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Natural gas discovery: 2010's most underestimated story

The New York Times reports good news for Israel:

Exploratory drilling off Israel’s northern coast this week has confirmed the existence of a major natural gas field — one of the world’s largest offshore gas finds of the past decade…

As I wrote in the past, this story has not garnered the attention it merits. The natural gas find could finance a huge improvement in public services, which have been seriously underfunded in recent years, with disastrous consequences. Alternatively, it could make the wealthiest people in Israel – already one of the Western world’s most unequal nations – even richer.

The Newspaper of Record describes how “the find has been accompanied by a heated debate over how much in taxes and royalties Israel will charge.” A “debate” indeed. In favor of a higher share for the state, you have every Israeli group advocating for social justice, plus the famous socialists from the IMF, the OECD, Israel’s Treasury Ministry and the governor of the Bank of Israel, Stanley Fischer. On the other side, you have, well, the natural gas tycoons themselves.

What the NYT does not report, is that these tycoons have recently been boosted by a nasty nationalist scare-mongering campaign. MK Ofir Akounis (Likud), chair of the Economics Committee, bizarrely implied [Heb] that the New Israel Fund (a non-profit that channels funds from abroad to a variety of Israeli social and human rights organizations) wants to increase the royalties, so that foreign investors would be driven away to Lebanon, thus strengthening Hizbullah. Others have pointed to Iran as the benefactor of the Bank of Israel’s largesse.

This should be a no-brainer. A public commission, headed by a respected economist, will soon recommend increasing the taxes on natural gas profits. Note, that the taxes will be levied on profits, not income, so there is no risk that gas production will become economically unviable, only less exorbitantly profitable. And it would only bring Israel in line with other Western countries, in terms of royalties and taxes on natural resources. Right now, it ranks at the very bottom.

With natural gas lobbyists using every dirty trick in the book, and appealing to Israelis’ worst instincts, you never know. Let’s hope 2011 is a year in which good sense and basic decency prevails, on this issue as well as others.

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    1. Danya

      I saw the bizarre billboards (or newspaper ads) stating that the New Israel Funds wants Arab gas suppliers to control Israel. Who pays for these ads? Who are Israel’s main gas suppliers today?

      Reply to Comment
    2. Roi Maor

      @Danya – no one knows who paid for those ads. The natural gas tychoons claimed they were not involved, but there is no way to know. All that is known is that the group that signed those ads has very little record of public activity – except for those ads.

      Israel’s main gas suppliers today are Egypt (through a coporation called EMG, co-owned by an Israeli businessman) and an existing Israeli natural gas field. However, if the finds are exploited, Israeli will become a natural gas exporter.

      Reply to Comment
    3. Ben Israel

      The fact is that vast reserves of natural resources like minerals, oil and natural gas often prove to be detriment to the country that has them. They make people lazy, the rulers corrupt and inefficient. Look at the PEMEX oil company of Mexico. It has evolved into a mafia of corrupt labor unions and a source of patronage for the gov’t. Mexico gets something like 1/3 (please correct me if I am wrong) of its national revenues from oil which gives tremendous room for corruption. As Roi pointed out, it causes increased social friction and division. There are also serious environmental problems stemming from this.
      What if Israel had discovered significant quantities of oil in the 1950’s. A MAPAI-dominated Israel Oil Company would have been formed and much of the revenue from the oil would have disappeared and MAPAI would have been in a position to entrench their regime even more than it was for 29 years.
      NOT having oil in the past saved Israel from ending up like Mexico.
      Look at Britain, they have a lot of oil yet they have serious economic problems. Norway has a lot of oil, too, but they have one of the lowest standards of living in the European Union. Oil and Gas are very mixed blessings. Let us hope that Israel will use it wisely.

      Reply to Comment
    4. Roi Maor

      Norway (which is not a member of the European Union, but of the European Economic Area) is no. 1 in the UN’s Human Development Index for 2010. It is also third or fourth place in the world in terms of GDP per capita – higher than the US! Certainly far higher than any European country (except for tiny Luxembourg and Lichtenstein).

      The UK’s oil reserves were pretty limited, especially in relation to the size of its economy. They have also mishandled the issue, precisely what the advocates for reform of natural resources policy are tying to avoid.

      Reply to Comment
    5. Ben Israel

      The information I got about Norway was based on an extensive article in the New York Time a couple of years ago. Yes, Norway has a high level of social welfare benefits, but they pointed out that the standard of living is quite low by EU standards. That does not contradict the facts you bring about their GDP. Japan was like that also, a very “rich” nation with a very high GDP where the people had a relatively low standard of living. In Norway they said, for instance, that restaurants are extremely expensive, a glass of beer cost several dollars, a pizza cost something like 3 or 4 times what they cost in Israel. They said school libraries were badly underdfunded, gasoline was very expensive (!?) so people bicycled a lot, took the bus to work, etc. On the other hand, their socialized medecine system was maybe the best in the world. Thus, we see that what is done with the money makes a big difference. It does not provide a free ride for any length of time.

      Reply to Comment