Is Italy's burgeoning gas sector becoming dangerously dependent on supplies from politically unstable countries?
Further, what options are being considered to reduce that dependence?
Enzo Ferrari, managing director of gas supplies for Snam, Italy's state owned gas supply company, discussed those two basic questions in an interview with Oil & Gas Journal. Snam is a unit of state owned energy holding company Ente Nazionale Irocarburi.
SUPPLY SHORTFALL?
Ferrari noted Snam's view of an impending gas supply shortfall in Italy has changed.
He said demand projections have been trimmed from last year's forecast because of Italy's economic slump, technological problems in the Italian energy system, and a growing trend toward energy conservation by the industrial and residential sectors.
"In 2000 we are considering (a demand estimate of) 70 billion cu in instead of 75 billion cu in, so there will be no deficit by that date," Ferrari said. "Thus, while we are working to meet new demand, our bigger projects now have a longer time scale, projected toward 2002-05.
Ferrari also doubts problems in commissioning major new gas fed power plants at Montalto and Brindisi are evidence of a slowing investment trend in gas fired, combined cycle cogeneration power plants.
"It is not really that the private investments are Decreasing, it's the fact that we have greater uncertainty about ENEL's gas demand," he said. "Montalto is linked to the trans-Med pipeline, so we could feed it with our gas. The Montalto LNG terminal for Nigerian gas is being delayed. The Nigerian LNG project needs ENEL, because the Italian share is 3.5 billion cu in out of a total of about 6 billion cu in."
Ferrari contends that with Algerian LNG supply of 2 billion cu in/year and another 1 billion cu in/year under discussion with Libya, Snam can meet its expected demand to 2000-03.
"But it's clear that if ENEL doesn't finalize its Nigerian project, at the same time converts its power stations to gas, and asks us to supply them, we would need to find new supplies of gas quicker than we had expected.
"At the moment, our long term contract with ENEL fixes our supplies at 6 billion cu in plus 4 billion cu m as an option. Snam is also committed to transport through the expanded trans-Med line starting in 1996 the 4 billion cu m/year bought by ENEL directly from Algeria.
"However, 3 years ago ENEL said it needed 20-25 billion cu m, then revised it to 17 billion cu m."
DOMESTIC SUPPLY
With gas sales increasing steadily, Snam is working with Agip SpA to develop more natural gas supply sources and underground storage capacity in Italy.
Ferrari estimates working gas storage capacity at 14-15 billion cu m, rising to 20 billion cu m by 2000.
"To increase security we have various strategies: increase storage capacity, rely on interruptible sales, and diversification (of supplies)."
He also cites the fact that domestic production has increased in recent years from 15 billion cu m/year to more than 19 billion cu m/year as an important element of bolstering supply security.
IMPORT PROSPECTS
Ferrari voiced doubts about the economics of bringing in North Sea gas as an alternative to supplies from politically unstable areas such as Algeria and Russia.
"Now the problem is to see if importing gas from the North Sea would allow importers to make money on the Italian market," he said. "If North Sea gas were competitive, we would have already increased our share of supplies. We have been importing gas from Netherland since 1972, and we've had only an extension of the contract, as other companies have.
"We have been negotiating for more than 2 years with Norway, but up to now we haven't succeeded in reaching an agreement."
Ferrari notes that while Algeria and Russia may not be as stable as Norway or Netherlands, "it's unthinkable that Russia or Algeria wouldn't comply with their contracts. Germany, Austria, France, and Spain are also supplied by the same sources."
He pointed out that Russia and Algeria rely heavily on hard currency earnings from their international gas trade. Algeria, for example, earns about 95% of its income in hard currency from hydrocarbons, a third of which is gas.
SUPPLY TERMS
Ferrari also put aside concerns about foreign suppliers boosting the price of gas sold to Snam to parity with low sulfur fuel oil (LSFO), as did Qatar, apparently recognizing the urgent need for the Italian electric utility to wean itself from LSFO.
"With Qatar," Ferrari said, "Snam had to drop the contract because it was not competitive on our market at a time when oil prices were sluggish. Russia and Algeria remain paramount to the needs of Europe, well growing gas after 2000. They are the only countries that have the reserves to cover them.
"Russia is now selling 100 billion cu m/year to Europe. Next year Russia will offer additional volumes of tens of billion cubic meters to Europe. Also, Algeria said ... it is now supplying 60 billion cu m/year and could soon provide 75 billion cu m/year. It is known that the Maghreb-Europe pipeline and the trans-Med pipeline can be further expanded for an additional capacity of 15 billion cu m/year."
Copyright 1994 Oil & Gas Journal. All Rights Reserved.
Issue date: 11/07/94
