!

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January 26, 2014


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This report is provided for information purposes only, and does not constitute any
recommendation or advice for any purpose .
This report relies on publicly available information and other sources of information, including
information provided by Noble Energy Inc, Delek Drilling LP (Delek Drilling), Avner Oil
Exploration LP (Avner Oil, and together with Delek Drilling and each of their respective affiliates,
the Delek Parties) and/or Isramco and/or Dor (collectively, the Project Co-Sponsors), and
which Economic Models Ltd. believes is reliable, without any independent verification of said
reliability, unless specifically noted otherwise. The information provided in this report does not
purport to include all elements that a prospective investor may desire and thus does not replace
the need for a full analysis of all the facts and details appearing herein .
With regard to any use or reliance on this document by any party, Economic Models Ltd., nor any
persons acting on our behalf: (a) makes any warranty, expressed or implied, with respect to the
use of any information or methods disclosed in this report; or (b) assumes any liability with
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hereof for any liability, damages, expenses and losses of any nature caused by or resulting from
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Models Ltd. for certain claims regarding this report.
The economic forecast herein represents our understanding only and includes our forecasts of
the Israeli economy and electricity and gas markets therein. Different methods of estimating and
different assumptions are liable to lead to different results. The information contained herein is
subject to change and may be rendered irrelevant at any time .
Capital Market Models Ltd., an investment management company under the control of the
shareholders of Economic Models Ltd., is a portfolio manager and as such may hold, or currently
holds, or may purchase, publicly traded securities issued by the Project Co-Sponsors and/or
parent companies for various clients and/or mutual funds managed by it.




Prepared by Dr. Yacov Sheinin and Chen Herzog

,%-&# (. /(0)#0)1



1 METHODOLOGY 6
2 EXECUTIVE SUMMARY 12
2.1 CAS uLMAnu lC8LCAS1 SuMMA8? 13
2.2 nA1u8AL CAS uLMAnu CCML1l1lvL Lnvl8CnMLn1 22
2.3 uLMAnu lC8LCAS1 8? SLC1C8 26
3 ELECTRICITY DEMAND FORECAST 43
3.1 ln18CuuC1lCn 44
3.2 ln1L8nA1lCnAL CCMA8lSCn 48
3.3 LLLC18lCl1? uLMAnu lC8 uLSALlnA1lCn 38
3.4 uLMAnu lC8 LLLC18lCl1? ln 1PL ALLS1lnlAn LCCnCM? 60
3.3 uLMAnu SLnSl1lvl1? AnAL?SlS 61
4 ELECTRICITY SUPPLY FORECAST 64
4.1 ln18CuuC1lCn 63
4.2 CCAL 1C CAS CCnvL8SlCn 66
4.3 8C!LC1 u 69
4.4 LLLC18lCl1? SuL? 8? lS 70
4.3 LLLC18lCl1? SuL? 8? CCCLnL8A1lCn 71
4.6 8LnLWA8LL LnL8C? SuL? 72
4.7 lu1u8L nuCLLA8 LnL8C? 73
5 ISRAEL NATURAL GAS DEMAND FOR ELECTRICITY FORECAST 77
3.1 ln18CuuC1lCn 78
3.2 1PL uLMAnu lC8 nA1u8AL CAS 80
3.3 uLMAnu lC8 CAS lC8 CCCLnL8A1lCn 83
6 GAS DEMAND FOR CHEMICALS AND TRANSPORTATION 85
6.1 uLMAnu lC8 CAS lC8 18AnSC81A1lCn 86
6.2 uLMAnu lC8 CAS lC8 CPLMlCAL lnuuS18? 89
6.3 CLC8AL uLMAnu lC8 AMMCnlA 92
6.4 1PL MA8kL1 lC8 AMMCnlA ln lS8ALL 93
6.3 C1Ln1lAL 8CuuC1lCn Cl AMMCnlA ln lS8ALL 94
6.6 1PL CLC8AL ML1PAnCL MA8kL1 96
6.7 ML1PAnCL AS A 18AnSC81A1lCn luLL 98
6.8 1PL C1Ln1lAL lC8 ML1PAnCL ln lS8ALL 99
6.9 8CuuC1lCn Cl ML1PAnCL-8ASLu CLLllnS (M1C) 101
6.10 CAS 1C LlCuluS (C1L) 102
7 GAS DEMAND FOR EXPORT 104
7.1 !C8uAnlAn nA1u8AL CAS uLMAnu 103
7.2 lS8ALL'S LnC LxC81 AL1L8nA1lvLS 109
7.3 LnC LxC81 1P8CuCP LC?1'S LxlS1lnC 8C!LC1S 112
8 COMPETITIVE ENVIRONMENT 115
8.1 lS8ALL CAS 8LSL8vLS 116
8.2 CAS SuL? Anu uLMAnu 118
9. FORECAST TABLES 122



5





















Abbreviations used throughout this document:
IEC Israel Electric Corp.
IPP Independent Power Producers
LDC Low pressure gas distribution companies (distribution to small
commercial and industrial gas customers)
Cogen Cogeneration
Desal Desalination
PUA Public Utility Authority
FO Fuel Oil


1 Methodology

23 4#)5(6(&($7

7

Economic Models is a leading Israel macroeconomic research and economic
consulting firm. It is best known for its exclusive macroeconomic model and its
forecasts of fundamental economic indicators such as: GDP, employment,
foreign trade, investment and inflation.
The firm develops and maintains comprehensive models for various Israeli
industries, and provides detailed demand forecasts such as: energy, electricity,
communication services, cargo shipping, housing, and cement.
Projects include:
1. Over 20 years of providing long-term electricity demand model.
2. Long-term demand for fuels.
3. Economic analysis of IPP projects.
4. Analysis of desalination projects, and demand for desalination.
This analysis is based on Economic Models' long-term macroeconomic model
of the Israeli economy. In preparing this analysis we have incorporated only
official data and plans which were publicly published by IEC, the PUA and the
Ministry of Energy and Water Resources and the Central Bureau of Statistics
(CBS).









23 4#)5(6(&($7

8

Our detailed macro-economic forecast assumption is presented in a separate
presentation document. The following tables summarized the main
characteristics of our forecast.

Macro-Economic Forecast Summary
2013 2015 2020 2030 2040 CAGR
2013-40
Gross domestic product
(2012 NIS bills.)
1,026 1,074 1,300 1,906 2,782 3.8%
GDP per capita (2012 kNIS)
127.3 128.7 143.2 180.5 229.4 2.2%
Population (thousands)
8,056 8,348 9,076 10,560 12,125 1.5%
Households (thousands)
2,339 2,428 2,672 3,231 3,881 1.9%
Participation rate
63% 63% 63% 64% 64% 0.1%
Civilian labor force
(thousands)
3,654 3,761 4,080 4,901 5,758 1.7%


Average annual growth rate Cumulative
2013-
2015
2016-
2020
2021-
2025
2026-
2030
2031-
2035
2036-
2040
2013-2040
Gross domestic
product
2.3% 3.9% 3.9% 3.9% 3.8% 3.9% 171.2%
Government
consumption**
2.9% 3.4% 3.5% 3.9% 3.8% 3.8% 161.0%
Private
consumption
3.0% 3.9% 4.0% 4.1% 4.0% 4.0% 181.0%
Fixed investment 3.4% 6.1% 3.6% 3.5% 3.3% 3.2% 180.4%
GDP per capita 0.5% 2.2% 2.3% 2.4% 2.4% 2.4% 80.2%


23 4#)5(6(&($7

9

The charts below illustrate our methodology. Our demand model is based on
the bottom-up approach, including several main demand components:
a) Residential demand for electricity (private consumption), based on
demand models for main appliances, factoring penetration rates, usage
intensity and energy efficiency.
b) Demand by the government sectors, commerce and services, based on
our Israel macro-economic model.
c) Demand by the industry, based on our macro-economic model, factoring
in the relative energy intensity of various industries.
d) Demand for desalination and water pumping based on our
macroeconomic forecast and demand for water forecast
e) Palestinian demand currently included within Israel demand. We
assume that the Palestinians will shift to self-generation of electricity in
10 years (assuming normalization of the defense situation).

Our electricity demand model is based on a bottom-up approach, which
includes the effect of energy efficiency improvement, along with the effect of
increased penetration rates and usage of household appliance. The results
indicate convergence to demand levels in regions with comparable weather
such as the US "Sun Belt" States (see detail in chapter 3).
For natural gas demand estimate purpose, in this study we see the electricity
generation sector (IEC and IPP's) as a single demand source. Assuming similar
generation technologies, the demand for gas is not sensitive to the potential
market share of new entrants to the electricity generation sector (see chapter 4
below).
The explicit assumption is that all the increase in Israel's electricity supply
throughout 2040 will be generated by natural gas (except from renewable

23 4#)5(6(&($7

10

energies that may reach 10% of Israel's electricity supply, and nuclear power
stations that could be built in 2031 and beyond).

The main assumptions are outlined in the corresponding chapters through our
report.

Electricity Demand Model Methodology








23 4#)5(6(&($7

11


Natural Gas Demand Model Methodology




2 Executive Summary

8 9:#+;)*<# =;>>%?7

13

2.1 Gas Demand Forecast Summary
A. Background
The discovery of the Tamar and Leviathan natural gas fields provides Israel with
a unique opportunity to increase the use of natural gas as a relatively
inexpensive and ecologically sound energy source, while increasing Israel's
energy independence.
Israel's first gas discovery, Yam Tethys, started producing gas in 2004 and
initiated, together with gas that was imported by pipeline from Egypt, the
transformation of the Israeli electric sector from coal and oil to coal and natural
gas.
However, until the Tamar and Leviathan discoveries, Israel's gas supplies were
limited and Israel was dependent on gas import from Egypt for about 40% of its
supply. Since the Egyptian revolution in January 2011, Egypt has practically
stopped supplying gas to Israel. In April 2012, Egypt has announced the
cancellation of its gas export contracts to Israel.
Consequently, in 2011-12 Israel was in a temporary situation of gas shortage
which forced some of the electricity power units to move back to oil as a backup
fuel, at considerable cost. In April 2013, as the Tamar field began operation,
Israel shifted all its electricity oil production back to gas. The further discovery of
Leviathan along with Tamar provide the Israeli market with surplus gas supply
from local sources, without dependence on import.
The increased supply of natural gas worldwide, through the discovery of
unconventional shale gas reserves is expected to accelerate the development
of additional applications for natural gas, and Israel is well positioned to take
part in this revolution.

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14

Hence, according to our analysis, while the Tamar and Leviathan discoveries
increase the gas supply to the Israeli market, they also facilitate and promote
increased gas demand in Israel for applications that require a long and secure
horizon of gas supply.
Up to now, Israel's gas consumption was limited to fuel-oil and diesel
replacement in electricity generation and cogeneration facilities. As our analysis
shows, the availability of natural gas is expected to promote further demand for
Israeli gas, which includes:
1. Conversion of the coal based power units to use gas in normal time
2. Electrification of Israel's railway system
3. Increased water desalination by 1 billion cubic meters
4. Gas usage for transportation (CNG and methanol)
5. Development of methane based chemical and petrochemical industries




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15

B. Key Natural Gas Demand Drivers
We estimate that Israel's energy sector transformation to natural gas is still in its
first phase. Therefore, current demand quantities do not represent Israel's full
demand potential at the current level of GDP.
In 2012, Israel's national gas pipeline grid has finally reached all the major
industrial areas, which enabled Israel Electric Corp. (IEC) to complete the shift
of its last oil based power units from diesel and fuel-oil to natural gas.
Israel's largest manufacturers are currently in the process of converting and
upgrading their cogeneration facilities from oil to gas. This process was delayed
due to delays in pipeline connection and the lack of natural gas. Most large
industrial manufacturers are expected to complete the switch to gas by 2015.
Israel's electricity demand per capita is very low compared to developed
countries when accounting for weather conditions (the demand in Israel is 50%
less than the U.S. "Sun Belt" states, which have comparable weather). As
Israel's standard of living increases, demand for electricity is expected to
increase (see below Economic Models Ltd, - EML forecast).
Electricity Consumption Indicators
US "Sun
Belt" States,
2013
Israel,

2013
Israel,
2040 EML
forecast
Cooling Degree
Days (>22C)
990 840
GDP / Capita
(US $)
$50,000 $34,000 $55,000
Electricity
per capita:
kWH/ capita
Relative to US
"Sun Belt"

13,900 KwH
100%
6,800 KwH
51%
11,700 KwH
84%


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16

We predict that all the increase in Israel's electricity demand throughout 2040
will be supplied by natural gas, except from renewable energies that may reach
8% of Israel's electricity supply, and nuclear power stations that could be built in
2031 and beyond. The new planned coal unit ("Project D" of 1,400 MW) that is
planned to be built by 2022 will be a dual-fuel (coal/gas) unit and is expected be
fueled by natural gas with coal used as a backup fuel only.

Furthermore, we believe that there are strong economic and environmental
incentives to convert all Israel's coal based power units to dual-fuel units that
will be run on gas as a primary fuel, with coal as a backup fuel only, assuming
long term gas contracts ensuring a competitive gas prices for these units
relative to coal, based on the relative costs. Full conversion of Israel's coal
units to gas (beyond Rabin A) will increase the gas demand by 6 BCM per year.

Based on a decision of the Minister of Infrastructure, starting 2015 gas will be
used as a replacement for coal in 4 of the Orot Rabin coal units units
(1,400MW). We believe that conversion of the other coal units to gas
(3,400MW), based on coal competitive price of gas for these units, makes
economic sense from a macro-economic viewpoint. Practically, it can follow the
same logic and occur along with Leviathan's entry to the market.
The availability of natural gas is expected to enable increased gas usage for
transportation applications in Israel. Israel's railway system in currently running
on expensive diesel fuel and most parts of it are planned to be electrified from
2017 (an increase of about 0.5 BCM of natural gas demand per year).
Israel's transportation sector can also benefit from the availability of local supply
of natural gas. CNG is expected to replace about 10% of Israel's diesel based
fleet by 2020, corresponding to 0.4 BCM of natural gas demand in 2020.

8 9:#+;)*<# =;>>%?7

17

Experience worldwide shows that countries with natural gas surplus usually
develop, parallel to an industry of LNG export, also a large and profitable
petrochemical industry exploiting the availability of local methane gas sources.
Unlike most other gas producing countries, which also have local supply of oil,
coal, hydroelectric power and/or nuclear energy, Israel is a unique position in
which its only local source of energy is natural gas. Therefore, from an
economic point of view, it is expected that Israel will have higher usage of gas
compared to other sources of energy, to utilize its relative advantage.
Therefore, we see potential for development of additional applications for
natural gas based industries in Israel (such as ammonia, methanol, olefin
production, etc.), which can increase gas demand by at least 10% (1.3 BCM in
2020).


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18

C. Natural Gas Demand Forecast Summary
Economic Models natural gas demand forecast for Israel is based on a
proprietary multi-factor macro-economic model, electricity demand and supply
models, and an economic dispatch model based on a forecasted load-duration
curve. Economic Models has been providing its customers with the long-term
electricity demand model for over 20 years.
Based on the assumptions detailed in this report and under average weather
conditions, we forecast that the demand for natural gas in Israel, without any
further coal to gas conversion, will increase from 7 BCM in 2013 to 17.4 BCM in
2020 and 27 BCM in 2040. This forecast includes the demand for natural gas by
IEC, IPPs, cogeneration, transportation, chemical industry, low pressure
industries (LDC) and desalination.
Further conversion of existing coal units to gas (beyond Orot Rabin A) may
increase annual gas demand by additional 6 BCM in 2020.
Aggregate gas demand in the Israel until 2040 is expected to reach 562 BCM
without further coal to gas conversion, 694 BCM with full coal conversion to gas.
Additional regional captive markets include the Palestinian (which currently
purchase electricity from Israel) and Jordan. Since Egypt has gas supply
constraints, it is unlikely that these markets will be able to purchase gas from
Egypt. It is also unlikely that the Gaza Marine Field (30 BCM offshore Gaza) will
be developed in the coming years.
Total regional potential demand throughout 2040 is estimated at 875 BCM,
which includes Israeli and Palestinian demand of 747 BCM (85% of the regional
demand) and export to Jordan of additional 128 BCM (15% of demand).

We define all these markets (Israel, Palestinians and Jordan) as the "Narrow
Path" alternative.

8 9:#+;)*<# =;>>%?7

19


Beyond that, the current regulation allows export of about 40% of Israel's gas
resources. Accordingly, in additional to the Narrow Path demand, further export
out of Israel of up to 370BCM is expected, provided adequate resources are
discovered. We define this alternative at the "Broad Path" alterative and
believe that it has significantly more than 50% probability of materializing.

