Cedigaz Insights n°4 – March 2010
By Didier Favreau (IFP)
A REVIEW OF NATURAL GAS MARKETS AND KEY PLAYERS: ITALY This fourth issue of "CEDIGAZ insights" is devoted to a review of natural gas markets and key players in Italy. It is the second element of the series aimed to cover country or regional markets for their importance in the natural gas sector or their interest in the energy markets. This review will only briefly cover the aspects of reserves and production which are the subject of other CEDIGAZ publications. To start with, we have selected Italy for : - the importance of the natural gas sector in a European country which has benefited for long time of gas resources and which is the 3rd European market in terms of volume (84.9 bcm in 2008), very close to the German market and far ahead of the French and Spanish markets - the specific experience of the market liberalisation in a context of an historical dominant position of the national champion Eni, - the need to secure natural gas supplies and the subsequent involvement in many major international supply projects - both pipeline and LNG regasification projects. The review will focus on the following elements: In a first part: - a brief review of natural gas balances : domestic production, imports and demand and their recent evolution - energy mix and structure of natural gas demand (by main sectors) - impact of the economic crisis - general perspectives In a second part, the organisation and activities of the gas market will be reviewed with a focus on the key players in each market segment. The final part will be devoted to the aspects of tariffication and prices
1. Natural gas in Italy The Italian gas market is the third largest in Europe with a gross consumption of 84.9 bcm in 2008, decreased to 78.1 bcm in 2009 due to the economic crisis (-8%) which has particularly affected the natural gas demand in the industrial and power generation sectors. It may take two or thee years to recover the consumption level of 2007-2008 and Cedigaz projects that the demand will reach about 95 bcm in 2020. Domestic production is in marked decline (from 16.7 bcm in 2000 to 9.2 bcm in 2008 and 8.1 bcm in 2009). Cedigaz estimates the domestic production to decline slowly to about 4.2 bcm in 2020. The majority of the country's gas demand is met by imports mainly from Russia and Algeria. Dependence on imports is estimated to about 91% in 2009 and is to increase to minimum 95% in 2020.
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Efforts are made to develop infrastructures in order to meet the growing demand of natural gas and import capacities. Market liberalisation has been implemented with resistances as in many other european countries due to the historical market structure and the dominant position of the national companies. The unbundling of supply/sale from infrastructure and the introduction of transparency in the Italian market have been realized. Barriers to full competition are progressively overcome noteworthy under the pressure of the Regulating Authority and the development of additional infrastructure capacities. One difficulty was due to the fact that the market is affected by long-term supply contracts and long-term capacity reservation. Nevertheless natural gas trading is growing, particularly at the "Virtual trading Point", following the opening of the market. The recently envisaged sale of shares of Italian champion Eni in some of its key importation pipelines is also to reduce the dominant position of the historical operator in this market segment. 1.1 Natural gas production (Figure-1, Figure-2) Following World War II, Northern Italy provided the industrial and commercial user base for the development of the Po Valley fields. Until the mid-sixties the Po Valley dominated gas production in Italy. Now production is in deep decline although small discoveries and previously let down fields could be developed. Elsewhere, onshore small fields and a few large gas fields have been produced when the local markets have been able to develop. Since the mid-1960's, offshore production from the Adriatic has provided the majority of Italian gas production and will continue to do so for the next future.In addition, existing discoveries continue to be developed such as the Guendalina gas field in the Adriatic. Offshore Sicily might emerge as a significant gas province, following the Panda gas discovery in 2002 and the Argo discovery in 2006. In summary, gas production in Italy remains in decline and this is set to continue for the foreseeable future, despite the potential for further discoveries. Production is expected to decline from 8.1 bcm in 2009 to 4.3 or 4.5 bcm in 2020. Figure-1: Domestic natural gas production since 1950 (Mcm/year)
Figure-2: Natural gas production and imports, Italy 100.00 90.00 80.00
bcm/year
70.00 60.00
Production
50.00
Net import
40.00
Gross consumption
30.00 20.00 10.00 2003
2004
2005
2006
2007
2008
2009
Source: Ministero dello sviluppo economico
1.2 Natural gas imports In 2008 net imports amounted to 76.7 bcm, resulting in a 3.8% growth from 2007 (Figure-2.). In 2009, net imports declined to 69.2 bcm (about 10% reduction). Italy ’s dependence on imports is estimated to about 90%. Figure-3 shows a breakdown of imported gas volumes by country of origin: -
81% of exports originated from non-EU Countries. Foreign gas arrived in Italy almost exclusively through pipelines with 4.1% of imported gas transported by ship from Algeria and Qatar in 2009. The main sources of procurement by pipeline were both from outside the EU: Algeria and Russia.
