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Natural gas Report.

Israel is actively striving to diversify the sources of energy by the introduction of natural gas as a primary, environmentally friendly, and cheaper energy than other forms of energy. Natural gas is a mixture of gases, whose major constituent is methane (CH4). The gas is lighter than air and therefore evaporates when emitted. In order to construct a transportation infrastructure a national outline plan, NOP 37, was prepared, including its derivatives.

The major players in the natural gas industry are:
1. The natural gas authority

The Natural Gas Authority was established in accordance with the Natural Gas Industry Law, 2002. The Natural Gas Authority is the regulatory body of the industry. The tasks of the authority are as follows: Supervision of license holders, approval of engineering specifications for the purpose of awarding building permits, approval of tariffs, coordination of the staff work in the Ministry of National Infrastructures regarding natural gas, providing entry permits to land for license holders, publication of tenders and preparation of licenses, formulation of a transportation agreement for all consumers, setting up arrangements and determination of fees for connection of consumers to the transportation system. 2. License holders Transportation license for Israel Natural Gas Lines Ltd. The company, that is fully owned (100%) by the government of Israel, received in August 2004 a license for the construction and operation of the transportation system. The company transports gas to all high pressure gas consumers (above 16 bar) and to low pressure consumers who consume more than 2000 m3/hour and 0.12 billion cubic meters per year. The company may not engage in the sale of natural gas (except for operational needs). The sea section (about 90 km) between Ashdod and Tel Aviv/ Hadera/ Dor was constructed with the financing and at the responsibility of Israel Electric. In the Ashdod/ Tel Aviv section gas is already flowing, and the company will receive the section Tel Aviv/ Dor in the first half of 2007. The connection to the Hagit power station is under construction under the responsibility of Israel Electric. The section Ashdod/ Gezer power station/ Kiryat Gat/ Ashkelon has been completed and will begin operation in the coming months. The section from Kiryat Gat southwards is under construction and will be completed by the end of 2007. The northern section, Hagit power station/ Tel Kashish/ Haifa/ Alon Tavor will be completed by the end of 2008. The company is striving to connect the industries zones located near the gas pipe line, such as Ramat Hovav and Mishor Rotem. Holders of distribution licenses (pressure up to 16 bar)

In accordance with section 102 of the Gas Law, that permits an existing company to continue to work, a license was given to Magal for the distribution of

gas in the Arad region. Regional distribution licenses: The natural Gas Authority conducted a comprehensive survey of the potential consumers of natural gas in the industrial and services sectors, and decided to divide the country into 5 licensing regions. The authority issued at the end of 2005 an initial tender for providing distribution licenses for the Ashdod/ Ashkelon region, and in December 2006 the winner was chosen. The Authority intends to issue tenders for all the other distribution regions during 2007.

Transportation licenses for suppliers of natural gas

In accordance with section 10 of the Natural Gas Industry Law, a supplier's transportation license was given to the Yam Tetis Group. The license is for the transportation system, including land handling facilities up to the point of connection to the transportation system. A transportation license in accordance with section 10 of the Gas Law was given in December 2006 also to a company owned by the Egyptian gas supplier for its installations within the territory of the State of Israel, up to the point of connection to the transportation system. The suppliers of gas to the State of Israel

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EMG gas suppliers from Egypt will commerce supplying gas at the beginning of 2008. They can supply up to 7 billion cubic meters per year. BG - Discussions are being held for the purchase of natural gas by Israel. Yam Tetis - Most of the stocks have been sold to Israel Electric and to additional consumers. LNG - Israel is evaluating the option of integrating the supplier, LNG, into the economy. Supply of gas from Turkey by a sea pipe line. This option is also being examined.

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