Israeli stocks burn bright on gas

ISRAELI stocks are outperforming as prospects that domestic gas output will start in 2013 bolster energy producers listed in Tel Aviv.

By InvestSMART · 24 Dec 2012

By InvestSMART ·
24 Dec 2012

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ISRAELI stocks are outperforming as prospects that domestic gas output will start in 2013 bolster energy producers listed in Tel Aviv.

The benchmark TA-25 is poised for a 12 per cent annual rally as Isramco Negev 2 LP and Delek Group surged more than 24 per cent on forecasts that enough natural gas has been found to supply Israel's needs for 150 years.

This month the Finance Ministry raised its forecast for Israel's economic growth in 2013 to 3.5 per cent from 3 per cent to include the effect of natural gas discoveries, with the offshore Tamar field set to start production by the second quarter next year.

"The gas companies performed quite well this year as there was more clarity on production," Ori Licht, the head of research at IBI-Israel Brokerage and Investments, said last week.

Israeli natural gas companies working with Houston-based Noble Energy are examining plans to develop the Leviathan gasfield, the world's largest find of its kind in a decade before 2010.

Israel is considering exporting a portion of the gas to finance the projects.

Three weeks ago Woodside Petroleum confirmed it would make Australia's largest foreign direct investment into Israel, committing up to $US1.3 billion to take 30 per cent of the Leviathan field.

The TA-25 also got a lift in 2012 from banking stocks, which aren't part of the Bloomberg Israel-US Equity Index (ISRA25BN) of the largest Israeli companies traded in New York.

Bank Hapoalim, the second-largest lender and the most heavily weighted stock on the benchmark index, has gained 35 per cent in 2012 after dropping 33 per cent in 2011.

Bank Leumi Le-Israel, the nation's largest lender, has advanced 21 per cent.

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Frequently Asked Questions about this Article…

Why are Israeli stocks outperforming right now?

Israeli stocks have been outperforming largely because prospects for domestic natural gas output — including production starting in 2013 — have boosted energy producers listed in Tel Aviv. Expectations about new gas supplies and related investment lifted the benchmark TA-25 and helped several energy and banking stocks rally.

How have natural gas discoveries affected Israel's 2013 economic growth forecast?

The Finance Ministry raised its growth forecast for 2013 to 3.5% from 3.0% to reflect the economic impact of natural gas discoveries. The offshore Tamar field, expected to begin production by the second quarter of 2013, was a key factor in that revision.

Which energy companies surged on gas discovery news?

Isramco Negev 2 LP and Delek Group both surged more than 24% on forecasts that enough natural gas has been found to meet Israel's needs for decades. Broadly, Israeli natural gas companies working with partners like Noble Energy also saw increased investor interest.

What is the Tamar field and when is production expected to start?

The Tamar field is an offshore natural gas field off Israel's coast. According to the article, Tamar was set to start production by the second quarter of 2013, and that start date helped fuel investor optimism about domestic gas supply.

What is the Leviathan gasfield and which international companies are involved?

Leviathan is described as the world's largest gas find of its kind in a decade. Israeli gas companies working with Houston-based Noble Energy have been examining development plans, and Woodside Petroleum committed up to US$1.3 billion to take a 30% stake in Leviathan.

Is Israel planning to export gas and why would it do that?

Yes — Israel is considering exporting a portion of the discovered gas. The article notes exports are being considered as a way to help finance the development projects for fields like Leviathan.

How did Israeli bank stocks perform and are they included in the US-traded Israeli index?

Bank Hapoalim gained about 35% in 2012 after dropping 33% in 2011, and Bank Leumi advanced 21% in 2012. The article also notes that banking stocks helped lift the TA-25 but are not part of the Bloomberg Israel–US Equity Index (ISRA25BN) of the largest Israeli companies traded in New York.

What is the TA-25 index outlook and what drove its recent gains?

The TA-25 was said to be poised for a roughly 12% annual rally, driven mainly by strong performance in energy stocks on clearer production prospects and by gains in domestic banking stocks that boosted the benchmark in 2012.