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-
in 2009 Russia supplied 22.96 bcm, or about 33.4% of total imported quantities through the entry points of Tarvisio and Gorizia.
-
Algeria exported 21.37 bcm by pipeline to the national network entry point of Mazara del Vallo, and 1.34 bcm by ship, with regasification at the Panigaglia plant. Altogether, the Algerian gas covered 32.8% of Italy’s gross imports.
-
The third exporter was Libya, which supplied 13.2%, or 9.2 bcm of the overall imported gas in Italy.
-
Significant quantities came from Holland and Norway, which entered the Italian national network through the entry point of the Gries Pass at the Swiss border (total 12 bcm).
-
In the second half of 2009, the regasification of Qatari LNG at the new terminal Adriatic LNG produced 1.55 bcm (2.2% of imports).
Figure-3: Split of natural gas imports, Italy 2009 (in bcm)
Qatar, 1.5
Europe, 12.9
Russia, 23.0
Table-1: Natural gas import, Italy 2009 (in bcm) pipeline Europe
12.85
Algeria
21.37
Libya
Libya, 9.2
Algeria, 22.7
LNG
1.34
9.17
Russia
22.96
Qatar
1.55 total
66.36
2.89
Source: Ministero dello sviluppo economico
Figure-4: A schematic view of Italy natural gas supplies (2009 data)
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1.3 Energy mix (Figures 5 to 8) The demand of natural gas remained steady from 2006 to 2008 between 84.5 and 84.9 bcm/year. In 2009 the natural gas demand declined to 78.1 bcm (-8% vs 2008) in relation with a decline of the GDP estimated at - 5.1%. Natural gas represents 36% of total energy demand in Italy, with its share increasing over the past years from 31% in 2001 to 36% (at the expense of a marked decline of the share of oil consumption from 48.7% in 2001 to 41.4% in 2008). Total energy demand peaked in 2005 at 197.7 Mtoe and decreased to 191.3 Mtoe in 2008. Looking to the energy mix in the main consuming segments, natural gas is the major source of primary energy in the power generation sector with 33.9 bcm consumed in 2008 (about 46% of primary fuels in power generation). In the industry, natural gas consumption is estimated at 17.6 bcm in 2008 with its share decreasing since 2005 from 41% of consumed energy in the industrial sector to about 38.6% in 2008. In the residential, commerce and services sector, natural gas consumption is estimated to 30.1 bcm in 2008, with a share of final energy approximately steady representing 54.6% of final energy of this sector.