Natural Gas Demand Forecast^ Summary by Sector
In BCM
2013 2015 2020 2030 2040 Total
2013-
2040
Running
Total
2013-
2040
Electricity and
Cogeneration
7.0 12.0 15.7 17.8 23.0 499
Transportation -
CNG
- 0.1 0.4 0.8 1.1 17 516
Chemical Industry - - 1.3 1.9 2.9 46 562
Further Coal
conversion to gas**
- 6.0 6.0 6.0 132 694
Palestinian self-
generation
- - - 2.9 4.4 53 747
Jordan - 0.1 4.1 5.6 7.5 128 875
Narrow Path
(Subtotal)
7.0 12.2 27.5 35.1 44.8 875
LNG - - 7.0 18.0 27.5 370 1,245
Total Broad Path 7.0 12.2 34.5 53.1 72.3 1,245

*IEC and IPP's, excluding potential gas demand for coal units for which a decision to convert to gas has not
been made yet.
**Beyond Orot Rabin A, for which no decision has been made. See section H: Advantages of Coal to gas
conversion in Israel. ^Potential demand assuming no supply side constraints

Although currently, there is no approved location for a liquefaction plant, several
options exist for LNG export, including the existing underutilized LNG plants in
Egypt, Floating LNG, an offshore liquefaction platform, liquefaction plant in
Israel, or a liquefaction plant in Cyprus. LNG is a commodity and Israel is a

8 9:#+;)*<# =;>>%?7

20

small player in the global LNG market. The Israeli Parliament approved to
export 40% of total gas discoveries. Hence, we believe that there will be more
incentives to explore gas and that the entire limited export quota will be sold in
the global markets.

Our demand forecasts in both paths do not take into account long term supply
side constraints and capacity limitations. But in case of short term supply
constraints, Israel may either import LNG, reduce export, and/or use more oil
products (as was the case in 2011-12). The underlying assumption in the Broad
Path forecast is that additional gas resources are discovered, to meet the 40%
export allowance (see discussion in Section D competitive environment
below).


We believe that the Broad Path forecast is the likely path the Israeli Market is
expected to follow in the coming decades. It should be emphasized the due to
Israel's oil and gas tax reform (the Sheshinksy I Committee), the Israeli
government is effectively the "senior partner" in Israel's gas fields, since the
government receives 60% of the profits of the gas operators. Therefore, we
believe that even though there are still uncertainties as to the location of Israel's
export facilities, it is unreasonable to assume that the government will adopt a
policy that will not enable the gas producers to reach the export quantities which
were approved by the Israeli parliament (40% of reserves). Hence we believe
that the Broad Path forecast is a highly likely path, and that the Narrow Path
represents a conservative alternative.



8 9:#+;)*<# =;>>%?7

21

Natural Gas Demand Forecast, in BCM*


Narrow
Path
/1

Broad
Path /
2



Timeline
2010 5.4 5.4
2011 5.2 5.2 Temporary gas
shortage 2012 2.9 2.9
2013 7.0 7.0 Tamar gas Q2
2014 8.6 8.6 Full Tamar
2015 12.2 12.2 Rabin A
conversion to
gas (1400MW)
2016 13.0 13.0
2017 15.3 15.3
Further coal
conversion to
gas (3400MW)
2018 21.5 28.5
2019 24.6 31.6
2020 27.5 34.5
2021 28.6 35.6
2022 29.6 36.6
2023 30.7 42.7
Palestinian** shift
to self-supply
2024 31.9 43.9
2025 33.0 45.0
2026 34.2 46.2
2027 35.5 47.5
2028 36.8 48.8
2029 37.9 49.9
2030 35.1 53.1
2031 36.0 54.0 1
st
nuclear unit
2032 37.2 55.2
2033 38.4 56.4
2034 39.7 57.7
2035 40.8 66.8
2036 42.0 68.0
2037 43.2 69.2
2038 44.4 71.9
2039 45.7 73.2
2040 44.8 72.3 2
nd
nuclear unit
Total
2013-40
875 1,245
% export 15% 40%

"#ssuming no supply side constraints from 2013 onwards.
/1 Israel, Palestinians and export to Jordan
/2 Narrow Path with additional LNG export





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22

2.2 Natural Gas Demand Competitive Environment
Proved and prospective gas resources in Israel are currently estimated at about
1,050 BCM. According to the US Geological Survey, the potential undiscovered
gas resources in Israel may reach additional 1400-1800BCM. Realization of this
further gas potential is very important for Israel for both economic and strategic
reasons. However, gas exploration projects must face attractive gas
marketability options in order to continue exploration at an acceptable rate.
The current government policy limits export of gas to about 40% of production.
Local demand throughout 2040 can reach about 70% the existing gas
discoveries. Therefore, large scale investment in the development of further
large gas production capacity beyond the current discoveries is not likely unless
further export is viable and approved by the government.
Israel Gas Resources Estimate
(BCM) Category
Tamar 282 2P
Leviathan 535 2C
Karish 36 2C
Dalit 8 2C
Tanin 22 2C
Total Discovered 883
Ruth / Alon / Others* 175 Prospective
Total Prospective (mean) 175
Total Resources 1,058

Our gas demand analysis shows the Tamar and Leviathan fields are expected
to face significant gas demand from the local and regional markets. The local
demand will allow a wide range of flexibility (subject to government regulation

8 9:#+;)*<# =;>>%?7

23

and technical limitations) to allocate gas sales either to local or export markets,
based on the relative netback in each market.
The smaller gas producers, if proven economic, are expected to compete in the
local market, since their alternative is to keep the gas in the ground for a long
period. We expect that the pipelines and landing facilities for the small gas fields
will be developed jointly, as a national infrastructure with government backing.
Hence, we assume that all gas fields will have access to the local market,
regardless of their size.
Analysis of the existing discoveries and potential regional demand, show that
the entire local demand can be supplied using the existing proven and
prospective resources at least until 2040. The following tables illustrate a
synthetic allocation of the demand among the suppliers.

We assume that any further large scale gas discovery will only be developed if it
has an identified potential export market (such as an LNG export facility and/or
pipeline to Turkey) and additional export quotas are allocated by the Israeli
government. Accordingly, our Narrow Path alternative (15% export) is based on
current proved and prospective discoveries only. The Broad Path alternative
(40% export) is analyzed under the assumption that additional 200 BCM of new
reserves are gradually discovered by other suppliers to facilitate the additional
export.

The experience in Israel from the Tamar and Leviathan projects show that it
takes at least 10 years from the decision to start the exploration drilling to active
production. Tamar was developed in record time, which was facilitated because
it was developed in a period of shortage of gas supply to the local market.
Therefore, it is unlikely that further large scale gas fields will be explored and
developed before 2025-2030.

8 9:#+;)*<# =;>>%?7

24

Narrow Path Alternative
Synthetic
/1
Demand Forecast By Supplier, in BCM


Total Supplier Tamar
Market
Share Demand Tamar* Leviathan**
Others /
LNG import
Reserves

282 535 200

2013 7.0

2014 8.6 8.6

0.0 100%
2015 12.2 12.0

0.2 99%
2016 13.0 12.0

1.0 93%
2017 15.3 12.0 1.5 1.8 78%
2018 21.5 12.0 9.5 0.0 56%
2019 24.6 12.0 12.0 0.6 49%
2020 27.5 12.0 11.7 3.8 44%
2021 28.6 12.0 12.0 4.6 42%
2022 29.6 11.6 13.1 4.9 39%
2023 30.7 11.4 14.1 5.3 37%
2024 31.9 11.7 14.7 5.5 37%
2025 33.0 11.9 15.3 5.7 36%
2026 34.2 10.6 17.2 6.4 31%
2027 35.5 9.8 18.7 7.0 28%
2028 36.8 10.2 19.3 7.2 28%
2029 37.9 10.5 20.0 7.5 28%
2030 35.1 9.7 18.4 6.9 28%
2031 36.0 10.0 18.9 7.1 28%
2032 37.2 10.3 19.6 7.3 28%
2033 38.4 10.7 20.2 7.6 28%
2034 39.7 11.0 20.9 7.8 28%
2035 40.8 11.3 21.4 8.0 28%
2036 42.0 11.6 22.1 8.3 28%
2037 43.2 12.0 22.7 8.5 28%
2038 44.4 8.0 23.4 13.1 18%
2039 45.7 0.0 24.0 21.7 0%
2040 44.8 0.0 23.6 21.2 0%
Total 875 282 414 179 32%


1/ Assuming Market share proportional to reserves beyond Tamar's existing contracts and no supply side constraints

* Tamar's current pipeline capacity limitations is 12 BCM per year
** Leviathan's capacity constraint to the regional market assumed at 12 BCM (6 BCM stage I capacity plus 6 BCM expansion
for the coal to gas conversion contract) until 2022. Conservatively assumed unrestricted after 2022.


8 9:#+;)*<# =;>>%?7

25

Broad Path Alternative
Synthetic
/1
Demand Forecast By Supplier, in BCM

Total Supplier Tamar
Market
Share Demand Tamar* Leviathan**
Others / LNG
import
Reserves

282 535 300-400

2013 7.0

2014 8.6 8.6 0.0 100%
2015 12.2 12.0 0.2 99%
2016 13.0 12.0 1.0 93%
2017 15.3 12.0 1.5 1.8 78%
2018 28.5 12.0 16.5 0.0 56%
2019 31.6 12.0 19.0 0.6 49%
2020 34.5 12.0 15.1 7.5 44%
2021 35.6 12.0 15.6 8.0 42%
2022 36.6 12.0 15.6 9.0 39%
2023 42.7 12.0 19.8 10.9 37%
2024 43.9 12.0 20.7 11.2 37%
2025 45.0 12.0 21.4 11.6 36%
2026 46.2 11.5 21.7 13.0 31%
2027 47.5 11.8 22.4 13.4 28%
2028 48.8 12.0 23.0 13.7 28%
2029 49.9 12.0 23.9 14.1 28%
2030 53.1 12.0 26.1 14.9 28%
2031 54.0 12.0 26.8 15.2 28%
2032 55.2 12.0 27.6 15.5 28%
2033 56.4 12.0 28.5 15.9 28%
2034 57.7 12.0 27.4 18.2 28%
2035 66.8 12.0 31.7 23.0 28%
2036 68.0 12.0 32.3 23.7 28%
2037 69.2 3.0 32.6 33.6 28%
2038 71.9 0.0 33.8 38.1 18%
2039 73.2 0.0 32.0 41.2 0%
2040 72.3 0.0 0.0 72.3 0%
Total 1,245 282 535 428 23%

1/ Assuming Market share proportional to reserves beyond Tamar's existing contracts and no supply side constraints

* Tamar's current pipeline capacity limitations is 12 BCM per year
** Leviathan's capacity constraint to the regional market assumed at 12 BCM (6 BCM stage I capacity plus 6 BCM expansion
for the coal to gas conversion contract) until 2022. Conservatively assumed unrestricted after 2022. Export capacity 8 BCM
from 2017, unrestricted after 2022.


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2.3 Demand Forecast by Sector
A. Demand for Gas for Electricity
As opposed to most high income OECD countries, which have reached a
saturation level in terms of electricity demand per capita, the demand for
electricity in Israel continues to grow along with the growth in income and
Israel's electricity consumption per capita is about 50% less than developed
countries with comparable weather (see discussion in chapter 3 below) such as
the US "Sun Belt" States. Our forecast that is based on the assumption that by
2040, electricity demand per capita in Israel will converge to a level about 15%
less than the demand in the US "Sun Belt" States today.
As we have shown in section 3.2 below, there is no significant "cultural gap" in
terms of electricity consumption between high income countries with similar
weather conditions. The electricity consumption per capita in the North Eastern
USA is similar to European countries with similar weather conditions
Queensland Australia's 10% lower electricity consumption per capita relative to
the US "Sun Belt" States, is primarily due to climate differences. Queensland
has 50% less cooling degree days than the US "Sun Belt" States and Israel,
which leads to both lower air-conditioning penetration rates (70% in Queensland
vs. 95% in the US "Sun Belt" States) and significantly lower air-conditioning
usage intensity. Therefore, our forecast is also consistent with the Queensland
Australia benchmark, when appropriate adjustments are applied for Australia's
weather as compared to Israel's.
According to our forecast, assuming average weather, local demand for
electricity will grow at an average rate of 3.6% per annum, reaching some 159
million MWh by 2040. This growth rate represents about a 2.0% annual
increase in electricity consumption per capita. Due to the expected growth in

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27

labor participation rate, and the decrease in household size, these growth rate
represent 1.8% annual increase in electricity consumption per household and
per employee.
The increase is mainly due to an expected increase in the standard of living,
increase in air-conditioner penetration and usage, increased water desalination
and electrification of the Israeli railway system.
Electricity demand constitutes the major local market for natural gas, as we
expect that all the increase in Israel's electricity demand throughout 2040 will be
supplied by natural gas, except a limited supply of renewable energy (see
below), potential nuclear power after 2013 (see below).







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B. Sensitivity of Gas Demand for Electricity Production
Electricity demand sensitivity to changes in GDP growth indicate that a 0.6%
points permanent decrease (or increase) in GDP growth rate, results in 0.4%
decrease (or increase) in average electricity demand growth rate, as illustrated
in the table below.

Electricity Natural Gas Demand Sensitivity to GDP Growth
Very
Low
Low Base High
GDP/Employee
Growth Rate
1.4% 1.6% 2.0% 2.5%
GDP/Capita
Growth Rate
1.6% 1.8% 2.2% 2.7%
GDP growth rate 3.2% 3.4% 3.8% 4.3%
Electricity
demand Growth
Rate
3.3% 3.4% 3.6% 3.9%
Electricity
Demand in 2040,
Bil. KwH
131 134 142 154
Natural Gas
Demand 2013-
2040 in BCM
368 461 499 539
% change in gas
demand vs. base
case, 2040
-7.9% - 5.5% 0% 8.0%

The demand for gas for electricity production is not sensitive to policy changes
and to the extent the current electricity market reform proposal would be
adopted. If IEC's market share will be reduced, gas demand will not be affected
since private producers will increase demand accordingly (assuming similar
generation technologies). The same is true if IPPs will have difficulties to
compete in the market. From the natural gas demand viewpoint, it is irrelevant if
the additional demand will come from IPPs or from IEC.

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29

Furthermore, the goal of the proposed electricity market reform is to promote
competition in the generation sector in order to reduce electricity prices. If the
reform is successful, the reduction in electricity prices is expected to result in an
increase electricity of and natural gas demand.

Demand elasticity sensitivity to changes in electricity rates is estimated at 0.3,
so that a permanent 10% increase (or decrease) in electricity prices, results a
3% decrease (or increase) in the electricity demand levels.

C. Renewable Energy
The Israeli government decided to encourage renewable energy sources, and
declared a target of 10% renewable energy by 2020. This is despite the fact that
Israel's CO
2
emissions today (per capita) are 20% below the OECD average. In
order to support this goal, the government subsidizes solar energy producers.
Our forecast for renewable energy production in Israel is based according to the
EU renewable generation target for 2020, without hydro-electric power.

Our forecast is made under the assumption that the Israeli policy will follow the
pattern of the EU policy, so that by 2030, 20% of the generation capacity in
Israel will be based on renewable (solar and wind) energy, accounting for about
8% of electricity production. However, we believe that our forecast is based on
a conservative assumption, and due to the high cost of subsidizing solar
energy, in practice it is likely less than 5% of the electricity production will be
produced by renewable energy.

In our view, full conversion of Israel's coal units to natural gas (with coal as a
backup fuel) can achieve the same goal of reduction of CO
2
emissions without
the added cost associated with renewable energy.


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D. Nuclear Energy
Israel's long term electricity sector development plans includes a nuclear power
plant, and IEC has declared that it wishes to start the long term planning
process for a future nuclear power station. Israel's Prime Minister Netanyahu
also adopted the vision of a nuclear power plant, as a viable alternative to
increase Israel's energy independence and flexibility.

There are several obstacles to building a nuclear power plant in Israel, including
the small size of the country which increases the risk in case of emergency, and
the fact that Israel did not sign the Nuclear Non-Proliferation Treaty.

Our forecast is based on the assumption that the first two 1,200 MW nuclear
power plants in Israel will be completed in 2031, with an additional unit built in
2040.

Each year of delay in the operation of Israel's nuclear plants is expected to
increase gas demand by 4 BCM. Therefore, a 10 year delay (from 2031 to
2040), in the operation of Israel's first nuclear units will result in an increase of
40BCM in natural gas demand.

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E. Advantages of Coal to gas conversion in Israel
The current and potential future natural gas discoveries provide a unique
opportunity to revolutionize Israels energy strategy, and to dramatically
decrease Israels dependence on foreign energy sources for electricity, industry,
and public transportation.

With sufficient proven reserves of natural gas, and multiple points of entry
connecting the gas field the national pipeline grid, there is significant advantage
to the Israeli economy to shift electricity production from coal to natural gas,
with coal used as a backup fuel for emergency periods.

Based on this economic logic, the Ministry of Energy and Water Resources has
decided to convert 4 Orot Rabin A units (1400MW) from coal to gas, starting
2015. Coal will only be used as a backup fuel.

Further conversion of the existing coal units to dual fuel (gas/coal) gas has
significant benefits to the gas providers and to the Israeli economy, assuming
long term gas contracts ensuring a competitive gas prices for these units
relative to coal, based on the relative costs. Israel could become one of the
cleanest nations (CO2 and pollution-wise) among the OECD countries. The
reduction in greenhouse gas emissions, SOX, NOX and particles pollution
provides substantial external benefits.

