Abstract
The natural gas revolution in Israel started about two decades ago. Its numerous social impacts include moving to cleaner energy, improving energy security and the balance of trade, tightening international relations, and increasing tax revenue. However, “Dutch disease” phenomena—where the accelerated export of natural gas leads to the strengthening of the local currency, the subsequent weakening of other exporting industries, and rising unemployment—might suck Israel into the economic slowdown. This study examines whether the strengthening of the New Israeli Shekel (ILS) in recent years is a symptom of “Dutch disease”. It is expected that the large-scale export of natural gas will start in 2021 with the development of the major offshore field “Leviathan”. Notably, ILS has been appreciating for several years already. We employed the event study approach to analyze the fluctuations of the daily ILS/USD real exchange rate in the years 2009–2017, combined with the media announcements related to the gas discoveries published during this period. The results revealed that gas-related news does affect the exchange rate and appreciate ILS. GARCH analysis confirms the results.
Highlights
The past recent years have seen tremendous turmoil in regional and global energy markets, with volatile oil prices, geopolitical tensions over oil and natural gas (NG) supply, and tightened environmental regulation.Up until recently, Israel was considered a resource-deprived country, especially with regard to fossil fuels
The present research investigated whether an investor can utilize this information and yield an abnormal return during the period following the publication of the announcement
We present the results of event study analyses for the entire sample and for different groups of announcements, as well as the GARCH(1,1) estimation, to examine how the exchange rate was influenced by subjective evaluations of investors
Summary
The past recent years have seen tremendous turmoil in regional and global energy markets, with volatile oil prices, geopolitical tensions over oil and natural gas (NG) supply, and tightened environmental regulation.Up until recently, Israel was considered a resource-deprived country, especially with regard to fossil fuels. Israel only had its first commercially recoverable discovery of fossil fuel in 1999, with natural gas discoveries at the Noa and Mari-B fields in the Mediterranean. These fields are collectively known as Yam Tetis [1]. On the advent of civil unrest in Egypt in 2011, the el-Arish-Ashkelon pipeline, which delivered NG to Israel, was repeatedly sabotaged, effectively bringing imports to a halt [2]. This supply disruption inflicted heavy economic and environmental burden due to the need to switch to costly oil-based fuels in its electricity generation
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