Figure-5: Primary energy consumption, Italy
Figure-7: Primary fuels used in power generation, Italy (2008) (Mtoe)
100 90 80
Mtoe/year
70
Natural gas
50
Oil
40
Renewables
11.9
13.8
Solid fuels
60
Solid fuels Natural gas Oil
Imported electricity
30
6.2
Renewables
20 10
27.8
0 2001
2002
2003
2004
2005
2006
2007
2008
Source: Ministero dello sviluppo economico
Source: Ministero dello sviluppo economico
Figure-6: Primary energy mix in Italy (2008)
Figure-8: Final energy mix of industry and residential & trade & services sectors in Italy (2008) 50 45
9%
40 Solid fuels
35
Electricity
Natural gas
30
Renewables
25
Oil
20
Natural gas
15
Solid fuels
Oil
36% 41%
Renewables Imported electricity
Mtoe
9%
5%
10 5 0 Industry
Source: Ministero dello sviluppo economico
Residential & Trade & Services
Source: Ministero dello sviluppo economico
1.4 Structure of natural gas demand As indicated, the domestic demand of natural gas amounted to 84.9 bcm in 2008 (83.4 bcm of net final demand + 1.5 bcm of system losses). Table-2 and Figure-9 show the breakdown of that demand. The energy sector is the main user with 35.4 bcm in 2008 (of which 33.9 bcm for power generation as previously indicated). Between 2001 and 2008, gas consumption has grown at an average rate of 6% per year in the energy sector. The industry consumed 17.6 bcm in 2008 (excluding non-energy uses of 0.9 bcm). The demand peaked in 2004 at 21.1 bcm and decreased more markedly since 2006. The demand of the residential & trade and services sector amounted to 30.2 bcm in 2008. It structurally increased since the beginning of the 2000's but it is of course dependent of winter temperatures. A peak at 32.3 bcm was noticed in 2005.
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Table-2 Breakdown of natural gas demand. Natural gas demand in 2008, bcm 35.4 17.6 30.2 1.7 84.9
Energy sector (incl. losses) Industry Residential, Trade & Services Other users Total
Figure-10: Evolution of natural gas consumption in main sectors, Italy
Figure-9: Share of main sectors in natural gas consumption in Italy (2008) 35 30
2% 41%
Mtoe/year
25
36%
Energy sector (incl. losses) Industry Residential & services Others
Energy sector (incl. losses) 20
Industry
15
Residential & services Others
10
21%
5 0 2001
2002
2003
2004 2005
2006
2007
2008
Source: Ministero dello sviluppo economico
Source: Source: Ministero dello sviluppo economico 1.5 Impact of the economic crisis
Italy as other European countries has been suffering the economic crisis since the second half 2008. The decrease in gas demand is significant, minus 8% year for year (2009 versus 2008) mainly due to the recession in the industrial sector (and the power generation demand): in 2009 the gross product of the industrial sector decreased by 17% following a sharp decrease of industrial exports (-20%) and a moderate decrease of domestic demand (-2%). The first half of 2009 has shown the deepest decline in natural gas demand with minus 13% on the first semester compared to the first half of 2008. Natural gas demand exhibited positive 2008-2009 month-for-month growth starting october 2009 only. Imports of natural gas have decreased by 10% year for year, and by 16% between first half 2008 and first half 2009. Domestic production has declined by 12% year for year. Figure-11: Evolution of monthly gross demand of natural gas, 2008 and 2009
thousand cubic meters
12,000 10,000 8,000 2008
6,000
2009
4,000 2,000 01
02
03
04
05
06
07
08
09
10
11
12
1.6 Perspectives It is hoped - like other European countries - the economy to recover in 2010. The recovery depends on the foreign demand, while the threatening rate of unemployment affects more the domestic demand (more
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than 30,000 Small & Medium Enterprises bankrupted and more than 50,000 small retail business have disappeared). The OECD is projecting a GDP growth of 1.1% in 2010 similar to the annual rate of growth since the beginning of 2000's. It may take two or three years to recover the consumption level of 2007-2008. nevertheless Cedigaz estimates that the gross demand can be approximated prudently to about 95 bcm in 2020 mainly due to the expected growth in the power generation sector and to a lesser extent the residential and services sector. This projection corresponds to an increase in demand by about 10 bcm between 2008 and 2020. Forecasting the domestic production at about 4.2 bcm in 2020 compared to 9.2 bcm in 2008, the imports of natural gas are estimated to increase by 15 bcm over the forecast period. LNG imports are expected to gain a growing share of gross demand from about 3.8% in 2009 to about 13% in 2020. Reference is made to Cedigaz LNG database.