Our analysis shows that Israel has a very significant advantage to convert all its
baseload coal electricity units from coal, an imported and polluting raw material
to domestic, clean natural gas. In this way Israel will have a capacity of 4,800
MW dual fuel units that will regularly use natural gas, with coal used only as a
backup fuel in emergency periods.


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32

There has been a formal decision to convert 4 coal units with a total capacity of
1,400 MW from coal to gas. Although no formal decision has yet been made for
the conversion of the other 6 coal units (3,400 MW) to gas, we are fully
convinced that this a must! The strong economic incentives to all the relevant
parties to make the conversion from coal to gas will force the parties (and
especially the government) to find a "saddle point" gas price within the range so
that each side will be better off. We estimate the full government's direct profit
from coal to gas conversion is above $ 3 per MMBTU.

It is easy to show that conversion of all the existing coal units to dual fuel
(gas/coal) gas has significant benefits to the gas providers and to the Israeli
economy. But the most important part of this conversion is the benefit of the
government that receives (as direct taxes) 60% of the profit from the additional
gas sales and 0% revenues from import of coal. Because Israel has excess gas
supply we are fully convinced that long term gas contracts, for all the coal units,
ensuring a competitive gas prices relative to coal will be reached.

Therefore, due to these economic advantages, our forecast is based on the
conversion of Israel's 10 coal units to gas in 2018-2020, along with Leviathan
entrance to the market.


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F. Project D
Israel, as an isolated and small economy which faces security threats, has
made a strategic decision to prevent dependence on a single source of energy
for electricity production. Therefore, despite the government's efforts to restrict
Israel Electric's capacity expansion, the government reform plan includes
authorization for Israel Electric to build its next dual fuel coal/gas unit "Project
D" (under the condition of 51% investor in the unit). Project D is planned for
2022 as a dual fuel coal/gas unit that will be fueled on gas, with coal as a
backup fuel for emergency periods. Project D's strategic importance is that it
will allow Israel to continue to have coal backup capacity for its entire baseload
electricity demand.
Based on government decisions, the new planned coal unit that is expected to
be built by 2022 ("project D") will be built as a dual-fuel (coal/gas) unit, which
will be fueled on natural gas, with coal for backup based on economic criteria.
According to the decision, the unit's operating regime will be determined in
cooperation with the finance ministry. Our assumption is that project D will be
fueled by natural gas, under a competitive price of gas for the conversion
project.

According to the proposed electricity market reform, project D is planned to be
built by IEC jointly with a strategic investor which will hold 51% share in the
project. Any delay in building project D is expected to reduce gas demand after
2022 by 0.4 BCM per year as a result of substituting combined cycle gas units
which have 20% higher thermal efficiency.




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G. Demand for Gas for Cogeneration
Our forecast shows an increase in demand for gas by cogeneration and
industry from 1.5 BCM in 2013 to 3.4 BCM in 2015
This increase is primarily due to conversion from fuel oil and diesel of existing
large industrial plants, due to mandatory regulation and economic profitability.
In 2013, the Israeli industry consumed about 1.0 million tons of fuels (primarily
fuel oil) for industrial uses (mainly steam production), which are about 1.3 BCM
of natural gas in equivalent gas units. In addition, the industry used about 1.5
BCM of gas by units which were already converted from fuel to gas.
By 2015, fuel demand by the industry in gas equivalent terms is expected to
reach about 3.2 BCM.
We estimate that all the existing heavy industry fuel, and about 25% of the light
industry (low pressure consumers) will complete the transition from fuels to gas
in the next 2 years. Accordingly, gas demand by the heavy industry
(cogeneration and desalination) is expected to reach 3.2 BCM by 2015, with
additional 0.2 BCM of gas by low pressure light industry (LDC).
The conversion from fuel oil and diesel to gas will create incremental gas
demand beyond the demand for gas for electricity.
Some of the units are converted to gas due to regulatory requirement (like ORL
in Haifa), and therefore the conversion is mandatory. For the others, there is a
clear economic incentive to invest in the conversion, since the price of gas is
currently about 1/4 of the price of fuel oil or diesel.



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H. Gas demand for transportation
The Israeli government recently decided to invest more than 2 billion shekels in
the coming decade to increase Israel's energy independence and reduce air
pollution. From Israel's perspective, the transition to energy independence is of
strategic importance beyond the environmental implications.
CNG based vehicles provide potential for natural gas based transportation, for
specialty niche applications, such as urban transportation fleet including buses,
taxis, delivery trucks etc.
CNG provides a good solution to fleet vehicles which visit every day a central
hub that can provide CNG refueling services, without a need to develop a costly
network of refueling stations.
We believe that CNG may replace about 10% of Israel's diesel based fleet fuel
consumption by 2020, corresponding to 0.4 BCM of natural gas demand in
2020, gradually reaching a 20% market share by 2040.
Demand Forecast of CNG for Transportation
Total Israel
Transportation
Diesel*
Demand
(m. tons)
Diesel
Demand
Growth
Rate
CNG
Penetration
in Diesel
Fleet
CNG
demand in
m. tons
equivalent**
CNG
demand
in BCM*
2013 2,350 1.1% 0.0% 0 0.0
2015 2,412 1.3% 2.0% 57 0.1
2020 2,667 2.4% 11.0% 345 0.4
2025 3,021 2.6% 15.5% 551 0.6
2030 3,429 2.5% 18.0% 726 0.8
2035 3,823 2.0% 19.6% 882 1.0
2040 4,172 1.7% 20.0% 982 1.1

*Excluding Palestinian diesel demand for transportation

In addition to CNG demand, based on our analysis Israel has an exceptional
opportunity to create a methanol production industry that will enable it to

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36

gradually move all its passenger cars to flex-fuel vehicles powered by 85%
methanol and 15% Gasoline (M85). Our analysis indicates that due to the
home-advantage methanol for local consumption can be produced at
competitive prices relative to the price of Gasoline without any subsidy for the
methanol. However, our forecast conservatively, does not include the potential
demand for M85 fuels.

In our view, Israel is a unique case in which the transition to methanol-powered
vehicles is strategically beneficial for the national economy:
1. Energy independence - ending the dependence on oil imports.
2. Exploiting the economic potential inherent in Israel's gas reserves.
3. A small market, which facilitates the dispersion of a national
infrastructure for refueling the methanol vehicles.
4. An isolated market, facilitating the transition to vehicles matched to
methanol, and exploiting the advantage of the energetic efficiency.
5. No alternative local production of ethanol, due to lack of land and water.
6. A market with surplus natural gas and no oil reserves (no oil
cannibalization problem).
7. Safeguard from an Arab boycott of Israel (as was in 1974)


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I. Demand for Gas for Chemical Industry
Experience worldwide shows that in most countries that have a surplus of
natural gas, a large chemical and petrochemical industry are developed, which
enables the economic potential inherent in the availability of energy sources to
be realized.

We believe that the discovery of large natural-gas fields along Israel's shores
constitutes significant potential for the development of a chemical and
petrochemical industry in Israel, and to enter new fields of producing methane-
based chemical products.

Our forecast assumes natural gas for chemical industry uses (beyond ORL's
existing demand) will increase local gas demand by about 10%. This forecast is
based on existing development plans for ammonia and methanol plants, with
growth rates of 3%-5%, based on global growth rates for these products.

Chemical Industry Natural Gas Demand Forecast
In BCM
2015 2017 2020 2030 2040 Total
2013-
2040
Ammonia 0 0.5 0.5 0.7 1.0 15
Methanol 0 0.5 0.5 0.8 1.3 19
Others 0 0.3 0.3 0.5 0.7 11
Total Chemical
Industry
Potential
0 1.3 1.3 2.0 3.0 45

*Excluding existing ORL demand which is included in the general Industry Sector Demand


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38

We believe there is considerable potential beyond this forecast for additional
growth in these sectors, which is dependent on higher adoption rates of
methanol fuel and development in GTL production technologies.


J. Demand for gas from Jordan
The discovery of Leviathan is expected to transform Israel from a gas importing
country to a gas exporter. Due to the high costs of liquefactions, we believe
that in the long-term, export of gas to Israel's neighboring countries is expected
to be more profitable than other export markets. In addition, export to Jordan
has strategic importance to Israel, as it strengthens the ties between the two
countries which signed a peace agreement in 1994.
The recent agreement of gas sales from Leviathan to the Palestinians is of
strategic significance, since it provides full political legitimacy for other
neighboring Arab countries such as Jordan and Egypt to purchase gas from
Israel.
Jordan, unlike its immediate neighbors, does not have significant energy
resources. As a result, Jordan relies heavily on imports of crude oil, petroleum
products, and natural gas to meet domestic energy demand.

The Arab Gas Pipeline (AGP)which runs from Egypt through the Sinai desert
to Jordan and north to Syria was the principal source of Jordanian natural gas
imports until 2011. Gas supply was based on a contract with Egypt for annual
imports of about 3 BCM per year.





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Jordan Electricity and Gas Demand Forecast
2010 2020 2030 2040
Population
(millions)
6.4 8.1 9.4 10.5
GDP per capita $4,060 $4,700 $6,060 $7,800
Electricity
Capacity
3,140 MW 5,900 MW 8,000 MW 10,000 MW
Electricity
Consumption
per Capita
2,100 kWh 3,000 kWh 3,600 kWh 4,600 kWh
Gas Demand
(BCM)
2.7 4.1 5.6 7.5
Source: Economic Model estimates

Like Israel, however, Jordan saw its gas supply cut off by sabotage starting in
February 2011, which created long supply disruptions. As a result, Jordan, like
Israel, was forced to burn more expensive fuels at its power stations.
Since Egypt is facing gas shortage in the local market, gas exports from Egypt
are unlikely to resume on a substantial ongoing basis. Jordan is now
considering alternative gas supply sources. We believe that supply of gas from
Israel has economic and strategic benefits for both Israel and Jordan.
Israel's gas pipeline already reaches the Dead Sea at Sdom. Possible
extension of the Israeli gas pipeline to reach the Jordanian Potash Industries
requires an extension of the pipeline by about 10 km. The Tamar partners and
the Jordanian Potash Corp. are now discussing the supply of gas (0.1 0.3
BCM) to the Jordanian Potash industry.




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K. LNG Export

The global LNG trade is estimated at 320 BCM (236 mpta) in 2012 and is
expected according to Wood Mackenzie's forecasts to reach 730 BCM (514
mpta) by 2030, representing a 4.4% growth rate. According to this forecast, on
average, each year 3 more 4.5 mmpta LNG trains will need to be built
worldwide.

Israel is expected to be a small producer in the global LNG market. Export
quantities have been administratively limited by the Israeli government's
regulation, and we believe that in a commodity market a small player can export
its entire quantities, since it has more flexibility to lower prices if needed, than
the large players in the market.

Although currently there is no approved location for a liquefaction plant, several
options exist for LNG export out of Israel, including the existing underutilized
LNG plants in Egypt, Floating LNG, an offshore liquefaction platform, or a
liquefaction plant in Israel.

Israel's crowded coastal shore has limited available locations for liquefaction
plants. Therefore, we believe that if a liquefaction plant is built in Israel, it will
most likely be off-shore, either as floating LNG project, or s stationary offshore
liquefaction platform.

From an economic point of view, the existing LNG plants in Egypt provides an
economically attractive immediate outlet for Israel's gas export, taking
advantage of underutilized existing liquefaction capacity.


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41

Egypt's population is 10 times as large as Israel, while Egypt's gas reserves are
only twice as large as Israel. Therefore, in the long term, Egypt needs its gas for
self-consumption, and is not expected to have surplus gas for export.

As a result of Egypt's new policy to prioritize local consumption of gas over
export, the LNG liquefaction plants in Egypt are now operating at partial
utilization rates (less than 30% on average). These plant are co-owned by
international oil majors (BG, Petronas and Eni), and although there is strong
economic interest to utilize them fully, Egypt does not have natural gas supply
for it.

Egypt's LNG Plants Utilization Rate
ELNG 1 ELNG 2 Damietta
(Segas
LNG)
Total
Plant Capacity
(mmtpa)
3.6 3.6 5.0 12.2
Number of
Trains
1 1 1 3
Foreign
Shareholder*
BG (36%)
Petronas
(36%)
BG (38%)
Petronas
(38%)
Eni (40%)
Fenosa
(40%)

Start-up 2005 2005 2005
Storage
Capacity (m3)
140,000 140,000 300,000
Production in
2013
1.5-2 1.5-2 0 3-4
2013 utilization
rate
50% 50% 0% 30%
Gas Shortage in
2013, BCM
1.2-1.5 1.2-1.5 3.7 6.1 6.7
*Egyptian government companies hold 20% - 24% shares in the liquefaction plants.


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In contrast to the situation in Egypt, Israel has today surplus gas authorized by
the government for export (according to the Tzemach committee
recommendation and the government's decision) without any existing LNG
export facilities. From an economic point, in a situation where Egypt has 3 LNG
trains which lack gas supply, selling gas to these LNG facilities has many
economic benefits to all parties.

There already exists a gas pipeline connection between Israel and Egypt (the
EMG pipeline) which could be used to export Israeli gas to Egypt's liquefaction
plants. However, past experience shows that the gas pipeline between Egypt
and Israel is prone to terrorist attacks which have seriously disrupted supply in
the past. Although gas sale to Egypt may be somewhat less politically sensitive
than selling Egyptian gas to Israel, we cannot rule out the possibility that gas
Israeli gas export will be similarly disrupted. Additionally, according to the
information we received from the Tamar partners, capacity limitations in the
existing gas pipelines limits Israel export ability to Egypt at about 2.5 BCM
(mostly at off peak hours).

Thus in any case, in the longer term, building a dedicated sub-marine pipeline
between the Yam Tethys platform and the Egyptian LNG terminals at the Nile
Delta will be required. This pipeline can both substantially reduce the political
risk of terrorist attacks, and facilitate exports at the full quantities demanded by
the LNG plants.

Our forecast is based on the assumption of LNG export potential of 2.5 BCM,
increasing to 7 BCM in 2018, based on the assumption that an export pipeline
to Egypt or an offshore liquefaction plant will be built by 2018. Provided that
additional gas resources are developed in Israel, export can increase to 18
BCM in 2030 and 26 BCM in 2035, while still meeting the 40% export quota.




3 Electricity Demand Forecast

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3.1 Introduction
Our forecast is based on a disaggregated long-term demand model for
electricity, which is based on our macroeconomic model for the Israeli economy.
The demand for electricity in various economic sectors is dependent on various
economic variables, such as income growth, penetration of electrical
appliances, the price of electricity, demographic variables, (i.e. population
composition, growth rate, household size, etc.), and on weather conditions.
The relatively high growth is a result of a 1.5% population growth rate, a 1.9%
growth rate in the number of households, and an increase in ownership of
household electrical appliances especially air conditioners for heating/cooling.
High growth is also expected in the commercial and industrial sectors due to an
increase in the intensity of usage per production unit, increased desalination
and the electrification of Israel's railway network.
Electricity Supply and Demand Forecast by Gas Purchasing Sector
In billions of kwh
2013 2017 2020 2030 2040 CAGR
Electricity
Production
55.5 58.8 68.3 105.5 134.5 3.3%
Palestinian
5.0 6.4 7.5 11.9 18.0 4.9%
Industry self-
production
3.4 13.3 14.0 16.3 18.9 6.5%
Total Supply 63.9 78.5 89.8 133.7 171.4 3.7%
-losses
(generation, T&D)
4.8 5.9 6.8 10.0 12.8
Total Demand
59.1 72.6 83.0 123.7 158.6 3.7%



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Accelerated growth in electricity demand in Israel is expected to continue, as
Israel continues to increase its standard of living (see appendix for our macro-
economic forecast).
Assuming average weather, local demand for electricity will grow at an average
rate of 3.7% per annum, reaching some 159 million MWh by 2040. This growth
rate represents about a 2.2% annual increase in electricity consumption per
capita and 1.8% annual increase in electricity consumption per household. The
increase is mainly due to an expected increase in the standard of living,
increase in A/C penetration, increased water desalination and electrification of
the Israeli railway system.
The principal factors expected to affect growth are an increase in disposable
income, a decline in unemployment, an increase in real wages, continuing
growth in electrical appliance use, primarily air conditioners for heating and
cooling, and the continuing introduction of additional electrical appliances.


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46


Electricity Demand Forecast in Israel
kWh Billions, excluding losses*



2013 2015 2020 2025 2030 2035 2040
Total Electricity Demand 59.1 65.9 83.0 101.1 123.7 141.4 158.6
(-) Palestinian Electricity Demand 4.6 5.3 6.9 8.8 11.0 13.6 16.6
(=) Total Electricity Demand in Israel 54.5 60.6 76.1 92.3 112.7 127.8 141.9
(+) Palestinian Electricity Demand 4.6 5.3 6.9 8.8 11.0 13.6 16.6
(=) Total Demand from IEC 54.0 47.0 53.9 66.8 81.6 94.1 107.3
GDP Index (2013=100) 100.0 104.7 126.7 153.1 185.8 224.4 271.2

Electricity Demand Ratio to $1 of
GDP
0.205 0.218 0.226 0.226 0.228 0.214 0.197

*demand before losses. Total generation is about 7.5% higher.

