Italian pipeline developers undeterred by credit crunch

The Galsi and Interconnector-Greece-Italy (IGI) pipeline partners do not expect the credit crisis to negatively impact their plans, as they have very strong balance sheets, according to a senior company official.

Uchenna Izundu
International Editor

LAKE COMO, ITALY, Dec. 1 -- The Galsi and Interconnector-Greece-Italy (IGI) pipeline partners do not expect the credit crisis to negatively impact their plans, as they have very strong balance sheets, according to a senior company official.

However Elio Ruggeri, project leader at the department of hydrocarbons at Edison SPA, told OGJ at the European Autumn Gas Conference (EAGC) at Lake Como, Italy, that securing gas supplies from Shah Deniz for the IGI line was difficult due to limited available volumes and intense competition from different markets. "Russia and Turkey will also have a share of this gas," he said. No contracts have been signed to fill the IGI pipeline.

Edison is a partner in both projects, which are expected to enhance Italy's gas supply security. Gas demand in Italy should grow to 96-104 billion cu m/year in 2015 from 85 billion cu m/year in 2007, according to Ruggeri. Gas imports are expected to increase to 26 billion cu m/year by 2015, up from 18, and the incremental need for import capacity is expected to rise to 41 billion cu m/year by 2015, up from 32.

Currently, the Italian gas market is tight. But demand destruction in natural gas has already begun, warned Davide Cornaggia, supply and sales director at mid-size operator Gas Plus Italiana SPA. "Customers are consuming less, and gas use for power generation has decreased in the last 2 months by a substantial amount. I understand that this has also happened elsewhere."

The nation faces a dilemma where there is a risk of a gas bubble in the summer of 2009, Cornaggia added. With these projects, along with Italian LNG import terminals, there could be an oversupply of gas in the medium term.

Ruggeri said Italy could become a gas transit country for France and Germany provided the pipeline system becomes integrated in Europe.

The Galsi partners, including Sonatrach, Enel SPA, Sfirs (Sardinia Reg), and Hera SPA, plan to make a final investment decision next year. The front end engineering design (FEED) work is to be finished by yearend 2008. Tenders for the engineering, procurement, and construction contract are being prepared along with the financial structure for the project.

Sonatrach is leading the proposed 840–km Galsi pipeline, which will have a capacity of 8 billion cu m/year and in 2,800 m of water will be one of the world's deepest offshore pipeline ever laid. It will deliver Algerian gas via Sardinia into Italy starting in 2012. The definition of the transportation contracts between Galsi and its shippers are being drawn up.

This pipeline would connect Sardinia for the first time to Italy's national grid and improve its environmental footprint. According to a memorandum of understanding signed in September by Galsi and Snam Rete Gas (SRG), Galsi will be responsible for the FEED and securing permits with SRG's help during the development phase. Galsi will build, own, and operate the international section while SRG will concentrate on the national section.

The IGI line is an 800-km pipeline that would deliver 9 billion cu m/year of gas from the Caspian to Italy and western Europe via Turkey and Greece in 2012. However, to meet this deadline, gas supply agreements and gas transit agreements must be finalized within the next year to make the final investment decisions in 2009.

Edison will take 6.4 billion cu m/year, and its Greek partner Depa will have 1.6 billion cu m of capacity in IGI, which has been exempted from third party access under European Union rules. Ruggeri said 1 billion cu m/year of gas has been set aside for third parties and there has been 17 nonbinding expressions of interest (EOI) from Italian and other companies under the open season held in June.

"We don't know how much capacity had been applied for as we didn't ask for this figure under the EOI," Ruggeri said. "There were two lots of 100 million cu m each that were offered, and I suspect that people would have bid for the entire capacity."

During the next phase, the IGI consortium will ask interested shippers to submit binding offers to reserve transportation capacity, which will be followed by an allocation stage.

Contact Uchenna Izundu at uchennai@pennwell.com.

More in General Interest