Figure-11: Projected natural gas demand and supplies 100.0 90.0 80.0
bcm/year
70.0 60.0
production
50.0
net imports
40.0
gross demand
30.0 20.0 10.0
20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 20 17 20 18 20 19 20 20
-
Source: Cedigaz
2. Market organization 2.1 Background Under the Gas Decree 2000, Eni and its competitors have been required to undertake the legal separation of their various gas activities (supply, transmission, storage, distribution,). The legislation has provided for: - the legally separated transmission, regasification, storage and distribution activities to be kept under a regulated regime, granting the non-discriminatory access to the services; - the complete opening of the market since January 1st, 2003; - the definition of the rules for the opening of the distribution market (through the expiration of current gas distribution concessions and the subsequent necessity to make public tenders for their renewal). As in several countries including France or Spain, the government has maintained a system of controlled end-user prices to protect smaller users from free market prices. This created a two-tier market in which "eligible" customers were open to competitive supply offers, while "captive" customers could be supplied only by incumbent companies, under protected terms. Initially, companies willing to enter the market have been barred (as in many other countries) by a system of long-term contracts between suppliers, retailers and consumers, and faced practical difficulties in using the Third Party Access to obtain some transmission capacity. In particular long-term capacity reservation at border crossings and other key points on the network have been a significant barrier to market entry.
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The liberalisation has introduced more new players to sell gas to end-users and to gain access to transmission networks. Third-Party Access has been implemented to underground storage facilities and in some extent to LNG terminals. The market share of the national champion Eni has gradually reduced. The Virtual Trading Point concept has also been implemented and, although modest by traded volumes, it has been growing significantly since 2005. 2.2 Regulation Authorities The Regulatory Authority for Electricity and Gas (AEEG) is the independent body set up on december 1996 which regulates, controls and monitors the electricity and gas sectors and markets in Italy. In particular it protects the interests of users and consumers and promote competition. It also defines and maintains a reliable and transparent tariff system. 2.3 Structure of the market The domestic natural gas market is composed of (see Figure-12): -
a free segment where prices are freely formed based on demand and offer. The free segment includes activities of trading between suppliers and between suppliers and end-users ; a protected segment where prices and tariffs are set forth by the Regulating Authority based on its own methods.
The protected segment includes activities of a natural monopoly nature: transmission, LNG regasification, storage facilities and distribution networks, supply at regulated prices for "protected consumers" or end-users who have not yet made the choice of an alternative supplier. The free-market consumers can directly negotiate sales-purchase agreements with the licensed suppliers. They may choose their supplier while protected consumers cannot choose their supplier in compliance with regulations. The market is also analysed according to two components: the wholesale market which takes into account any transaction between suppliers and some final consumers (see § 2.10); the retail market which encompasses transactions with final consumers (see § 2.11).
Figure-12 Scheme of the Italian market structure
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Figure-13 Market organization and main estimated flows in 2008
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2.4 Production sector Certain regions have autonomous legislative powers. Practically, with the exception of Sicily which has major hydrocarbon reserves discovered and produced, the remaining onshore land area and all of the country's offshore areas come under the jurisdiction of the central government through the UNMIG office and the DGERM department of the Ministry of Energy. The production sector is dominated by the company Eni whose production share (more than 80%) is well 3 above those of its competitors, Edison and Royal Dutch Shell, with a produced quantity of 700 Mm each, 3 and Gas Plus, with 232 Mm . Significantly, the Dutch group doubled its production from the 2007 quantity 3 of 340 Mm . Table-3: Gas producers in Italy in 2008 Group
Production
Share (%)
3
(Mm ) Eni
7146
81.8
Edison
685
7.8
Royal Dutch Shell
673
7.7
Gas Plus
232
2.7
5
0.1
8740
100.0
Others Total (declaration respondents) Total production
9255
(Ministry for Economic Development) Source: AEEG calculations from suppliers' declarations
2.5 Importation 2.5.1 Main players In 2008, a national survey made by the Regulating Authorities included 36 importers. Similarly to production, Eni prevailed with a share of more than 60% well above that of its competitors. Nevertheless Eni's share is declining over time, in order to observe the antitrust caps fixed by the legislative decree. Enel Trade was the second importer with a reported quantity of 9.8 bcm, up 5.8% from 2007. Just like in 2007, Edison remained the third importer, although its imported quantities grew 23%, from 5.9 to 7.3 bcm. The first three importers were reported to have acquired more than 80% of total imports, estimated to ≈76.7 bcm. Table-4: Most significant natural gas importers in Italy in 2008 Significant importer
Imports in 2008 (bcm)
(more than 1% of total, e.o.)
