No more gas from Egypt? Modeling offshore discoveries and import uncertainty of natural gas in Israel

Israel depends on natural gas imports from Egypt for about 40% of its domestic needs with the remaining from domestic production. Gas supplies from Egypt have been erratic since their initiation: disruptions have increased since the 2011 revolution in Egypt and have also been ignited by public discontent. Despite these developments, Israeli policy makers have viewed the gas deal with Egypt as a positive factor in preserving peace with Egypt and have had no better alternatives than relying upon Egyptian gas. This has changed, however, after recent discoveries of three major offshore fields that are expected to satisfy domestic demand for an indefinite period and to provide gas for exports. We use an extended global CGE modeling framework that incorporates multiple households and endowment ownership to investigate the effects of reduced gas imports from Egypt by shocking the price as well as the evolvement of domestic gas production as an alternative. In case of reduced gas imports from Egypt, the Israeli economy would retract by 0.2% mainly due to changes in energy intensive sectors and rich Jewish households would be negatively affected the most. In case of increasing domestic gas production, the economy would grow by 0.3% and rich Jewish households would be positively affected the most due to their high share of capital income.