Average Annual Rate of Change
Percent
Base Case Scenario 2013
2013- 2015- 2020- 2025- 2031- 2035-
2015 2020 2025 2030 2035 2040
Total Electricity Demand
-3.1% 5.6% 4.7% 4.0% 4.1% 2.7% 2.3%
Palestinian Electricity
Demand
1.2% 7.0% 5.7% 5.0% 4.5% 4.2% 4.2%
Total Electricity Demand
in Israel
-3.4% 5.4% 4.7% 3.9% 4.1% 2.6% 2.1%
GDP Index
3.3% 2.3% 3.9% 3.9% 3.9% 3.8% 3.9%
Electricity Demand
Ratio to $1 of GDP
-6.5% 3.0% 0.7% 0.1% 0.1% -1.2% -1.7%

Source: IEC, CBS, Economic Models estimate




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47

It should be noted, that the decline in electricity demand in 2013 was primarily
due to the effect of unusual weather conditions, both in 2012 and 2013.

The summer of 2012 in Israel was about 20% warmer than average. Our
analysis shows that in the short term, elasticity of demand to substantial
changes in climate is about 0.15. As a result, the demand for electricity in 2012
increased in an accelerated rate of about 7.7%, which includes growth of about
3% above the trend to the effect of the extreme weather conditions that year.

On the other hand, in 2013, the summer was less hot than average and the
winter less cold than average. Overall, the climate in 2013 was about 30%
more comfortable than on average. As a result, the demand for electricity in
2013 decreased by 3.5% (instead of increasing from 2012's high levels by 1%
as expected). Therefore, the electricity demand in 2013, represents a level that
is about 4% below the "normal" level which would be expected under normal
weather conditions. As a result, assuming average weather in 2014, demand is
expected to increase by about 7.5%, which includes organic growth, and the
effect of the return to normal weather conditions.


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3.2 International Comparison

By international comparison, per capita electricity consumption in Israel is
similar to developed countries. Per capita electricity consumption to Israel is
similar to that of Germany, 23% higher than that of the UK, 15% lower than that
of Japan and Switzerland. It is still substantially lower compared with the US,
constituting only 60% of the US electricity consumption per capita.
However, because of weather conditions in Israel, higher electricity
consumption is expected, and the comparison the countries which have little
use for air conditioning is irrelevant.

Electricity Consumption
KWh per Capita, 2012


According to our forecast, per capita electricity consumption in Israel should rise
by some 2.5% in the coming decade and by some 2% in the next two decades
until 2030. These growth rates are higher than growth rates in various other

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industrialized countries. In the U.S. for example, per capita electricity
consumption has grows at a rate of 1.2% per annum and the Department of
Energy forecasts growth of less than 1% in the coming decade. However, the
intensity level of electricity use in Israel is still substantially lower than
customary in western countries, due to a gap in per capita income and
consumption (in addition to climatic differences).
Electricity Consumption per Capita
International Comparison, 2012
Average Temp.
(degree C)
Electricity Demand per Capita

July January
Commercial
Public & other
Industry Residential Total
4.2 3.1 4.4 11.7 USA
21.0 11.0 3.2 1.2 2.4 6.8 California
29.5 7.0 5.1 3.6 5.3 14.0 Texas

4.8 3.5 5.6 13.9
US "Sun
Belt"
Avg.
24.0 -4.1 3.9 3.2 3.5 10.6 Michigan
28.0 12.0 2.5 1.5 1.9 6.8
Israel
2013
4.2 2.3 4.1 11.7
Israel
2040

International comparison of electricity consumption per capita indicates that the
two main factors that determine electricity demand are income (gdp/capita) and
weather conditions. Electricity demand in the US "Sun-Belt" states such as
Texas, where weather conditions are similar to Israel, is more than twice as
high compared to Israel. This gap is a result of Israel's economy lower income
levels, which cause lower penetration levels and usage intensity of electricity
appliances like air conditioners, cloth dryers, dishwashers, etc.


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Comparison of the consumption in Texas to other US states with hot climate
(the "Sun Belt" States) clearly indicates that the usage level in Texas is
representative of other states with similar climate. All the hot climate US
continental states (except Nevada) have Air Conditioning penetration of above
90% and residential electricity consumption of 5,000 KwH or more. Nevada's
residential electricity consumption is 21% less than the average US states, but
Air Conditioning penetration there is also 25% lower.


Electricity Consumption in US "Sun Belt" States

Residential
KwH/Capita
Total
KwH/Capita
AirCon HH
Penetration
Georgia 5,409 13,204 97%
Arkansas 6,073 15,889 98%
South Carolina 6,005 16,466 94%
Alabama 6,353 17,873 98%
Oklahoma 5,979 15,555 98%
Nevada 4,394 12,751 71%
Mississippi 6,028 16,211 98%
Louisiana 6,525 18,412 98%
Texas 5,273 14,024 96%
Arizona 5,024 11,454 91%
Florida 5,804 11,423 96%
Total US "Sun Belt"
States
5,604 13,905 94%

Israel clearly shows similar usage patterns to the US "Sun Belt" states, although
due to the currently lower standard of leaving, a saturation level has not been
reached yet. In 2013, air conditioning penetration in Israeli households was 81%
(compared to 76% in 2010). We forecast both penetration and usage levels to
increase to levels similar to the US hot states, along with the increase in

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standard of living. Electricity consumption per capita in Israel in 2040 is forecast
to be 15% below the average consumption in US Sun Belt states.

Our analysis indicates that the main factors that affect electricity consumption
are standard of living and climate. In cold countries, electricity consumption
tends to be lower, because of low air-conditioner penetration and usage rates,
and usage of other energy sources (natural gas or fuels) for heating rather than
electricity.

The weather in Israel is similar to the weather in the US "Sun Belt" states.
Compared to Houston Texas, Tel Aviv has 15% less cooling degree days and
7% less heating degree days. When comparing to the US "Sun Belt" States we
have accounted for the effect of weather differences on cooling and heating
electricity demand, as well as for the effect of Israel's smaller houses but larger
households.

Based on these adjustment factors, electricity demand per capita in Israel in
2040 is expected to be 15% less than the average US "Sun-Belt" states today.


















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Similarity between the weather in Israel and Texas

Tel Aviv, Israel Houston, Texas
Electricity Consumption per Capita
2040 forecast: 11,700 14,024
Cooling Degree Days (CDD >22
O
C)
841 990
Heating Degree Days (HDD <22
O
C)
1,156 1,245
Daily High and Low Temperature

The daily average low (blue) and high (red) temperature with percentile bands (inner band from 25th to 75th
percentile, outer band from 10th to 90th percentile).
Fraction of Time Spent in Various Temperature Bands

The average fraction of time spent in various temperature bands: cold (0C to 10C), cool (10C to 18C),
comfortable (18C to 24C), warm (24C to 29C), hot (29C to 38C)


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Comparison of electricity demand per capita in Northeast USA and Western
European countries with similar weather clearly indicates that there is no
substantial "cultural gap" between the US and Europe in terms of electricity
consumption per capita.

Electricity Consumption per capita (kWh per capita per year)
Western Europe vs. North Eastern USA

W. Europe, 2011 North Eastern US, 2012
Austria 8,356 New Jersey 8,482
Belgium 8,021 Massachusetts 8,323
Switzerland 7,928 New Hampshire 8,230
France 7,289 Connecticut 8,226
Germany 7,081 Rhode Island 7,339
Netherlands 7,036 New York 7,315
Average 7,619 Average 7,986


The table on the next page compares the weather conditions in Vienna and
Boston. It clearly illustrates that both cities have similar weather conditions, and
similar electricity consumption.

Therefore we believe that weather conditions, along with standard of living, are
the main factors that determine electricity consumption.

Therefore, the US "Sun Belt" states, which have weather conditions similar to
Israel, are the most relevant benchmark for Israel's long term electricity
demand potential for 2040, when Israel's standard of living is forecast to be
beyond the level in the US and Europe today.


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Similarity between the weather in Austria and Massachusetts

Austria (Vienna) Massachusetts (Boston)
Electricity Consumption per Capita
8,356 8,323
Cooling Degree Days (CDD >22
O
C)
144 212
Heating Degree Days (HDD <22
O
C)
4,298 4,055
Daily High and Low Temperature


The daily average low (blue) and high (red) temperature with percentile bands (inner band from 25th to 75th
percentile, outer band from 10th to 90th percentile).
Fraction of Time Spent in Various Temperature Bands

The average fraction of time spent in various temperature bands: cold (0C to 10C), cool (10C to 18C),
comfortable (18C to 24C), warm (24C to 29C), hot (29C to 38C)

http://weatherspark.com

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Although the average temperature in Queensland, Australia is similar to Israel,
analysis of the variance in weather conditions, indicates that the weather in
Queensland in considerably less hot than Israel (and the US Sun-Belt states).

Queensland has almost 50% less cooling degree days than Tel Aviv, and 8%
less heating degree days. As the chart below clearly shows, while in Israel on
August on average 29% of the hours are considered hot climate (29 C or
above) in Queensland's hottest month less than 3% of the hours are hot (29 C
or above).

As a result, despite the fact that the standard of living in Queensland is much
higher than Israel today, air conditioner penetration in households in
Queensland is about 10% lower.

Thus we believe that in order to use the electricity demand in Queensland
Australia as a benchmark for Israel's electricity demand potential, the demand
has to be adjusted to reflect the fact that Israel has more than twice as much
cooling degree days. The result would be similar to the demand in the US "Sun
Belt" States.
Electricity Demand Indicators
US "Sun
Belt" States,
2013
Queensland
Australia,
2013
Israel,

2013
Israel,
2040
forecast
Cooling Degree
Days (>22C)
990 440 840
Air Conditioner
Penetration in
households,
95% 72% 81% 95%
GDP / Capita
(US $)
$50,000 $65,000 $34,000 $55,000
Electricity
Consumption
per capita
(kWH/ capita)
13,900 KwH 12,700 KwH 6,800 KwH 11,700 KwH


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Queensland Australia has significantly less hot weather than Israel

Tel Aviv, Israel Queensland, Australia
Electricity Consumption per Capita
2040 forecast: 11,700 12,700
Cooling Degree Days (CDD >22C)
841 442
Heating Degree Days (HDD <22C)
1,156 1,063
Daily High and Low Temperature

The daily average low (blue) and high (red) temperature with percentile bands (inner band from 25th to 75th
percentile, outer band from 10th to 90th percentile).
Fraction of Time Spent in Various Temperature Bands

The average fraction of time spent in various temperature bands: cold (0C to 10C), cool (10C to 18C),
comfortable (18C to 24C), warm (24C to 29C), hot (29C to 38C)




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According to our forecast, electricity consumption per capita in Israel is
expected to increase from 6.8 mWh in 2013 to 11.7 mWh in 2040, which
represent convergence to demand levels in the US "Sun Belt" States, adjusted
to Israeli household size and Israeli weather conditions. Based on our forecast,
GDP/capita in Israel is expected to reach $57,000 per capita in 2040 (in real
terms), 18% higher than the GDP/capita in the US today.

Electricity Consumption per Capita, Israel vs. USA



The rise of electricity intensity in Israel is due to lower GDP per capita, and is
characteristic of countries with lower income levels. As the economy grows,
electricity demand reaches saturation, and a further growth does not yield
proportional increase in electricity demand.



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3.3 Electricity Demand for Desalination
In recent years the water problem in Israel has intensified and at present all
water pumped from wells and natural sources is being fully (but not efficiently)
utilized. Demand for water is expected to increase in the coming decade, with
total supply of potable water remaining steady (1.4 billion m
3
), requiring further
increase in desalination capacity.

According to the Economic Models water demand model, a growing deficit will
develop in Israel between water demand and supply. In 2020, excess demand
(including the Palestinian demand) is expected to require 750 million m
3
of
desalination capacity and 1,500m m
3
by 2040.

This forecast is made under the assumption that Israel will agree to allot some
500m m
3
potable water to the Palestinians as part of future arrangement.

Israel can obtain unlimited water supply, available at a marginal cost of some
$0.55 per m
3
, by desalinating seawater. Since residential consumers are
already paying a marginal price of around $2 to $3 per m
3
(including distribution
costs within the municipal pipeline network), then there is no limitation to supply
all the residential demand (see table below).

The demand for electricity for seawater desalination is about 0.8 billion kWh in
2012, and is expected to increase to 5 billion kWh in 2040 (at 3.5kWh per m
3
of
desalinated water, based on reverse osmosis technology). It is assumed that
private producers will produce all the electricity for desalination, except for the
140m
3
desalination plant in Hadera which will purchase electricity (0.3 billion
kWh per year) from IEC.



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Israel Water Demand and Supply
In million m3

Demand* Supply Israeli
Residential
demand
per capita
Natural
Sources
Desalination
2013 1,704 1,334 410 92
2015 1,790 1,357 590 99
2020 2,018 1,357 740 115
2025
2,315
1,357 960
115
2030 2,665 1,357 1,305 115
2035 2,770 1,357 1,415 115
2040 2,882 1,357 1,522 115

*Israeli demand plus allocation of 50 million m3 to Jordan, and 50-500 m3 to the Palestinians

Electricity Demand for Seawater Desalination
Mil. Cubic
Meters of
Desalination
Electricity
for
Desalination
( Bil. KWh)*
Gas
Demand for
Desalination
(BCM)*
2010 288 0.54 0.1
2011 300 0.8 0.1
2012 300 0.8 0.2
2013 410 1.0 0.3
2015 590 1.7 0.3
2020 740 2.3 0.5
2025 960 3.1 0.7
2030 1,305 4.3 0.9
2040 1,520 5.0 1.0

*Excludes desalination in Hadera (300 mil kWh/year which is supplied by IEC).

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3.4 Demand for Electricity in the Palestinian Economy
Electricity consumption by the Palestinian economy has risen in the past
decade at an annual rate of about 5%. The growth stemmed from a rising
standard of living and electrification of the Palestinian economy

In the longer term, assuming that the peace process between Israel and the
Palestinian Authority will continue and in the positive path the parties will reach
a partial agreement, accelerated economic development can be expected in the
Palestinian Authority.

In these circumstances continued accelerated growth is expected in electricity
demand in the coming two decades at annual rates of 6% to 5%. Per capita
electricity consumption in the Palestinian economy in will reach in 2030 only
20% of the consumption in the Israeli economy.

We estimate that with the utilization of natural gas in Israel, the Palestinian
economy will act to separate its electricity generation from that of Israel. Thus,
we assume that within 10 years, the Palestinian Authority may generate all its
electricity needs by means of natural gas from Gaza or Israel.




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3.5 Demand Sensitivity Analysis

Electricity demand sensitivity to changes in GDP growth indicate that a 0.6%
points permanent decrease (or increase) in GDP growth rate, results in 0.4%
decrease (or increase) in average electricity demand growth rate, as illustrated
in the table below.

Electricity Natural Gas Demand Sensitivity to GDP Growth
Very
Low
Low Base High
GDP/Employee
Growth Rate
1.4% 1.6% 2.0% 2.5%
GDP/Capita
Growth Rate
1.6% 1.8% 2.2% 2.7%
GDP growth rate 3.2% 3.4% 3.8% 4.3%
Electricity
demand Growth
Rate
3.3% 3.4% 3.6% 3.9%
Electricity
Demand in 2040,
Bil. KwH
131 134 142 154
Natural Gas
Demand 2013-
2040 in BCM
368 461 499 539
% change in gas
demand vs. base
case, 2040
-7.9% - 5.5% 0% 8.0%


According to our analysis, the long run price elasticity of electricity is about 0.37
(each 10% increase in electricity prices decreased electricity demand by about
3.5%). The demand response to price changes is gradual, and we estimate it
takes about 4 years for a complete demand adjustment (see table below).

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Therefore, if the price changes are only temporary, the effect on demand is
relatively small.


Electricity Price Elasticity Estimate
Demand reduction in response to a permanent 10% increase in electricity prices

Cumulative Electricity
demand change
Year 1 -0.8%
Year 2 -1.6%
Year 3 -2.3%
Year 4 onwards -3.7%

The following table illustrates the effect of a permanent 10% increase in
electricity prices in 2012 over the years. The longer the price increase is
maintained, the higher the effect on gas demand, due to gradual adjustment
period in the demand response on the one hand, and the increased share of
gas in the electricity generation on the other hand.


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Gas Demand Sensitivity to
Electricity Prices
Low
Prices
Base High
Prices
Increase in
electricity prices
-10% 0% 10%
Average annual
increase in
electricity demand
3.7% 3.6% 3.5%
Electricity Demand
in 2040, Bil. KwH
146 142 138
% change in
electricity demand
vs. base case, 2040
+3.0% 0% -2.8%
Natural Gas
Demand 2013-2040
in BCM
518 499 479
% change in gas
demand vs. base
case, 2040
3.8% 0% -4.0%


In case of a permanent increase in electricity prices of 10% in real terms,
electricity demand is expected to decrease by 3%, causing the overall gas
demand to decrease by about 3%.

The gas demand sensitivity to increase in prices, is less sensitive than the
overall electricity demand sensitivity, because the demand for gas as a
replacement for coal is not sensitive to electricity price changes.





