Speculators wonder about Egypt gas supply

The turmoil in Egypt has spurred an unexpected boom in Israel's nascent energy sector, as investors bet that demand for locally produced natural gas will surge because of doubts about the stability of supplies from Egypt.

The latest stock frenzy follows months of excitement over the discovery of huge offshore natural gas deposits, driving energy shares to new highs - drawing warnings from regulators that a gold rush mentality could leave naive investors with painful losses.

Small investors are buying stock in small companies that could boom – or bust. That worries the professionals.

"No one likes" the speculative activity, Tel Aviv Stock Exchange CEO Ester Levanon said several weeks ago, while predicting the sector is "probably going to be volatile and very active in 2011."

"At the moment, there is the fear that there will be problems with incoming gas from Egypt," said Liat Glazer, an analyst at the Excellence-Nessuah investment house.

The local energy market is relatively new, providing an element of the gold rush atmosphere.

Six years ago, all of Israel's electricity was generated by imported coal and oil. Today, roughly half of the fuel Israel uses to generate power comes from natural gas, drawn in equal parts from Israeli sources and Egypt, which starting pumping to Israel in 2008 under a 15-year contract.

'Impact of Egyptian cutoff would be minimal'

Israeli officials say the flow of Egyptian gas has not been disrupted, but the deal with Israel is unpopular in Egypt. Speculators are trading on concerns that the contract might not survive the turmoil in Egypt.

Israeli officials say the impact of an Egyptian cutoff would be minimal, since the country could turn to other sources of fuel. They spoke on condition of anonymity because they were not authorized to discuss the matter.

Israel's long energy shortfall began to turn around in recent years with discovery of offshore gas deposits.

Two years ago, Noble Energy - the US-based company leading the exploration - announced deep-water finds that dwarfed earlier offshore discoveries. In December, it announced it had uncovered the world's biggest deep-water discovery in the past decade.

In all, Noble and its Israeli partners claim to be sitting on some 25 trillion cubic meters of deep-water gas - enough to keep Israel energy self-sufficient for decades. Gas could start flowing from one of the fields by late 2012, experts say.

Amit Mor, an Israel-based energy analyst, forecasts that by 2020, about 70% of Israel's electricity will be powered by natural gas.

The chaos in Egypt, which supplies roughly half of the natural gas that Israel currently uses, makes the dangers of relying on other sources all the more apparent.

The scope of the finds fueled a gas rush on the Tel Aviv Stock Exchange even before the new fears about the Egyptian gas supply arose, bringing in retail investors for the first time since a mid-1990s bubble burst.

Yaron Zer, an energy shares analyst with the Clal Finance investment house, says small investors make up the bulk of the trade in gas shares. While institutional investors are putting their money in big companies with demonstrated finds, the public is heading more for the speculative shares trading more on hopes than performance, he said.

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