Prospects for offshore gas boom propels Israeli sharemarket

ISRAELI stocks are surging, bolstered by prospects that domestic gas output will start next year.

By InvestSMART · 24 Dec 2012

By InvestSMART ·
24 Dec 2012

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ISRAELI stocks are surging, bolstered by prospects that domestic gas output will start next year.

The benchmark TA-25 index on the Tel Aviv stock exchange is poised for a 12 per cent annual rally after two listed energy producers, Isramco Negev 2 and the Delek Group, surged by more than 24 per cent on forecasts that enough natural gas has been found to supply Israel's needs for 150 years.

Earlier this month, the finance ministry raised its forecast for economic growth next year from 3 per cent to 3.5 per cent to include the effect of natural gas discoveries, with the offshore Tamar field expected to start production by the second quarter.

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

Israeli natural gas companies, working with the US firm Noble Energy, are examining plans to develop the Leviathan gas field, 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 boost this year from banking stocks. Bank Hapoalim, the country's second-largest lender and the most heavily-weighted stock on the benchmark index, has gained 35 per cent after falling by 33 per cent last year. Bank Leumi Le-Israel, the largest lender, has gained 21 per cent.

The shares had rallied after falling to "ridiculously low valuations", the head of international sales at Psagot Investment House in Tel Aviv, Zach Herzog, said last week.

Israel's biggest mobile telephone companies, Cellcom and Partner, led the losers, as new wireless entrants forced the incumbent providers to lower their prices to keep customers.

The emergence of low-cost mobile providers in Israel may reduce Cellcom's sales this year by 15 per cent to $US1.5 billion, estimates compiled by Bloomberg show. Partner's sales this year are expected to be down by 25 per cent to $US1.47 billion.

Check Point Software Technologies, a security networks maker, has lost 10 per cent this year.

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Frequently Asked Questions about this Article…

What is driving the recent surge in the Israeli share market?

The surge is largely driven by prospects that domestic natural gas output will start next year, boosting energy producers and overall economic expectations. The TA-25 index has been lifted by strong gains in gas-related stocks after large discoveries and clearer production timelines.

Which Israeli energy companies have benefited from the offshore gas discoveries?

Listed energy producers such as Isramco Negev 2 and the Delek Group saw big gains (each surged more than 24%) on forecasts that enough gas has been found to supply Israel's needs for about 150 years. Companies involved with the Tamar and Leviathan fields are central to the optimism.

When is the Tamar offshore gas field expected to start production and how does that affect investors?

The Tamar field is expected to start production by the second quarter of next year. That timeline helped lift investor confidence and was one reason the finance ministry raised next year's growth forecast, which in turn supported Israeli stocks.

What is the Leviathan gas field and who is investing in it?

Leviathan is a very large offshore gas find that Israeli firms and US partner Noble Energy are examining for development. Australia’s Woodside Petroleum confirmed it would invest up to US$1.3 billion to take a 30% stake in the Leviathan project.

How have Israeli banks performed amid the market rally?

Banking stocks gave the TA-25 a boost: Bank Hapoalim gained about 35% this year after a steep fall last year, and Bank Leumi gained about 21%. Analysts noted some of the gains followed a recovery from previously 'ridiculously low valuations.'

Which sectors or companies have been weak despite the overall rally?

Telecom incumbents have been weaker. Israel’s biggest mobile companies, Cellcom and Partner, led the losers as new low-cost wireless entrants forced price cuts. Check Point Software Technologies also lost about 10% this year.

How are competition and price pressure affecting Cellcom and Partner?

The arrival of low-cost mobile providers pushed incumbent carriers to lower prices to retain customers. Bloomberg estimates compiled in the article suggested Cellcom’s sales could fall about 15% to roughly US$1.5 billion and Partner’s sales could be down about 25% to around US$1.47 billion this year.

Could Israel export gas and how might that influence the economy and stock market?

Yes — Israel is considering exporting a portion of the gas to help finance development projects. The expectation of production and potential exports has already prompted the finance ministry to raise next year’s growth forecast, which has supported stock market gains.