4 Electricity Supply Forecast

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4.1 Introduction
Generation capacity forecast is based on existing policy, to maintain an excess
production capacity margin of 10%-20% (of gross generation capacity). On the
average, this excess capacity is not used, thus it is clear that it is economically
efficient to build this reserve capacity using a technology that is characterized
by low investment costs and fast startup time, without sensitivity to energy
costs. Reserve capacity will therefore be maintained using Open Cycle units
(typically older units which have even lower thermal efficiency).


Israel Electricity Generation Capacity Forecast by Fuel
In MW
2013 2017 2020 2030 2040 CAGR
Coal / dual gas-
coal
4,840 4,840 4,840 6,100 6,100 0.8%
Gas
7,520 11,778 13,003 16,523 21,717 3.9%
FO/Diesel
1,170 1,170 1,170 1,170 1,170 0.0%
Renewables
250 514 1,381 5,541 7,608
Nuclear
- - - 3,600
Total Capacity 13,788 18,302 20,411 29,334 40,200 4.0%


Our long term electricity generation capacity forecast is based on an
assumption of economic efficient optimal construction plan. This is a synthetic
assumption, based on yearly optimization of electricity generation capacity. In
practice, investments in generation capacity are done in discrete steps, and
may be postponed for technical, financial or administrative reasons.



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Plant operating decisions are made based on variable costs, which are
dominated by fuel costs. Plants are generally dispatched (started and run) to
serve loads based on production costs in what is called merit order, i.e., lowest
production costs first. That way the least expensive plants run the most,
minimizing production costs and thus minimizing total electricity costs.

Our baseline assumption is that existing coal units (either fulled with coal, or
gas at coal replacement prices) are used as baseload units, and are dispatched
before any other gas-fuelled units.


4.2 Coal to gas conversion
The Minister of National Infrastructures announced on August 1st, 2011, his
decision to convert four of the six coal-driven turbines at the Orot Rabin Power
Station to natural gas turbines with coal as back-up.

The conversion of coal units to dual fired gas/coal has several advantages to
the Israeli economy:
It allows Israel to utilize its local gas resources as an alternative to
imported coal.
Backup coal generation capacity avoids the strategic risk of
reliance solely on gas for electricity generation
It enables the reduction of emissions (SOX, NOX and CO
2
) at
reduced costs





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Existing Coal Based Power Units
Location Stage Turbines MW NOX
emission
level*
SOX
emission
level*
Vintage
Orot Rabin A 4X360 1,440 1,350 1,000 1981-
1984
B 2X575 1,150 950 1,000 1995-
1996
Rotenberg A 2X575 1,150 900 1,380 1990-
1991
B 2X550 1,100 500 1,000 2000-
2001
Total 10 4,840
*In mg. The required emission level by 2016 is 200 mg for all units.

The current and potential future natural gas discoveries provide a unique
opportunity to revolutionize Israels energy strategy, and to dramatically
decrease Israels dependence on foreign energy sources for electricity, industry,
and public transportation.

With sufficient proven reserves of natural gas, and multiple points of entry
connecting the gas field the national pipeline grid, there is significant advantage
to the Israeli economy to shift almost all electricity production to natural gas
(with coal as a backup fuel).

Conversion of the existing coal units to dual fuel (gas/coal) gas has significant
benefits to the gas providers and to the Israeli economy. Israel could become
one of the cleanest nation (CO2 and pollution-wise) among the OECD
countries. The reduction in greenhouse gas emissions, SOX, NOX and particles
pollution provides substantial external benefits.

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Potential Electricity Generation CO
2
Emission Reduction
Through coal to gas conversion
Millions of tons Existing Full Coal to Gas
Conversion
Reduction
Coal Units 30.2 17.3 -43%
Gas Units 6.6 6.6 -
Other units 3.4 3.4 -
Total 40.2 27.3 -32%



Potential Electricity Generation SO
X
Emission Reduction
Through coal to gas conversion
Millions of tons Existing Full Coal to Gas
Conversion
Reduction
Coal Units 85.8 0.7 -99%
Gas Units 0.3 0.3 -
Other units 2.6 2.6 -
Total 88.7 3.6 -95%

There has been a formal decision to convert 4 coal units with a total capacity of
1,400 MW from coal to gas. Although no formal decision has yet been made for
the conversion of the other 6 coal units (3,400 MW) to gas, we are fully
convinced that this a must! The strong economic incentives to all the relevant
parties to make the conversion from coal to gas will force the parties (and
especially the government) to find a "saddle point" gas price within the range so
that each side will be better off. We estimate the full government's direct profit
from coal to gas conversion is above $ 3 per MMBTU.


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It is easy to show that conversion of all the existing coal units to dual fuel
(gas/coal) gas has significant benefits to the gas providers and to the Israeli
economy. But the most important part of this conversion is the benefit of the
government that receives (as direct taxes) 60% of the profit from the additional
gas sales and 0% revenues from import of coal. Because Israel has excess gas
supply we are fully convinced that long term gas contracts, for all the coal units,
ensuring a competitive gas prices relative to coal will be reached.

Therefore, due to these economic advantages, we assume that the conversion
of Israel's 10 coal units to gas in 2018-2020, along with Leviathan entrance to
the market.

4.3 Project D
Israel, as an isolated and small economy which faces security threats, has
made a strategic decision to prevent dependence on a single source of energy
for electricity production. Therefore, despite the government's efforts to restrict
Israel Electric's capacity expansion, the government reform plan includes
authorization for Israel Electric to build its next dual fuel coal/gas unit "Project
D" (under the condition of 51% investor in the unit). Project D is planned for
2022 as a dual fuel coal/gas unit that will be fueled on gas, with coal as a
backup fuel for emergency periods. Project D's strategic importance is that it
will allow Israel to continue to have coal backup capacity for its entire baseload
electricity demand.

Our assumption is that project D will be built by 2022 fueled in normal times by
natural gas, under a competitive price for gas for this unit, with coal used as a
backup fuel only.


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4.4 Electricity Supply by IPPs
Despite numerous attempts over the years by the Israeli government to
introduce new producers into the electricity market, IEC has maintained its
status as the sole producer.
In recent years the government has introduced a new policy to allow additional
private producers to enter the market.
There are currently 4 main IPP projects under way, the Dorad Group (800 MW)
the Ofer Group (400 MW) and the Dalia Group (800 MW) and the Beer Tuvia
Group (400MW).
The demand for gas for electricity production is not sensitive to policy changes
regarding competition in the electricity market or to the extent of the IPPs
existence. Even if IEC's market share will be reduced, gas demand will not be
affected since private producers will increase demand accordingly. The same is
true if IPPs will have difficulties to compete in the market. From the natural gas
demand viewpoint, it is irrelevant if the additional demand will come from IPPs
or from IEC.


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4.5 Electricity Supply by Cogeneration

Cogeneration plants are becoming fairly widespread in Israel. These
cogeneration plants were initially built for self-production of electricity and
steam.
Total cogeneration natural gas demand (including desalination) is forecast to
increase from 0.5 BCM in 2010 to 3.2 BCM in 2015, and 4.5 BCM by 2030.

Gas Demand forecast by
Major Industrial Gas Consumers, 2015
Gas
Demand
Estimate,
2015
ICL 0.75
ORL Haifa 1.0
AIPM 0.2
Paz Refinery 0.2
Ed Tech (Ramat Negev, Ashdod Energy) 0.3
Haifa Chemicals 0.1
Alon Tavor, Ramat Gabriel 0.3
Nesher 0.2
Agan, Makhteshim 0.15
Total 3.2
Source: Delek, Economic Models forecast


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4.6 Renewable Energy Supply
The Israeli government decided to encourage renewable energy sources, and
adopted a target of 10% renewable energy of the electricity generation capacity
by 2020.

In order to support this goal, the government subsidized solar energy
producers.

Solar generation costs 5 to 10 times more than conventional technologies, and
therefore requires large subsidies to be built.

In February 2011, the finance ministry decided to withhold the solar energy
subsidy policy, due to the high subsidy costs of renewable energy.

Our forecast is based on the assumption that by 2030, 20% of the generation
capacity in Israel will be based on renewable (solar and wind) energy,
accounting for about 8% of electricity production.

In comparison, the EU has set a target of 20% renewables by 2020, but is
already producing about 13% of its electricity with hydro-electric units. Israel
has no potential for hydro-electric power, therefore our assumption is based on
a comparable usage of non-hydro electric renewables.

It should be notes that Israel's CO
2
emissions today (per capita) are 20% below
the OECD average. Therefore, there is no reason that Israel will have to adopt
higher renewable targets.




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Share of Renewable Energy Generation in OECD Countries
% of total electricity generation
Hydroelectric Wind Non-
Hydroelectric
Renewables
Total
Renewables
Iceland 74% 0% 26% 100%
Norway 96% 1% 1% 97%
Austria 61% 4% 12% 74%
New
Zealand
57% 3% 15% 73%
Canada 60% 1% 2% 62%
Sweden 50% 2% 11% 60%
Switzerland 55% 0% 4% 59%
Portugal 17% 15% 21% 39%
Finland 19% 0% 13% 32%
Denmark 0% 19% 30% 30%
Spain 9% 13% 16% 26%
Italy 17% 2% 7% 25%
Turkey 19% 1% 2% 21%
Slovakia 18% 0% 2% 20%
Germany 3% 6% 14% 18%
Ireland 3% 11% 12% 15%
Mexico 11% 0% 3% 14%
France 11% 1% 3% 14%
Greece 9% 4% 4% 13%
Netherlands 0% 4% 11% 11%
Luxembourg 4% 2% 7% 11%
United
States
7% 2% 4% 11%
Japan 8% 0% 2% 10%
Hungary 1% 1% 8% 8%
Australia 5% 2% 2% 7%
United
Kingdom
2% 2% 6% 7%
Belgium 0% 1% 7% 7%
Poland 2% 1% 4% 6%
Czech
Republic
3% 0% 3% 6%
Korea,
South
1% 0% 1% 1%
OECD
Average
13% 2% 5% 18%
Source: DOE

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Per Capita Carbon Dioxide Emissions from the Consumption of
Energy in OECD

Country Ton CO
2
/Capita
Turkey 3.3
Chile 3.8
Mexico 4.0
Hungary 5.0
Portugal 5.3
Sweden 5.6
Switzerland 6.0
France 6.3
Slovakia 6.5
Italy 7.0
Spain 7.1
Poland 7.4
Israel 8.1
United Kingdom 8.4
Puerto Rico 8.4
Austria 8.4
Norway 8.5
Japan 8.6
Ireland 8.8
Denmark 9.0
New Zealand 9.3
Germany 9.3
Czech Republic 9.3
Greece 9.3
Guam 9.6
Finland 9.9
OECD Average 10.4
Korea, South 10.9
Iceland 11.1
Belgium 13.2
Netherlands 14.9
Canada 16.2
United States 17.7
Australia 19.6
Luxembourg 21.5
Source: DOE, CBS (Israel)

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4.7 Future Nuclear Energy
Israel's long term electricity sector development plan includes a nuclear power
plant, and IEC has declared that it wishes to start the long term planning
process for a future nuclear power station.

Israel's Prime Minister Netanyahu also adopted the vision of a nuclear power
plant, as a viable alternative to increase Israel's energy independence and
flexibility.

Nuclear Energy Generation Capacity in OECD Counties
In thousands of MW, 2010

Nuclear
Capacity
(kMW)
% of Total
Generation
Capacity
France 63.260 54%
Belgium 5.825 35%
Slovakia 2.200 30%
Sweden 8.938 26%
Hungary 1.940 22%
Korea, South 17.716 22%
Czech
Republic
3.760 21%
Japan* 47.935 17%
Switzerland 3.220 17%
Finland 2.671 16%
Germany 20.486 15%
United
Kingdom
10.979 13%
OECD Total 312.270 12%
Canada 13.345 10%
United States 100.755 10%
Spain 7.365 8%
Mexico 1.365 2%
Netherlands 0.510 2%

*Japan, before the Fokushima accident


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Only half of OECD countries have nuclear energy generation. Notable counties
without any nuclear energy plants include Australia, Italy, Greece, Ireland,
Norway, Denmark and Turkey.

There are several obstacles to building a nuclear power plant in Israel, including
the small size of the country which increases the risk in case of emergency, and
the fact that Israel did not sign the Nuclear Non-Proliferation Treaty.

The recent crisis at the Fukushima power plants in Japan also raised concerns
regarding nuclear energy safety. This is despite the fact the Japanese incident
showed that even a severe hit in (30 year old) reactors did not cause major
casualties. In contrast to Japan, in Israel, weather does not constitute a major
concern. However, there is a potential threat of terror and missile attacks, which
may prevent any nuclear power unit being built until the security issues are
solved.

Therefore, we assume that the possibility of a nuclear power plant in Israel
exists as a long term (20+ years from today) possibility.

Accordingly, our forecast is based on the assumption that the first two 1,200
MW nuclear power plants in Israel will not be completed before 2031, with
additional capacity built in 2040.





5 Israel Natural Gas Demand for
Electricity Forecast

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5.1 Introduction
We estimate that Israel's energy sector transformation to natural gas is still in its
first phase. Therefore, current demand quantities do not represent Israel's full
demand potential.
In 2012, Israel's national gas pipeline grid has finally reached all the major
industrial areas, which enabled Israel's electricity sector to complete the shift of
its last oil based power units from diesel and fuel-oil to natural gas (In practice,
due to the gas shortage, some units had to temporarily switch back to oil).
Israel's largest manufacturers are currently in the process of converting and
upgrading their cogeneration facilities from oil to gas. This process was delayed
due to delays in pipeline connection and the lack of natural gas. Most large
industrial manufacturers are expected to complete the switch to gas by 2015.
Israel's electricity demand per capita is very low compared to western states
when accounting for weather conditions (the demand in Israel is 55% less than
the US "Sun Belt" states, which has comparable weather). As Israel's standard
of living increases, demand for electricity is expected to increase (see below).
We estimate that all the increase in Israel's electricity demand throughout 2040
will be supplied by natural gas (except from renewable energies that may reach
10% of Israel's electricity supply, and nuclear power stations that could be built
in 2031 and beyond).
Furthermore, we believe that there are strong economic and environmental
incentives to convert all Israel's coal based power units to dual-fuel units that
will be run on gas as a primary fuel, with coal as a backup fuel only (assuming a
competitive price for gas).
Based on a decision of the Minister of Infrastructure, starting 2015 gas will be
used as a replacement for coal in 4 of the Orot Rabin coal units units

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(1400MW). We believe that conversion of the other coal units to gas (3400MW)
is likely to occur along with Leviathan's entry to the market (although no formal
decision has been made yet).
The availability of natural gas is expected to enable increased gas usage for
transportation applications in Israel. Israel's railway system in currently running
on expensive diesel fuel and major parts of it are planned to be electrified by
2017.
Israel's transportation sector can also benefit from the availability of local supply
of natural gas. In our view, unique economic potential exists for establishing
methanol production plant in Israel, which can produce methanol as a major
substitute for gasoline in the local market (M85 for new cars, M15 for existing
vehicles). Methanol is clean, safe and its usage as a vehicle fuel is economic
due to the home-advantage without requiring subsidy. We expect electric cars
and CNG vehicles are expected to remain small niche applications throughout
2040 due to driving range and cost limitations.
Experience worldwide shows that countries with a gas surplus usually develop,
parallel to an industry of LNG export, also a large and profitable petrochemical
industry exploiting the availability of local methane gas sources. Therefore, we
see potential for development of additional applications for natural gas based
chemical industries in Israel (See analysis in Chapter 6 below).



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5.2 The Demand for Natural Gas

Economic Models natural gas demand forecast for Israel is based on a
proprietary multi-factor macro-economic model, electricity demand and supply
models, and an economic dispatch model based on a forecasted load-duration
curve. Economic Models has been providing its customers with the long-term
electricity demand model for over 20 years.
Based on the assumptions detailed in this report and under average weather
conditions, we forecast that the demand for natural gas in Israel, without any
further coal to gas conversion, will increase from 7 BCM in 2013 to 17.4 BCM in
2020 and 27 BCM in 2040. This forecast includes the demand for natural gas by
IEC, IPPs, cogeneration, transportation, chemical industry, low pressure
industries (LDC) and desalination.
Further conversion of existing coal units to gas (beyond Orot Rabin A) may
increase annual gas demand by additional 6 BCM in 2020.
Aggregate gas demand in the Israel until 2040 is expected to reach 562 BCM
without further coal to gas conversion, 694 BCM with full coal conversion to gas.
Additional regional captive markets include the Palestinian (which currently
purchase electricity from Israel) and Jordan. Since Egypt has gas supply
constraints, it is unlikely that these markets will be able to purchase gas from
Egypt. It is also unlikely that the Gaza Marine Field (30 BCM offshore Gaza) will
be developed in the coming years.
Total regional potential demand throughout 2040 is estimated at 875 BCM,
which includes Israeli and Palestinian demand of 747 BCM (85% of the regional
demand) and export to Jordan of additional 128 BCM (15% of demand).


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We define all these markets (Israel, Palestinians and Jordan) as the "Narrow
Path" alternative.

