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An Israeli government committee is expected to propose a tax on natural gas production of up to about 55%, a rate energy companies claim will cost them billions of dollars and discourage production.
Israel’s production of natural gas is set to soar in coming years following the discovery of the Tamar and Leviathan fields, which could make the country an energy exporter.
Israeli media reported today that a Finance Ministry committee was likely to recommend a progressive tax rate of 20% to 55% on natural gas production, slightly lower than an initially discussed range of 20% to 60%.
Energy companies oppose the new tax and their stock prices have fallen on investor fears the levy would hurt their profits and could put gas production at risk.
The advisory panel made clear in an interim report in November that it sees plenty of room to increase the government’s share of revenues from the energy sector, which relative to other Western countries remains low.
The government takes about 30% of revenues from the country’s single existing gas field in a combination of taxes and royalties.
Two new fields, in Israel’s offshore play, are set to boost the sector significantly and together could generate up to $4 billion in annual revenue for Israel, officials said.
Tamar, which was discovered by a group led by US player Noble Energy and Israel’s Delek Energy in 2009, has estimated reserves of 8.4 trillion cubic feet.
Last week the partners confirmed that another new discovery, the nearby Leviathan field, was twice as big.
Finance Minister Yuval Steinitz says Israel should be allowed to raise its share of natural gas revenues, as many other Western countries have done in recent years and has dismissed energy companies’ protests.
However, the government panel is expected to recommend delaying collecting full taxes from the Tamar field by a few years to help accelerate gas production.
The Finance Ministry panel in November said it favoured adding a progressive tax ranging from 20% to 60%, depending on production yields. Companies would only pay the tax after recouping 50% of their investment. The levy would apply to larger gas fields after eight years, and to smaller fields after 15 years.
Energy companies said they have spent years exploring in Israel and its territorial waters and that any change would constitute a breach of contract and scare off future investors.
One full-page advertisement in a major newspaper recently called on Prime Minister Benjamin Netanyahu, a champion of tax reductions, to “wake up” and intervene on energy companies’ behalf.
“The country must make the right decision and exclude the Tamar and Leviathan discoveries from the committee’s recommendations, whatever they are,” Delek’s chief executive Gideon Tadmor told Army Radio today.
“Only such a decision will allow for the investment of the billions of shekels necessary.”
Any final decision on a tax will require parliamentary approval.
Tamar, which lies 90 kilometres offshore, is due on stream in 2013. Output will be sold domestically.
Leviathan, which is due to on stream in 2017, is farther out to sea and has reserves worth $95 billion in total, analysts said
