................................................................................................................................... 23
Table: Middle East Oil Refining Capacity (000b/d) ............................................................................................................................................ 23
Gas Supply And Demand ......................................................................................................................................................................................... 24
Table: Middle East Gas Consumption (bcm) ...................................................................................................................................................... 24
Table: Middle East Gas Production (bcm) ......................................................................................................................................................... 24
Liquefied Natural Gas.............................................................................................................................................................................................. 25
Table: Middle East LNG Exports/(Imports) (bcm) .............................................................................................................................................. 25
Business Environment Ratings .................................................................................................................... 26
Middle East Region .................................................................................................................................................................................................. 26
Composite Scores ..................................................................................................................................................................................................... 26
Table: Regional Composite Business Environment Rating ................................................................................................................................. 26
Upstream Scores ...................................................................................................................................................................................................... 27
Table: Regional Upstream Business Environment Rating................................................................................................................................... 27
Israel Upstream Rating – Overview .................................................................................................................................................................... 27
Israel Upstream Rating – Rewards ..................................................................................................................................................................... 28
Israel Upstream Rating – Risks........................................................................................................................................................................... 28
Downstream Scores ................................................................................................................................................................................................. 29
Table: Regional Downstream Business Environment Rating ............................................................................................................................... 29
Israel Downstream Rating – Overview ............................................................................................................................................................... 29
Israel Downstream Rating – Rewards................................................................................................................................................................. 30
Israel Downstream Rating – Risks ...................................................................................................................................................................... 30
Business Environment ................................................................................................................................. 31
Legal Framework ..................................................................................................................................................................................................... 31
Infrastructure ........................................................................................................................................................................................................... 33
Labour Force ........................................................................................................................................................................................................... 34
Foreign Investment Policy ....................................................................................................................................................................................... 35
Tax Regime .............................................................................................................................................................................................................. 35
Security Risk ............................................................................................................................................................................................................ 36
Industry Forecast Scenario ........................................................................................................................... 38
Oil And Gas Reserves .............................................................................................................................................................................................. 38
Oil Supply And Demand ........................................................................................................................................................................................... 39
Gas Supply And Demand ......................................................................................................................................................................................... 39
LNG ......................................................................................................................................................................................................................... 40
Refining And Oil Products Trade ............................................................................................................................................................................. 40
Revenues/Import Costs............................................................................................................................................................................................. 41
Table: Israel Oil And Gas – Historical Data And Forecasts ............................................................................................................................... 41
Other Energy ........................................................................................................................................................................................................... 42
Table: Israel Other Energy – Historical Data And Forecasts............................................................................................................................. 42
Key Risks To BMI’s Forecast Scenario .................................................................................................................................................................... 42
Long-Term Oil And Gas Outlook ............................................................................................................................................................................. 42
Oil And Gas Infrastructure ............................................................................................................................ 44
Oil Refineries ........................................................................................................................................................................................................... 44
Oil Pipelines ............................................................................................................................................................................................................ 44
Gas Storage Facilities.............................................................................................................................................................................................. 44
Gas Pipelines ........................................................................................................................................................................................................... 44
Macroeconomic Outlook ............................................................................................................................... 45
Table: Israel – Economic Activity ....................................................................................................................................................................... 47
Competitive Landscape ................................................................................................................................ 48
Executive Summary .................................................................................................................................................................................................. 48
Table: Key Players – Israeli Oil And Gas Sector ................................................................................................................................................ 49
Overview/State Role ................................................................................................................................................................................................. 49
Government Policy ............................................................................................................................................................................................. 49
Licensing Rounds ..................................................................................................................................................................................................... 50
International Energy Relations ................................................................................................................................................................................ 50
Table: Key Downstream Players ........................................................................................................................................................................ 51
Company Monitor .......................................................................................................................................... 52
Noble Energy ........................................................................................................................................................................................................... 52
Oil Refineries Ltd – Summary ............................................................................................................................................................................. 56
Delek Group – Summary ..................................................................................................................................................................................... 56
Sonol – Summary ................................................................................................................................................................................................ 56
Paz – Summary ................................................................................................................................................................................................... 57
Zion Oil & Gas – Summary................................................................................................................................................................................. 57
Bontan Oil & Gas – Summary ............................................................................................................................................................................ 57
ATP Oil & Gas – Summary ................................................................................................................................................................................. 58
Others – Summary .............................................................................................................................................................................................. 58
Former IOC Partners – Summary ....................................................................................................................................................................... 58
Oil And Gas Outlook: Long-Term Forecasts ............................................................................................... 60
Regional Oil Demand .............................................................................................................................................................................................. 60
Table: Middle East Oil Consumption (000b/d) ................................................................................................................................................... 60
Regional Oil Supply ................................................................................................................................................................................................. 61
Table: Middle East Oil Production (000b/d) ...................................................................................................................................................... 61
Regional Refining Capacity ..................................................................................................................................................................................... 62
Table: Middle East Oil Refining Capacity (000b/d) ............................................................................................................................................ 62
Regional Gas Demand ............................................................................................................................................................................................. 63
Israel Oil & Gas Report Q2 2011
© Business Monitor International Ltd Page 5
Table: Middle East Gas Consumption (bcm) ...................................................................................................................................................... 63
Regional Gas Supply ................................................................................................................................................................................................ 64
Table: Middle East Gas Production (bcm) ......................................................................................................................................................... 64
Israel Country Overview .......................................................................................................................................................................................... 64
Methodology And Risks To Forecasts ...................................................................................................................................................................... 65
Glossary Of Terms ........................................................................................................................................ 66
Oil And Gas Ratings: Revised Methodology ............................................................................................... 67
Introduction ............................................................................................................................................................................................................. 67
Ratings Overview ..................................................................................................................................................................................................... 67
Table: BMI Oil And Gas Business Environment Ratings: Structure .................................................................................................................... 68
Indicators ................................................................................................................................................................................................................. 69
Table: BMI Oil And Gas Business Environment Upstream Ratings: Methodology .............................................................................................. 69
Table: BMI Oil And Gas Business Environment Downstream Ratings: Methodology ......................................................................................... 70
BMI Forecast Methodology ........................................................................................................................... 72
How We Generate Our Industry Forecasts .............................................................................................................................................................. 72
Energy Industry ....................................................................................................................................................................................................... 73
Cross checks ............................................................................................................................................................................................................ 73
Sources .................................................................................................................................................................................................................... 74