Beyond that, the current regulation allows export of about 40% of Israel's gas
resources. Accordingly, in additional to the Narrow Path demand, further export
out of Israel of up to 370BCM is expected, provided adequate resources are
discovered. We define this alternative at the "Broad Path" alterative and
believe that it has significantly more than 50% probability of materializing.

Natural Gas Demand Forecast^ Summary by Sector
In BCM
2013 2015 2020 2030 2040 Total
2013-
2040
Running
Total
2013-
2040
Electricity and
Cogeneration
7.0 12.0 15.7 17.8 23.0 499
Transportation -
CNG
- 0.1 0.4 0.8 1.1 17 516
Chemical Industry - - 1.3 1.9 2.9 46 562
Further Coal
conversion to gas**
- 6.0 6.0 6.0 132 694
Palestinian self-
generation
- - - 2.9 4.4 53 747
Jordan - 0.1 4.1 5.6 7.5 128 875
Narrow Path
(Subtotal)
7.0 12.2 27.5 35.1 44.8 875
LNG - - 7.0 18.0 27.5 370 1,245
Total Broad Path 7.0 12.2 34.5 53.1 72.3 1,245

*IEC and IPP's, excluding potential gas demand for coal units for which a decision to convert to gas has not
been made yet.
**Beyond Orot Rabin A, for which no decision has been made. See section H: Advantages of Coal to gas
conversion in Israel. ^Potential demand assuming no supply side constraints

Although currently, there is no approved location for a liquefaction plant, several
options exist for LNG export, including the existing underutilized LNG plants in

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Egypt, Floating LNG, an offshore liquefaction platform, liquefaction plant in
Israel, or a liquefaction plant in Cyprus. LNG is a commodity and Israel is a
small player in the global LNG market. The Israeli Parliament approved to
export 40% of total gas discoveries. Hence, we believe that there will be more
incentives to explore gas and that the entire limited export quota will be sold in
the global markets.

Our demand forecasts in both paths do not take into account long term supply
side constraints and capacity limitations. But in case of short term supply
constraints, Israel may either import LNG, reduce export, and/or use more oil
products (as was the case in 2011-12). The underlying assumption in the Broad
Path forecast is that additional gas resources are discovered, to meet the 40%
export allowance (see discussion in Section D competitive environment
below).


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5.3 Demand for Gas for Cogeneration
In 2013, the Israeli industry consumed about 1.0 million tons of fuels (primarily
fuel oil) for industrial uses (mainly steam production), which are about 1.3 BCM
of natural gas in equivalent gas units. In addition, the industry used about 1.5
BCM of gas by units which were already converted from fuel to gas.
Therefore, the potential gas demand by the Israeli industry in 2013, assuming
full conversion to natural gas is 2.8 BCM.
By 2015, fuel demand by the industry in gas equivalent terms is expected to
reach about 3.2 BCM.
We estimate that all the existing heavy industry fuel, and about 25% of the light
industry (low pressure consumers) will complete the transition from fuels to gas
in the next 2 years. Accordingly, gas demand by the industry is expected to
reach 3.4 BCM by 2015.

Israel Fuel Demand by the Industry Sector in 2013
Fuel m. tons of
fuel
Gas
equivalent
BCM
Fuel Oil 0.4 0.5
Diesel 0.02 0.02
Natural Gas

1.5
LPG (ex. Petrochemicals) 0.3 0.4
ORL Self-Use (Fuel Oil) 0.3 0.4
Total 1.0 2.8

The conversion from fuel oil and diesel to gas will create incremental gas
demand beyond the demand for gas for electricity.

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Some of the units are converted to gas due to regulatory requirement (like ORL
in Haifa), and therefore the conversion is mandatory. For the others, there is a
clear economic incentive to invest in the conversion, since the price of gas is
about 1/4 of the price of fuel oil or diesel.

Gas Demand forecast by
Major Industrial Gas Consumers, 2015
Gas
Demand
Estimate,
2015
ICL 0.75
ORL Haifa 1.0
AIPM 0.2
Paz Refinery 0.2
Ed Tech (Ramat Negev, Ashdod Energy) 0.3
Haifa Chemicals 0.1
Alon Tavor, Ramat Gabriel 0.3
Nesher 0.2
Agan, Makhteshim 0.15
Total 3.2
Source: Delek, Economic Models forecast




6 Gas Demand for Chemicals and
Transportation

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6.1 Demand for Gas for Transportation
The Israeli government recently decided to invest more than 2 billion shekels in
the coming decade to increase Israel's energy independence and reduce air
pollution. From Israel's perspective, the transition to energy independence is of
strategic importance beyond the environmental implications.

CNG based vehicles provide potential for natural gas based transportation, for
specialty niche applications, such as urban transportation fleet including buses,
taxis, delivery trucks etc.

CNG provides a good solution to fleet vehicles which visit every day a central
hub that can provide CNG refueling services, without a need to develop a costly
network of refueling stations.

We believe that CNG may replace about 10% of Israel's diesel based fleet fuel
consumption by 2020, corresponding to 0.4 BCM of natural gas demand in
2020, gradually reaching a 20% market share by 2040.

In addition to CNG demand, based on our analysis Israel has an exceptional
opportunity to create a methanol production industry that will enable it to
gradually move all its passenger cars to flex-fuel vehicles powered by 85%
methanol and 15% Gasoline (M85). Our analysis indicates that due to the
home-advantage methanol for local consumption can be produced at
competitive prices relative to the price of Gasoline without any subsidy for the
methanol.


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Demand Forecast of CNG for Transportation
Total Israel
Transportation
Diesel* Demand
(m. tons)
Diesel
Demand
Growth
Rate
CNG
Penetration
in Diesel
Fleet
CNG
demand in
m. tons
equivalent**
CNG
demand
in BCM*
2012 2,328 2.2% 0.0% 0 0.0
2013 2,352 1.1% 0.0% 0 0.0
2014 2,381 1.2% 0.0% 0 0.0
2015 2,412 1.3% 2.0% 57 0.1
2016 2,444 1.3% 4.0% 115 0.1
2017 2,490 1.9% 6.0% 176 0.2
2018 2,546 2.2% 8.0% 240 0.3
2019 2,604 2.3% 10.0% 307 0.3
2020 2,667 2.4% 11.0% 345 0.4
2021 2,732 2.4% 12.0% 386 0.4
2022 2,800 2.5% 13.0% 428 0.5
2023 2,872 2.6% 14.0% 473 0.5
2024 2,945 2.6% 15.0% 520 0.6
2025 3,021 2.6% 15.5% 551 0.6
2026 3,099 2.6% 16.0% 584 0.6
2027 3,181 2.6% 16.5% 618 0.7
2028 3,262 2.6% 17.0% 653 0.7
2029 3,345 2.5% 17.5% 689 0.7
2030 3,429 2.5% 18.0% 726 0.8
2031 3,511 2.4% 18.3% 756 0.8
2032 3,592 2.3% 18.6% 786 0.9
2033 3,671 2.2% 19.0% 821 0.9
2034 3,748 2.1% 19.3% 851 0.9
2035 3,823 2.0% 19.6% 882 1.0
2036 3,896 1.9% 19.7% 903 1.0
2037 3,966 1.8% 19.8% 924 1.0
2038 4,033 1.7% 19.9% 945 1.0
2039 4,102 1.7% 20.0% 963 1.0
2040 4,172 1.7% 20.0% 982 1.1

*Excluding Palestinian diesel demand for transportation


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In our view, Israel is a unique case in which the transition to methanol-powered
vehicles is strategically beneficial for the national economy:
1. Energy independence - ending the dependence on oil imports.
2. Exploiting the economic potential inherent in Israel's gas reserves.
3. A small market, which facilitates the dispersion of a national
infrastructure for refueling the methanol vehicles.
4. An isolated market, facilitating the transition to vehicles matched to
methanol, and exploiting the advantage of the energetic efficiency.
5. No alternative local production of ethanol, due to lack of land and water.
6. A market with surplus natural gas and no oil reserves (no oil
cannibalization problem).

However, our forecast conservatively, does not include the potential demand for
M85 fuels.


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6.2 Demand for Gas for Chemical Industry
Experience worldwide shows that in most countries that have a surplus of
natural gas, a large chemical and petrochemical industry develops, which
enables the economic potential inherent in the availability of energy sources to
be realized.

We believe that the discovery of large natural-gas fields along Israel's shores
constitutes significant potential for the development of a chemical and
petrochemical industry in Israel, and to enter new fields of producing methane-
based chemical products.

The natural gas (methane) could be a basis for producing a range of traditional
chemical products (ammonia, methanol), for producing synthetic fuels (GTL), for
producing fuel substitutes (methanol and DME), and for producing olefins on the
basis of innovative technologies (MTO methanol to olefins).

From a technological-engineering perspective a wide range of alternatives exist,
but the economic feasibility of producing the various products is dependent on
the natural gas prices, the oil products, and the petrochemical products, and the
availability of local or nearby target markets.


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Alternatives for the Petrochemical Industry Based on Natural Gas
(Methane)

In countries with a surplus of natural gas (such as the Persian Gulf states, and
even Egypt) a large petrochemical industry has developed in recent years
based on the use of available natural gas.
As opposed to the gas in the Persian Gulf, the gas in Israel does not contain
ethane, which means that it is not suitable for the ethylene industry. An
examination should be undertaken, in our view, of the feasibility of establishing
an industry based on methane derivatives:
1. Production of ammonia, the major raw material for the fertilizer industry.
2. Production of methanol (a chemical and a fuel substitute).
3. Production of olefins from methanol (MTO).
4. Extraction of liquid distillates from methane (GTL technology).




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Chemical Industry Natural Gas Demand Forecast
In BCM
2015 2017 2020 2030 2040 Total
2013-
2040
Ammonia 0 0.5 0.5 0.7 1.0 15
Methanol 0 0.5 0.5 0.8 1.3 19
Others 0 0.3 0.3 0.5 0.7 11
Total Chemical
Industry
Potential
0 1.3 1.3 2.0 3.0 45

*Excluding existing ORL demand which is included in the general Industry Sector Demand (see
chapter 5).




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6.3 Global demand for ammonia
Global demand for ammonia was around 160 million tons in 2013, about 80% of
which was used in the fertilizer industry. Nitrogen (N), phosphorus (P), and
potassium (K) are the three major materials whose absence inhibits the growth
of plants. For this reason, they are the main components of fertilizers. Most
fertilizers worldwide are a mixture of phosphorus (whose major source is rock
phosphates), potassium and ammonia. Additional uses of ammonia are
manufacture of synthetic fibers (acrylic fibers and nylon), the manufacture of
explosives, and for cooling.

Forecast of Global Demand for Ammonia

The largest producers of ammonia are China (30% of the world market), and
the United States, India, and Russia (around 8% of the world production each).
Ammonia production is currently based mainly on natural gas. Production plants
using naphtha, which existed in the past in Europe (and in Israel) have closed

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due to a lack of profitability. Ammonia production in China is based mainly on
coal feed.
In recent years production plants have closed in the United States and Europe,
while at the same time plants have been established in countries with a surplus
of natural gas for export. Technological developments and the exploitation of
economies of scale have led to the establishment of advanced plants with a
production capacity of 1 to 1.5 million tons of ammonia a year.

6.4 The market for Ammonia in Israel
The demand for ammonia in Israel is around 120,000 tons a year, around $60
million in current market prices of ammonia of around $500 per ton. The major
consumer of ammonia is Haifa Chemicals, which produces fertilizers on the
basis of potash and phosphates (from Israel Chemicals), and imported
ammonia, and consumes around 80,000 tons of ammonia a year.
In Israel there is no longer any domestic production of ammonia, and all
domestic consumption is based on imports. The ammonia-manufacturing plant
in the Deshanim (fertilizers) factory was closed more than 15 years ago
because of the lack of profitability of operating a plant based on naphtha feed.
Haifa Chemicals established an import terminal for ammonia at Haifa as a
replacement for the production plant that closed, and is today the sole importer
of ammonia for the local market. About 120,000 tons of ammonia are imported
annually through the chemicals terminal in Haifa port, by means of refrigerated
ships with a capacity of 12,000 tons. The ammonia (pressurized and at a
temperature of minus 33 degrees) is offloaded to a 12,000-ton storage
container at the Kishon terminal, and from there it is piped to the Haifa
Chemicals plant and the Deshanim plant.
Haifa Chemicals (in its factories in the north and the south) consumes around
80,000 tons a year. The company's major product is potassium nitrate,

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produced from nitric acid (extracted from ammonia), together with potash from
the Dead Sea.
Deshanim consumes around 40,000 tons of ammonia a year for its own
production, and marketing (in road tankers) to its customers, which include
dairies (milk cooling systems), food plants (for producing yeast and for cooling
systems), the military and security industry, the Electricity Corporation, the
pharmaceutical industry, ORL, and the Mekorot company.

6.5 Potential production of ammonia in Israel
The scale of domestic demand for ammonia is around 120,000 tons per year.
Ammonia exists in a gaseous state at room temperature, and is considered a
poisonous gas when inhaled. The storage and delivery systems of ammonia,
therefore, constitute a significant hazard in the event of a terror attack, fault, or
earthquake.
Today imported ammonia is stored at a 12,000-ton storage container at the
Kishon terminal near Haifa. This is considered a major risk factor, and triggered
the government decision in April 2013 to authorize a new Ammonia production
plant in the south of Israel, that will be operational by 2017, and will enable the
evacuation of the Ammonia storage near Haifa.
Several companies (including Dor Chemicals) have expressed interest in the
construction of an ammonia-producing plant on a scale of about 1 million tons
year for exporting Ammonia and for the supply the needs of the domestic
market.
The consumption of natural gas for producing ammonia is around 33.5 MMBTU
per ton of ammonia, which is around 1 BCM a year for the production of a
million tons of ammonia.


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Characteristics of a Modern Ammonia-Producing Plant
Production capacity (thousand tons of
ammonia a year
1,000
Investment cost ($ millions) $M 900
Annual income ($ millions) $M500
Natural gas consumption a year (BCM) 0.95

Our gas demand forecast assumes the plant will be constructed in stages. The
first stage, in 2017, will produce 500,000 tons of ammonia a year, and further
expansion is expected from 2022 onwards at an average rate of 3% per year.


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6.6 The global methanol market
Methanol is the alcohol with the simplest chemical structure, and is produced
worldwide almost exclusively from natural gas (in China coal is also used) in a
thermo-chemical process.
The Process of Producing Methanol from Natural Gas (Methane)

The current major use of methanol is as a base material for the production of
additional chemicals, but its major future potential is as a substitute for
transportation fuels. Today around 40% of methanol production worldwide is
used for extracting formaldehyde from which plastic materials, paint, explosives,
and textiles are produced. Some countries (especially in the Third World) still
use MTBE produced from methanol as an additive for enriching octanes in
Gasoline. Furthermore, it is possible to produce dimethyl ether from methanol,
as a substitute for diesel fuel.






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Global Demand Forecast for Methanol

Source: Chemical Market Associates Inc. (CMAI) World Methanol Analysis, October 2010 (excluding MTO)

Global demand for methanol in 2013 was around 50 million tons, and is
expected to grow at a rate of more than 7% a year, mainly because of the
increasing use of methanol as a fuel substitute. China is the world's largest
consumer, consuming around 18 million tons a year (about a third of global
consumption), about half of which is for China's chemical industry, and half as
an additive for fuel and fuel substitutes. About half of China's methanol
consumption is imported and half is produced domestically (mainly from coal).

Because the major raw material for the production of methanol is methane from
natural gas, methanol producing plants are located only in proximity to sources
of natural gas. In Egypt, a plant for extracting methanol was completed in 2011
with a production volume of 1.3 million tons and an investment of $1 billion, in
cooperation with the Methanex company (which holds 60% of the project) as
part of Mubarak Gas and Petrochemicals at Damietta.


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In our view, the economic logic for investing in the production of methanol in
Israel is derived from the combination of a local supply of natural gas, and the
possibility of developing a market for domestic consumption of methanol, as a
substitute for fuels. The home advantage for the production of methanol is at
least twice that of producing Gasoline, because of the fact that methanol
occupies double the volume of Gasoline (in other words, the transportation cost
is double per energy unit), and because of the small size of the market, which
necessitates transportation in smaller ships, thereby increasing costs per unit of
energy.

