05.07.2009

A specific area of a market place where a service can be provided at better quality and more cheaply by one company than by a number of competitive companies. In the energy sector electricity grids and natural gas transmission systems are usually natural monopolies. According to economic theory, a natural monopoly is just as bad for marketplace competition as a true monopoly, since a company with natural monopoly characteristics is eventually likely to take on all the characteristics of a true monopoly. The electricity transmission grid in Israel and the natural gas transmission system are both natural monopolies

The SEC prescribed a ratio for the barrel of oil equivalent (BOE) for natural gas of six thousand cubic feet (Mcf) per barrel of crude oil (Bbl). The 6:1 standard is based on thermal equivalence or gross heating values.To convert a thousand cubic feet (Mcf) of natural gas to barrels of oil equivalent (boe), divide by 6. For example, 600 Mcf = 100 Bbl.

Natural gas vehicles are either fueled exclusively with CNG or LNG (dedicated NGVs) or are capable of natural gas and gasoline fueling (bi-fuel NGVs). Natural gas can be used in the form of compressed natural gas (CNG) or liquefied natural gas (LNG) to fuel cars and trucks.

Dedicated natural gas vehicles (NGVs) are designed to run only on natural gas; bi-fuel NGVs have two separate fueling systems that enable the vehicle to use either natural gas or a conventional fuel (gasoline or diesel). In general, dedicated NGVs demonstrate better performance and have lower emissions than bi-fuel vehicles because their engines are optimized to run on natural gas. In addition, the vehicle does not have to carry two types of fuel, thereby increasing cargo capacity and reducing weight.

Compared with vehicles fueled with conventional diesel and gasoline, Natural gas vehicles burn less CO2, less NOX and less particulates.

The driving range of NGVs generally is less than that of comparable gasoline and diesel fueled vehicles because of the lower energy content of natural gas.

As per the Israeli Gas Law: a person who supplies natural gas intended for consumption in Israel and who brings it, by himself or via others, to a point of entry of the transmission system, including a holder of a lease who supplies gas as aforesaid. According to the Natural Gas Authority: private entities that transfer gas via a natural gas pipeline (whether Israeli or imported) or via an LNG receiving terminal on the Israeli coast and sell it to gas consumers and to marketers/shippers

A means of maintaining a reserve of natural gas to allow supply to match demand, either on a daily, level or a seasonal level. Stored gas helps protect downstream markets, to balance the system and to prevent supply interruptions.

Natural Gas Storage works on 3 different levels, with each level fulfilling a different role and usually requiring a different type of storage although some storage reservoirs can be used for all three purposes:

Daily or hourly storage: mostly for linepack purposes. This is very short time storage to meet daily peak consumption needs. Usually the storage is filled at night and used during day hours.

Monthly or seasonable storage: storage to meet periodical differences in demand with storage being filled during low consumption months and used during higher demand seasons

National or strategic storage: for large quantities of gas that can replace a natural gas supplier in time of need.

Storage is required in order to meet high seasonable demand for natural gas (i.e. during cold winter months in Europe and the US). Since the system works most efficiently with a constant flow throughout the year, gas is put into storage during lower summer demand periods to be used during peak times. Storage is also used for balancing purposes and/or in times of supply disruption. Heating demand for natural gas during winter in Europe and the US puts upward pressure on natural gas prices. The commercial use of gas storage played a critical role in mitigating the effects of the Ukraine-Russia row in January 2009. During normal first quarters of the year, storage is normally consumed at a rate of 2.5% a week. But in the second two weeks of January, when the gas dispute saw no gas flow from Russia to Europe via the Ukraine, the rate was 15%. However, it should also be recognized that storage will always have a finite duration of stock and deliverability per day. Experts believe that existing and new commercial storage is critical to guaranteeing security of supply, working alongside additional gas supply routes and LNG regasification facilities to secure energy supply. Currently, planned commercial storage projects in Europe total 60 bcm of new capacity by 2015.

the Natural Gas Sector law mainly deals with the transmission, distribution and marketing of natural gas in Israel. The Law enacted by the Knesset in 2002 to create conditions for the development of the natural gas sphere in Israel, via the private sector and to encourage competition in this sphere in accordance with government policy in the fields of economics and energy; To regulate activity in the natural gas sphere so as to enable investments in it and to provide services at appropriate levels of quality, credibility and availability, and taking into account considerations of efficiency. The law and its amendments determine the provisions regarding the storage, transmission, distribution and marketing of natural gas in Israel and determines that the construction and operation of the transmission system, of distribution networks, of an LNG facility, of a natural gas storage facility require a license to be granted by the MNI Minister. An unofficial translation of The Natural Gas Sector Law, Sefer Hachukim 5762-2002, was last updated in April 2008 and can be found on the MNI website

There are up to 5 different tariffs for Israel consumers of natural gas: the purchase price of the natural gas by the consumer from one of the natural gas producers/suppliers (see table below); the transmission tariff which is composed of the actual flow tariff in the transmission system + the capacity tariff in the transmission system, the one-time cost of linking up to the natural gas distribution network and the distribution tariff.