6.7 Methanol as a transportation fuel
Methanol can be used as fuel for internal combustion engines, and its use
requires only slight changes in the vehicle (flex fuel). Every new vehicle
manufactured today, can, with a relatively small addition (around $100 to $200)
be manufactured as a vehicle enabling the use of methanol (M85) or Gasoline
(flex fuel). The vehicle can also be adapted for the sole use of methanol, which
will improve the vehicle's effective efficiency by around 20%.
Methanol is cleaner and safer for use than Gasoline, but it causes corrosion,
and slight adaptations are therefore required to the vehicle for a mix that
includes more than 15% of methanol. The most usual mix is 85% methanol and
15% Gasoline (which is added to methanol, because in the event of burning, the
methanol flame is clean and invisible). This mix of M85 is a similar product to
E85 (85% ethanol and 15% Gasoline), which is sold in the United States and
Europe. Assessments are that the production of methanol from natural gas is
cheaper than the production of ethanol (which is produced from corn or soya),
and that the more extensive use of ethanol worldwide is a result of political and
not economic motives, and because of the fact that methanol produced from

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natural gas does not fall into the category of "alternative fuels" or "renewable
energy".
In our view the major economic factor that has prevented the development of
methanol as an alternative fuel is the fact that the countries exporting natural
gas (and therefore with the potential to be large-scale exporters of methanol)
are also the large exporters of crude oil. These countries have no economic
interest in encouraging the development of alternative fuels that would lead to a
fall in oil prices.
The only country with a significant production capacity of methanol and that is
not a large exporter of crude oil, is China (in which methanol production is
based on coal), where there is a clear policy of introducing methanol as
transportation fuel as a substitute for Gasoline.

6.8 The potential for methanol in Israel
The Israeli government decided to invest more than 2 billion shekels in the
coming decade to increase Israel's energy independence and reduce the air
pollution. From Israel's perspective, the transition to energy independence is of
strategic importance beyond the environmental implications.
The discovery of natural gas reserves in Israel creates the potential to move to
flex-fuel vehicles powered by 85% methanol and 15% Gasoline.
In our view, Israel is a unique case in which the transition to methanol-powered
vehicles is strategically beneficial for the national economy:
1. Achieving energy independence and ending the dependence on oil
imports.
2. Fully exploiting the economic potential inherent in Israel's natural gas
reserves.

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3. A small market, which facilitates the dispersion of a national
infrastructure for refueling the methanol vehicles.
4. An isolated market, facilitating the transition to vehicles matched to
methanol, and exploiting the advantage of the energetic efficiency.
5. The improbability of domestic production of ethanol, because of a lack of
land and water.
With an investment of around $1.8 billion it will be possible to establish
methanol plants producing around 2.5 million tons a year, which will supply the
total current Gasoline consumption for transportation in Israel.

Dor Chemicals has recently announced its intentions to build a methanol
production plant in Israel with a capacity of up to 1 million ton methanol a year,
which requires gas supply of about 1 BCM a year.

Our gas demand forecast assumes the plant will be constructed in 2 stages.
The first stage, in 2017, will produce 500,000 tons of methanol a year, and
further expansions at an average rate of 5% a year from 2022 onwards.




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6.9 Production of methanol-based olefins (MTO)
The combination of local production of methanol, and Israel's existing olefins
industry, creates potential for expansion into petrochemicals with technologies
that produce olefins from methanol.
Innovative processes recently developed enable the production of olefins
(ethylene, propylene) from methanol. This process, called MTO (methanol to
olefins), enables the development of a petrochemical industry based on natural
gas (methane) or coal.
China in recent years is developing an MTO industry based on large reserves of
coal. The feasibility should be examined of developing MTO plants on the basis
of Israel's natural gas reserves.
This is an industry that offers a clear relative advantage to the petrochemicals
industry in Israel, but it is based on new technologies, and its feasibility might
well be conditional on finding an international partner with experience in this
area.
The production of olefins from methanol is at the initial penetration stage, but
assessments in the industry are that within 5 years the scale of consumption of
methanol for the production of olefins will reach around 13 million tons a year,
about 17% of global demand for methanol.
Forecast of Global Demand for Methanol to Produce Olefins (MTO)
2010 2014
Demand for methanol to produce olefins 1.1 12.6
Demand for methanol for fuels and
chemistry
45 60
Total 46.1 72.6
Percentage of demand for olefins 0.5% 17%

Source: Methanex

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A typical plant for producing olefins produces about 800,000 tons of ethylene
and propylene from around 2.4 million tons of methanol. The consumption of
natural gas required to produce the methanol is around 2.3 BCM a year.

6.10 Gas to Liquids (GTL)
GTL processes enable the production of light distillates (Gasoline, naphtha, and
diesel) from natural gas, and these constitute a complete alternative to oil
products.
The major technological technique for extracting fuels from natural gas (similar
to liquefaction of coal) is a chemical process Fischer-Tropsch (FT) developed in
Germany in the 1920s, and was used by Germany to produce fuels from coal
during the Second World War.
A typical process creates about 70% diesel, about 25% naphtha, and about 5%
oils. This is a very energy-intensive process; about 43% of the energy contained
in the natural gas is consumed in creating the fuels (energetic efficiency of
57%). This implies that on the assumption of an alternative natural gas price of
$3 per MMBTU, the cost of the energy component alone (excluding capital and
operation) in the GTL process is around $32 a barrel.
Several GTL plants operate worldwide, most relatively small. The GTL project of
Royal Dutch Shell is the world's largest project for producing fuels from gas.
The project is expected to extract 16.5 BCM of natural gas a year (1.6 bcfd.),
and to produce from it 320,000 equivalent barrels of oil a day, from which
140,000 barrels a day of distillates will be extracted (around 7 million tons a
year), and 120,000 barrels a day of ethane.
This is a vertical project, established with an overall investment of $20 billion,
and includes extracting the natural gas, separating the ethane, and refining
methane into distillates.

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The high capital costs and the dependence on high energy prices (or very low
gas prices) to justify the economic viability, are the reason for the absence of
investment on a large scale in plants for producing fuels from gas, except for
investments supported by government policy (for example, the Qatar
government that provided gas at no cost to the Pear GTL project), in return for
partnership in profits (if there are any).
It is possible that for strategic reasons the Israeli government could provide
guarantees for establishing a small plant that would function as a pilot project
for experimentation and for studying the technology. However, for conservative
reasons we did not include this possibility in our gas demand forecast.



7 Gas Demand for Export

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7.1 Natural Gas Demand from Jordan
Jordan, Israel's neighboring country on the east, is Israel's most close and
immediate export market. Jordan, unlike its immediate neighbors, does not
have significant energy resources. As a result, Jordan relies heavily on imports
of crude oil, petroleum products, and natural gas to meet domestic energy
demand.

The Arab Gas Pipeline (AGP)which runs from Egypt through Jordan and
north to Syria was the principal source of Jordanian natural gas imports until
2011. Gas supply was based on a contract with Egypt for annual imports of
about 3 BCM per year.

Jordan Economic Forecast
2010 2020 2030 2040
Population
(millions)
6.4 8.1 9.4 10.5
GDP per capita $4,060 $4,700 $6,060 $7,800
Electricity
Capacity
3,140 MW 5,900 MW 8,000 MW 10,000 MW
Electricity
Consumption
per Capita
2,100 kWh 3,000 kWh 3,600 kWh 4,600 kWh
Gas Demand
(BCM)
2.7 4.1 5.6 7.5
Source: Economic Model estimates

Like Israel, however, Jordan saw its gas supply cut off by sabotage starting in
February 2011, which created long supply disruptions. As a result, Jordan, like
Israel, was forced to burn more expensive fuels at its power stations.

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Since Egypt is facing gas shortage in the local market, gas exports from Egypt
are unlikely to resume on a substantial ongoing basis. Jordan is now
considering alternative gas supply sources. Supply of gas from Israel has
economic and strategic benefits for both Israel and Jordan.
Israel's gas pipeline already reaches the Dead Sea at Sdom. Possible
extension of the Israeli gas pipeline to reach the Jordanian Potash Industries
requires an extension of the pipeline by only about 10 km. The Tamar partners
and the Jordanian Potash Corp. are now discussing the supply of gas (0.1 0.3
BCM) to the Jordanian Potash industry.
Jordan Gas Pipeline


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Although the supply quantities to the Jordanian Poash Corp. are small, they are
of strategic importance since they can server as a starting point for future gas
sales to Jordan. We estimate that a supply of 3.7 BCM starting 2017 increasing
to 7.5 BCM by 2040 has strong economic incentives for both sided.
Israel's peace agreement with Jordan was signed in 1991, but informal relations
existed even before that. Both governments have strong political incentive to
strengthen the strategic relationship. In economic terms, Israel may be Jordan's
most cost effective gas source, as purchasing LNG at Aquaba port is expected
to be a much more costly alternative, and building gas pipelines from Iraq or
Saudia Arabia is not economical due to the long distances and relatively small
supply volumes.



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Jordan Gas Import Forecast
Gas
Import
BCM
Population
(millions)
GDP/Capita
(real $K)
Gas Import per $
GDP (BCM/ GDP)
2010 2.7 6.4 4.0 105.0
2013 7.3 3.9
2014 7.5 3.9
2015 0.125 7.7 4.0
2016 0.3 7.8 4.1
2017 0.5 7.9 4.2 110.5
2018 3.8 8.0 4.4 108.7
2019 4 8.0 4.6 109.6
2020 4.1 8.1 4.7 107.8
2021 4.3 8.2 4.8 108.4
2022 4.4 8.3 5.0 106.4
2023 4.5 8.5 5.1 104.5
2024 4.7 8.6 5.2 104.8
2025 4.8 8.7 5.3 102.8
2026 4.9 8.9 5.5 100.8
2027 5.1 9.0 5.6 100.8
2028 5.3 9.1 5.8 100.7
2029 5.4 9.2 5.9 98.7
2030 5.6 9.4 6.1 98.4
2031 5.7 9.5 6.2 96.4
2032 5.9 9.6 6.4 96.1
2033 6.1 9.7 6.6 95.6
2034 6.3 9.8 6.7 95.1
2035 6.5 10.0 6.9 94.5
2036 6.7 10.1 7.1 93.9
2037 6.9 10.2 7.3 93.2
2038 7.1 10.3 7.4 92.5
2039 7.3 10.4 7.6 91.8
2040 7.5 10.5 7.8 91.0

Source: Economic Model estimates


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7.2 Israel's LNG Export Alternatives
Current regulation, as approved by the Israeli Parliament allocated about 40%
of the discovered natural gas resources for export, including 50% of Leviathan's
resources, about 20% of Tamar's resources and 75%-100% of the smaller fields
resources.

Tamar/Leviathan Export Alternatives

Source: Noble Energy

Although currently there is no approved location for a liquefaction plant, as the
map above illustrates, several options exist for export out of Israel:
existing underutilized LNG plants in Egypt,
Floating LNG or an offshore liquefaction platform,
liquefaction plant in Israel
liquefaction plant in Cyprus,
Export pipeline to Turkey.

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Israel's crowded coastal shore has limited available locations for liquefaction
plants. Therefore, we believe that if a liquefaction plant is built in Israel, it will
most likely be off-shore, either as floating LNG project, or a stationary offshore
liquefaction platform.


The global LNG trade is estimated at 320 BCM (236 mpta) in 2012 and is
expected according to Wood Mackenzie's forecasts to reach 730 BCM (514
mpta) by 2030, representing a 4.4% growth rate. According to this forecast, on
average, each year 3 more 4.5 mmpta LNG trains will need to be built
worldwide.

Global LNG Demand and Supply Forecast


Source: Global LNG Update Sep. 2013, BG Group interpretation of Wood Mackenzie data (Q3 2013)
* Trade: various research house views; Wood Mackenzie, PFC Energy acquired by IHS, IHS CERA, Poten &
Partners, PIRA, FACTS Global Energy, Gas Strategies



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Israel is expected to be a small producer in the global LNG market. Export
quantities have been administratively limited by the Israeli government's
regulation, and we believe that in a commodity market a small player can export
its entire quantities, since it has more flexibility to lower prices if needed, than
the large players in the market.

From an economic point of view, the existing LNG plants in Egypt provides an
economically attractive immediate outlet for Israel's gas export, taking
advantage of underutilized existing liquefaction capacity.


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7.3 LNG export through Egypt's existing projects

Egypt's population is 10 times as large as Israel, while Egypt's gas reserves are
only twice as large as Israel. Therefore, in the long term, Egypt needs its gas for
self-consumption, and is not expected to have surplus gas for export.

Egypt's Mobarak government had a policy which favored gas exports at the
expense of limited supply to the local market. Today, after the revolutions
against Mubarak and Morsi, any Egyptian government is expected to be more
sensitive to the needs of the local market and continue to limit gas export
quantities.

Egypt's Gas Supply and Demand


As a result of Egypt's new policy to prioritize local consumption of gas over
export, Egypt's LNG liquefaction plants are now operating at partial utilization
rates (less than 30% on average).


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113


Egypt's LNG Plants Utilization Rate
ELNG 1 ELNG 2 Damietta
(Segas
LNG)
Total
Plant Capacity
(mmtpa)
3.6 3.6 5.0 12.2
Number of
Trains
1 1 1 3
Foreign
Shareholder*
BG (36%)
Petronas
(36%)
BG (38%)
Petronas
(38%)
Eni (40%)
Fenosa
(40%)

Start-up 2005 2005 2005
Storage
Capacity (m3)
140,000 140,000 300,000
Production in
2013
1.5-2 1.5-2 0 3-4
2013 utilization
rate
50% 50% 0% 30%
Gas Shortage in
2013, BCM
1.2-1.5 1.2-1.5 3.7 6.1 6.7
*Egyptian government companies hold 20% - 24% shares in the liquefaction plants.

In contrast to the situation in Egypt, Israel has today surplus gas authorized by
the government for export (according to the Tzemach committee
recommendation and the government's decision) without any existing LNG
export facilities. From an economic point, in a situation where Egypt has 3 LNG
trains which lack gas supply, selling gas to these LNG facilities has many
economic benefits to both parties.

There already exists a gas pipeline connection between Israel and Egypt (the
EMG pipeline) which could be used to export Israeli gas to Egypt's liquefaction
plants. However, past experience shows that the gas pipeline between Egypt
and Israel is prone to terrorist attacks which have seriously disrupted supply in
the past. Although gas sale to Egypt may be somewhat less politically sensitive

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than selling Egyptian gas to Israel, we cannot rule out the possibility that gas
Israeli gas export will be similarly disrupted. Additionally, according to the
information we received from the Tamar partners, capacity limitations in the
existing gas pipelines limits Israel export ability to Egypt at about 2.5 BCM
(mostly at off peak hours).
In the longer term, building a dedicated sub-marine pipeline between the Yam
Tethys platform and the Egyptian LNG terminals at the Nile Delta, can both
substantially reduce the political risk of terrorist attacks, and facilitate exports at
the full quantities demanded by the LNG plants.
Our forecast is based on the assumption of LNG export potential through Egypt
of 2.5 BCM, increasing to 7 BCM in 2018, assuming an export pipeline will be
built by 2018.
Egyptian LNG Liquefaction Plants



8 Competitive Environment

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8.1 Israel Gas Reserves
Israel's proven gas reserves are currently estimated at 883 BCM. According to
the US Geological Survey, the potential undiscovered gas resources in Israel
may reach additional 1400-1800BCM. Realization of this further gas potential is
very important for Israel for both economic and strategic reasons. However, gas
exploration projects must face attractive gas marketability options in order to
continue exploration at an acceptable rate.

The mean prospective reserves of additional fields which are actively being
explored is estimated at additional 175 BCM, bringing the total proven and
probable Israeli gas supply in the next decade to about 1,050 BCM.

Israel Gas Resources Estimate
Gas Resources
(BCM)
Category
Tamar 282 2P
Leviathan 535 2C
Karish 36 2C
Dalit 8 2C
Tanin 22 2C
Total Discovered 883
Ruth / Alon / Others* 175 Prospective
Total Prospective (mean) 175
Total Resources 1,058



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Map of Israel's Gas and Petroleum Rights

Source: Ministry of Energy and Water Resources, Barclays Research

Shareholders in Israel's Gas and Petroleum Rights


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8.2 Gas Supply and Demand

Proved and prospective gas resources in Israel are currently estimated at about
1,050 BCM. According to the US Geological Survey, the potential undiscovered
gas resources in Israel may reach additional 1400-1800BCM. Realization of this
further gas potential is very important for Israel for both economic and strategic
reasons. However, gas exploration projects must face attractive gas
marketability options in order to continue exploration at an acceptable rate.
The current government policy limits export of gas to about 40% of production.
Local demand throughout 2040 can reach about 70% the existing gas
discoveries. Therefore, large scale investment in the development of further
large gas production capacity beyond the current discoveries is not likely unless
further export is viable and approved by the government.
Israel Gas Resources Estimate
(BCM) Category
Tamar 282 2P
Leviathan 535 2C
Karish 36 2C
Dalit 8 2C
Tanin 22 2C
Total Discovered 883
Ruth / Alon / Others* 175 Prospective
Total Prospective (mean) 175
Total Resources 1,058

Our gas demand analysis shows the Tamar and Leviathan fields are expected
to face significant gas demand from the local and regional markets. The local
demand will allow a wide range of flexibility (subject to government regulation

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119

and technical limitations) to allocate gas sales either to local or export markets,
based on the relative netback in each market.
The smaller gas producers, if proven economic, are expected to compete in the
local market, since their alternative is to keep the gas in the ground for a long
period. We expect that the pipelines and landing facilities for the small gas fields
will be developed jointly, as a national infrastructure with government backing.
Hence, we assume that all gas fields will have access to the local market,
regardless of their size.
Analysis of the existing discoveries and potential regional demand, show that
the entire local demand can be supplied using the existing proven and
prospective resources at least until 2040. The following tables illustrate a
synthetic allocation of the demand among the suppliers.

We assume that any further large scale gas discovery will only be developed if it
has an identified potential export market (such as an LNG export facility and/or
pipeline to Turkey) and additional export quotas are allocated by the Israeli
government. Accordingly, our Narrow Path alternative (15% export) is based on
current proved and prospective resources only. The Broad Path alternative
(40% export) is analyzed under the assumption that additional 200 BCM of new
reserves are gradually discovered by other suppliers to facilitate the additional
export.

The experience in Israel from the Tamar and Leviathan projects show that it
takes at least 10 years from the decision to start the exploration drilling to active
production. Tamar was developed in record time, which was facilitated because
it was developed in a period of shortage of gas supply to the local market.
Therefore, it is unlikely that further large scale gas fields will be explored and
developed before 2025-2030.

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120

Narrow Path Alternative
Synthetic
/1
Demand Forecast By Supplier, in BCM


Total Supplier Tamar
Market
Share Demand Tamar* Leviathan**
Others /
LNG import
Reserves

282 535 200

2013 7.0

2014 8.6 8.6

0.0 100%
2015 12.2 12.0

0.2 99%
2016 13.0 12.0

1.0 93%
2017 15.3 12.0 1.5 1.8 78%
2018 21.5 12.0 9.5 0.0 56%
2019 24.6 12.0 12.0 0.6 49%
2020 27.5 12.0 11.7 3.8 44%
2021 28.6 12.0 12.0 4.6 42%
2022 29.6 11.6 13.1 4.9 39%
2023 30.7 11.4 14.1 5.3 37%
2024 31.9 11.7 14.7 5.5 37%
2025 33.0 11.9 15.3 5.7 36%
2026 34.2 10.6 17.2 6.4 31%
2027 35.5 9.8 18.7 7.0 28%
2028 36.8 10.2 19.3 7.2 28%
2029 37.9 10.5 20.0 7.5 28%
2030 35.1 9.7 18.4 6.9 28%
2031 36.0 10.0 18.9 7.1 28%
2032 37.2 10.3 19.6 7.3 28%
2033 38.4 10.7 20.2 7.6 28%
2034 39.7 11.0 20.9 7.8 28%
2035 40.8 11.3 21.4 8.0 28%
2036 42.0 11.6 22.1 8.3 28%
2037 43.2 12.0 22.7 8.5 28%
2038 44.4 8.0 23.4 13.1 18%
2039 45.7 0.0 24.0 21.7 0%
2040 44.8 0.0 23.6 21.2 0%
Total 875 282 414 179 32%


1/ Assuming Market share proportional to reserves beyond Tamar's existing contracts and no supply side constraints

* Tamar's current pipeline capacity limitations is 12 BCM per year
** Leviathan's capacity constraint to the regional market assumed at 12 BCM (6 BCM stage I capacity plus 6 BCM expansion
for the coal to gas conversion contract) until 2022. Conservatively assumed unrestricted after 2022.


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121

Broad Path Alternative
Synthetic
/1
Demand Forecast By Supplier, in BCM

Total Supplier Tamar
Market
Share Demand Tamar* Leviathan**
Others / LNG
import
Reserves

282 535 300-400

2013 7.0

2014 8.6 8.6 0.0 100%
2015 12.2 12.0 0.2 99%
2016 13.0 12.0 1.0 93%
2017 15.3 12.0 1.5 1.8 78%
2018 28.5 12.0 16.5 0.0 56%
2019 31.6 12.0 19.0 0.6 49%
2020 34.5 12.0 15.1 7.5 44%
2021 35.6 12.0 15.6 8.0 42%
2022 36.6 12.0 15.6 9.0 39%
2023 42.7 12.0 19.8 10.9 37%
2024 43.9 12.0 20.7 11.2 37%
2025 45.0 12.0 21.4 11.6 36%
2026 46.2 11.5 21.7 13.0 31%
2027 47.5 11.8 22.4 13.4 28%
2028 48.8 12.0 23.0 13.7 28%
2029 49.9 12.0 23.9 14.1 28%
2030 53.1 12.0 26.1 14.9 28%
2031 54.0 12.0 26.8 15.2 28%
2032 55.2 12.0 27.6 15.5 28%
2033 56.4 12.0 28.5 15.9 28%
2034 57.7 12.0 27.4 18.2 28%
2035 66.8 12.0 31.7 23.0 28%
2036 68.0 12.0 32.3 23.7 28%
2037 69.2 3.0 32.6 33.6 28%
2038 71.9 0.0 33.8 38.1 18%
2039 73.2 0.0 32.0 41.2 0%
2040 72.3 0.0 0.0 72.3 0%
Total 1,245 282 535 428 23%

1/ Assuming Market share proportional to reserves beyond Tamar's existing contracts and no supply side constraints

* Tamar's current pipeline capacity limitations is 12 BCM per year
** Leviathan's capacity constraint to the regional market assumed at 12 BCM (6 BCM stage I capacity plus 6 BCM expansion
for the coal to gas conversion contract) until 2022. Conservatively assumed unrestricted after 2022. Export capacity 8 BCM
from 2017, unrestricted after 2022.




9. Forecast Tables

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123

Natural Gas Demand Forecast, in BCM*


Narrow
Path
/1

Broad
Path /
2



Timeline
2010 5.4 5.4
2011 5.2 5.2 Temporary gas
shortage 2012 2.9 2.9
2013 7.0 7.0 Tamar gas Q2
2014 8.6 8.6 Full Tamar
2015 12.2 12.2
Rabin A
conversion to
gas (1400MW)
2016 13.0 13.0
2017 15.3 15.3
Further coal
conversion to
gas (3400MW)
2018 21.5 28.5
2019 24.6 31.6
2020 27.5 34.5
2021 28.6 35.6
2022 29.6 36.6
2023 30.7 42.7
Palestinian** shift
to self-supply
2024 31.9 43.9
2025 33.0 45.0
2026 34.2 46.2
2027 35.5 47.5
2028 36.8 48.8
2029 37.9 49.9
2030 35.1 53.1
2031 36.0 54.0 1
st
nuclear unit
2032 37.2 55.2
2033 38.4 56.4
2034 39.7 57.7
2035 40.8 66.8
2036 42.0 68.0
2037 43.2 69.2
2038 44.4 71.9
2039 45.7 73.2
2040 44.8 72.3 2
nd
nuclear unit
Total
2013-40
875 1,245
% export 15% 40%

"#ssuming no supply side constraints from 2013 onwards.
/1 Israel, Palestinians and export to Jordan
/2 Narrow Path with additional LNG export



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124
Narrow Path Natural Gas Demand By Sector, in BCM*


Israel
Electricity
/1
Cogen /
desalinati
on &
Industry
CNG
and
Chemic
al
Industry
IEC Coal
to Gas /2
Palest.
Self
supply of
electricit
y
Jordan
(export)
Total
Narrow
Path
2010 5.0 0.4 0.0 0.0 0.0 0.0
5.4
2011 4.4 0.8 0.0 0.0 0.0 0.0
5.2
2012 2.1 0.8 0.0 0.0 0.0 0.0 2.9
2013 5.5 1.5 0.0 0.0 0.0 0.0 7.0
2014 6.7 1.9 0.0 0.0 0.0 0.0 8.6
2015 8.6 3.3 0.1 0.0 0.0 0.1 12.2
2016 8.4 4.2 0.1 0.0 0.0 0.3 13.0
2017 9.1 4.2 1.5 0.0 0.0 0.5 15.3
2018 9.8 4.3 1.6 2.0 0.0 3.8 21.5
2019 10.6 4.4 1.7 4.0 0.0 4.0 24.6
2020 11.2 4.5 1.7 6.0 0.0 4.1 27.5
2021 11.9 4.6 1.8 6.0 0.0 4.3 28.6
2022 12.7 4.6 1.9 6.0 0.0 4.4 29.6
2023 13.0 4.7 2.0 6.0 0.5 4.5 30.7
2024 13.2 4.8 2.1 6.0 1.1 4.7 31.9
2025 13.3 4.9 2.2 6.0 1.7 4.8 33.0
2026 13.6 5.0 2.3 6.0 2.4 4.9 34.2
2027 14.4 5.1 2.4 6.0 2.6 5.1 35.5
2028 15.1 5.2 2.5 6.0 2.7 5.3 36.8
2029 15.9 5.3 2.6 6.0 2.8 5.4 37.9
2030 12.4 5.4 2.7 6.0 2.9 5.6 35.1
2031 12.9 5.5 2.8 6.0 3.0 5.7 36.0
2032 13.6 5.6 2.9 6.0 3.2 5.9 37.2
2033 14.3 5.7 3.1 6.0 3.3 6.1 38.4
2034 14.9 5.8 3.2 6.0 3.4 6.3 39.7
2035 15.4 5.9 3.3 6.0 3.6 6.5 40.8
2036 16.1 6.1 3.4 6.0 3.7 6.7 42.0
2037 16.7 6.2 3.6 6.0 3.9 6.9 43.2
2038 17.3 6.3 3.7 6.0 4.0 7.1 44.4
2039 17.9 6.4 3.8 6.0 4.2 7.3 45.7
2040
16.4 6.6 3.9 6.0 4.4 7.5
44.8
Total
2013-
40
361 138 63 132 53 128 875

"#ssuming no supply side constraints from 2013 onwards.
1) Without any coal to gas conversion beyond Rabin A for which a government decision has been made.
2) Full coal to gas conversion. See section H below 3) Palestinians currently purchase electricity from Israel. Assuming they do not shift to
self-generation until 2040 or continue to buy gas from Israel.



9 B(?#+%1) ,%-&#1

125
Broad Path Natural Gas Demand By Sector, in BCM*


Israel
Electricity
/1
Cogen /
desalinati
on &
Industry
CNG
and
Chemic
al
Industry
IEC Coal
to Gas /2
Palest.
Self
supply of
electricity
Jordan
(export)
LNG
Export
Total
Broad
Path
2010 5.0 0.4 0.0 0.0 0.0 0.0 0.0
5.4
2011 4.4 0.8 0.0 0.0 0.0 0.0 0.0
5.2
2012 2.1 0.8 0.0 0.0 0.0 0.0 0.0 2.9
2013 5.5 1.5 0.0 0.0 0.0 0.0 0.0 7.0
2014 6.7 1.9 0.0 0.0 0.0 0.0 0.0 8.6
2015 8.6 3.3 0.1 0.0 0.0 0.1 0.0 12.2
2016 8.4 4.2 0.1 0.0 0.0 0.3 0.0 13.0
2017 9.1 4.2 1.5 0.0 0.0 0.5 0.0 15.3
2018 9.8 4.3 1.6 2.0 0.0 3.8 7.0 28.5
2019 10.6 4.4 1.7 4.0 0.0 4.0 7.0 31.6
2020 11.2 4.5 1.7 6.0 0.0 4.1 7.0 34.5
2021 11.9 4.6 1.8 6.0 0.0 4.3 7.0 35.6
2022 12.7 4.6 1.9 6.0 0.0 4.4 7.0 36.6
2023 13.0 4.7 2.0 6.0 0.5 4.5 12.0 42.7
2024 13.2 4.8 2.1 6.0 1.1 4.7 12.0 43.9
2025 13.3 4.9 2.2 6.0 1.7 4.8 12.0 45.0
2026 13.6 5.0 2.3 6.0 2.4 4.9 12.0 46.2
2027 14.4 5.1 2.4 6.0 2.6 5.1 12.0 47.5
2028 15.1 5.2 2.5 6.0 2.7 5.3 12.0 48.8
2029 15.9 5.3 2.6 6.0 2.8 5.4 12.0 49.9
2030 12.4 5.4 2.7 6.0 2.9 5.6 18.0 53.1
2031 12.9 5.5 2.8 6.0 3.0 5.7 18.0 54.0
2032 13.6 5.6 2.9 6.0 3.2 5.9 18.0 55.2
2033 14.3 5.7 3.1 6.0 3.3 6.1 18.0 56.4
2034 14.9 5.8 3.2 6.0 3.4 6.3 18.0 57.7
2035 15.4 5.9 3.3 6.0 3.6 6.5 26.0 66.8
2036 16.1 6.1 3.4 6.0 3.7 6.7 26.0 68.0
2037 16.7 6.2 3.6 6.0 3.9 6.9 26.0 69.2
2038 17.3 6.3 3.7 6.0 4.0 7.1 27.5 71.9
2039 17.9 6.4 3.8 6.0 4.2 7.3 27.5 73.2
2040
16.4 6.6 3.9 6.0 4.4 7.5 27.5 72.3
Total
2013-
40
361 138 63 132 53 128 370 1,245

"#ssuming no supply side constraints from 2013 onwards.
1) Without any coal to gas conversion beyond Rabin A for which a government decision has been made.
2) Full coal to gas conversion. See section H below 3) Palestinians currently purchase electricity from Israel. Assuming they do not shift to
self-generation until 2040 or continue to buy gas from Israel.




9 B(?#+%1) ,%-&#1

126
Narrow Path Alternative
Synthetic
/1
Demand Forecast By Supplier, in BCM

Total Supplier Tamar
Market
Share Demand Tamar* Leviathan**
Others /
LNG import
Reserves

282 535 200

2013 7.0

2014 8.6 8.6

0.0 100%
2015 12.2 12.0

0.2 99%
2016 13.0 12.0

1.0 93%
2017 15.3 12.0 1.5 1.8 78%
2018 21.5 12.0 9.5 0.0 56%
2019 24.6 12.0 12.0 0.6 49%
2020 27.5 12.0 11.7 3.8 44%
2021 28.6 12.0 12.0 4.6 42%
2022 29.6 11.6 13.1 4.9 39%
2023 30.7 11.4 14.1 5.3 37%
2024 31.9 11.7 14.7 5.5 37%
2025 33.0 11.9 15.3 5.7 36%
2026 34.2 10.6 17.2 6.4 31%
2027 35.5 9.8 18.7 7.0 28%
2028 36.8 10.2 19.3 7.2 28%
2029 37.9 10.5 20.0 7.5 28%
2030 35.1 9.7 18.4 6.9 28%
2031 36.0 10.0 18.9 7.1 28%
2032 37.2 10.3 19.6 7.3 28%
2033 38.4 10.7 20.2 7.6 28%
2034 39.7 11.0 20.9 7.8 28%
2035 40.8 11.3 21.4 8.0 28%
2036 42.0 11.6 22.1 8.3 28%
2037 43.2 12.0 22.7 8.5 28%
2038 44.4 8.0 23.4 13.1 18%
2039 45.7 0.0 24.0 21.7 0%
2040 44.8 0.0 23.6 21.2 0%
Total 875 282 414 179 32%

1/ Assuming Market share proportional to reserves beyond Tamar's existing contracts and no supply side constraints

* Tamar's current pipeline capacity limitations is 12 BCM per year
** Leviathan's capacity constraint to the regional market assumed at 12 BCM (6 BCM stage I capacity plus 6 BCM expansion for the coal to gas
conversion contract) until 2022. Conservatively assumed unrestricted after 2022.

9 B(?#+%1) ,%-&#1

127

Broad Path Alternative
Synthetic
/1
Demand Forecast By Supplier, in BCM

Total Supplier Tamar
Market
Share Demand Tamar* Leviathan**
Others / LNG
import
Reserves

282 535 300-400

2013 7.0

2014 8.6 8.6 0.0 100%
2015 12.2 12.0 0.2 99%
2016 13.0 12.0 1.0 93%
2017 15.3 12.0 1.5 1.8 78%
2018 28.5 12.0 16.5 0.0 56%
2019 31.6 12.0 19.0 0.6 49%
2020 34.5 12.0 15.1 7.5 44%
2021 35.6 12.0 15.6 8.0 42%
2022 36.6 12.0 15.6 9.0 39%
2023 42.7 12.0 19.8 10.9 37%
2024 43.9 12.0 20.7 11.2 37%
2025 45.0 12.0 21.4 11.6 36%
2026 46.2 11.5 21.7 13.0 31%
2027 47.5 11.8 22.4 13.4 28%
2028 48.8 12.0 23.0 13.7 28%
2029 49.9 12.0 23.9 14.1 28%
2030 53.1 12.0 26.1 14.9 28%
2031 54.0 12.0 26.8 15.2 28%
2032 55.2 12.0 27.6 15.5 28%
2033 56.4 12.0 28.5 15.9 28%
2034 57.7 12.0 27.4 18.2 28%
2035 66.8 12.0 31.7 23.0 28%
2036 68.0 12.0 32.3 23.7 28%
2037 69.2 3.0 32.6 33.6 28%
2038 71.9 0.0 33.8 38.1 18%
2039 73.2 0.0 32.0 41.2 0%
2040 72.3 0.0 0.0 72.3 0%
Total 1,245 282 535 428 23%
1/ Assuming Market share proportional to reserves beyond Tamar's existing contracts and no supply side constraints
* Tamar's current pipeline capacity limitations is 12 BCM per year
** Leviathan's capacity constraint to the regional market assumed at 12 BCM (6 BCM stage I capacity plus 6 BCM expansion for the coal to gas
conversion contract) until 2022. Conservatively assumed unrestricted after 2022. Export capacity 8 BCM from 2017, unrestricted after 2022.