from respondents
Eni Enel Trade Edison. Plurigas GDF SUEZ Sorgenia ENOI
46.1 9.8 7.3 2.7 1.7 1.5 1.1
% of total imports 61.5 13.1 9.7 3.6 2.3 2.0 1.5
Source: AEEG calculations from suppliers' declarations
2.5.2 Import contracts According to the national survey, in 2008, most of imports were based on long-term contracts. Nearly 70% of contracts had an overall duration of more than 20 years, while contracts below ten years of durations
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shared 13%. The share of spot imports based on contracts with one-year validity or less was unchanged from the 2007 figure of 7 %. In terms of residual duration, overall contracts in force as at 2008 were still reported to have a long duration with almost half of them expiring in 20 years or more and 65 % in 15 years or more. Only 15% of the existing contracts will expire in the next 10 years. 2.5.3 Development of importation facilities As indicated Italy relies on gas imports to supply over 90% of its total demand. In order to improve competition on the national market, Eni has been committed to develop importation pipeline facilities so as to allow awarding the additional transmission capacity to market competitors. The main existing and planned import routes are described below as well as the LNG regasification facilities: Existing Pipelines: Transmed: pipeline system which transports gas from Algeria via Tunisia and the Sicily Channel (Mazara del Vallo entry point) . In 2005, Eni agreed to expand Transmed capacity by a total of 6.5 bcm/year. This is expected to happen by 2012, and would bring total capacity to 33.5 bcm/year. Eni, which owns the transportation rights in the pipeline, confirmed that this additional capacity will be made available to third parties. Trans Austrian Gasleitung (TAG): Italy imports Russian gas through the TAG pipeline system, which runs through Slovakia and Austria into Italy (Tarvisio entry point). The pipeline is jointly owned by Eni st (89%) and OMV (11%). The 1 step of expansion of the TAG pipeline increased capacity from 38 to 41.5bcm/year in 2008. The pipeline has supplied about 29% of Italy's total gas consumption in 2008. Trans Europa Naturgas Pipeline (TENP): The Trans Europa Naturgas Pipeline (TENP) delivers gas from the Netherlands to Mortara near Pavia in Italy. The TENP pipeline is owned by Eni and Germany's E.ON Ruhrgas with 49% and 51% shares respectively. This 1,000km pipeline transports 15.5bcm of gas sourced in the Netherlands and Norway from Bocholtz on the Dutch-German border, to Wallbach on the German-Swiss border. At Wallbach, the pipeline is connected to the Transitgas pipeline, which transports gas 291 km across Switzerland to Passo Gries in Italy. Transitgas, which is owned and operated by the Transitgas AG consortium of Swissgas (51%), Eni (46%) and E.ON Ruhrgas (3%), has a capacity of 20bcm/year. Libya-Italy (Greenstream): The 520 kilometre long 32-inch diameter 'Greenstream' pipeline was opened in October 2004. The pipeline was laid across the seabed at water depths of up to 1,130 metres. The pipeline lands in southern Sicily (Gela entry point) before tying into the existing Transmed infrastructure. In 2009 Italy received 9.2 bcm from Libya via Greenstream. In 2008, however, after a number of talks with the Libyan government, the Russian company Gazprom announced its intention to participate with Eni in a project for doubling pipeline in order to increase its annual capacity to 16 bcm. Pipelines in development and projects: Reference is made to Cedigaz Insights No 3 (February 2010) as well as to the on-line Cedigaz database for further project details: Algeria-Italy (Galsi): A consortium of companies: Sonatrach (Algeria), Edison S.p.A (Italy), Enel (Italy), Sfirs (Italy), Hera Trading (Italy) plans to construct a pipeline from Algeria's Hassi R'Mel gas field to the Tuscan coast via Sardinia. The pipeline is expected to have a capacity of 9 to 10 bcm per year. A final decision on the related investments was postponed to June 2010. Start-up is tentatively scheduled in 2015. Interconnector Greece-Italy (IGI): connected to the Turkish network will allow Italy to import 8 bcm of gas annually from the Caspian Sea and the Middle East. IGI Poseidon is a 50/50 joint venture between Edison International Holding (100% under Edison control) and the Greek publicly owned company Depa. The construction has been delayed and the pipeline could become operational in 2013. On the IGI, Edison and Depa made available a share of nearly 1 bcm of capacity for third-party access through an open season procedure. Edison and Depa will also make available 10 % of the imported gas in order to increase trad ing at the I talian Virtual Trading Point (VTP, see § 2.10.3).
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Trans Adriatic Pipeline (TAP): to transport gas from Turkey to Italy via Greece and Albania for the importation of gas from production areas in the Caspian region and the Middle East. TAP is scheduled to become operational in 2010. The pipeline will have an initial annual capacity of 10 bcm. EGL Group (Switzerland) has conducted a 25-year deal with the National Iran Gas Export Company (NIGEC) to deliver 5.5 bcm of natural gas per year to Europe. StatoilHydro (50% in the pipeline project) has a 25% stake in the Shah Deniz gas field. Tauern Gas Leitung (TGL) is planned to cover a distance of 290 km in the Austrian territory from the Italian to the German border. The TGL will be interconnected to the storage system of Salzburg and to the TAG. The project, which forms part of the EU Plan on Trans-European Networks (TEN), was conceived to transport gas in both directions and interconnect the markets of Central-Northern Europe with those of Italy and the Balkan countries. In addition, the pipeline will expectedly transport LNG from Adriatic terminals to Germany. In 2010, a decision on investment will presumably be adopted, with 2015 as the planned date of the pipeline entry into operation. South Stream: In 2007, Gazprom and Eni announced the project to bring Russian gas to Italy by piping it across the Black Sea and South-East Europe. Final capacity is planned to 63 bcm/year. Start-up is expected in 2015. Please refer to Cedigaz Insights No 3 for project details and progress. Existing LNG Terminals 3 The Panigaglia LNG facility, with 13 Mm of daily allocable capacity is currently fully llocated to the terminal operator, GNL Italia, which feeds gas into the national network on behalf of its re-gasification customers. Figure-14: Italy LNG regasification terminals
Trieste, 2 x 8 bcm Adriatic LNG, 8 bcm Ravenna, 8 bcm La Spezia, 4.5 bcm Senigallia, 5 bcm GNL Italia, 3.5 bcm Toscana offshore, 2011: 3.7-4.7 bcm
Rosignano, 8 bcm Brindisi LNG, 8 bcm
Se
Taranto, 8 bcm
in operation
Gioia Tauro,2014: 12 bcm
under Rada di Augusta, 8 bcm construction or all permits Porto Empedocle,2011-2012: 8 bcm obtained planned
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The new offshore terminal owned by Terminale GNL Adriatico, located 17 km off the coast of Porto Levante (Rovigo) entered into operation in the second half of 2009. Exemption from third- party access for 80% of the terminal capacity (8 bcm) was granted for 25 years. Consequently, the terminal’s allocable 3 3 capacity of 26.4 Mm /day will be available for TPA to the extent of only 5.4 Mm /day until thermal year 2032-33. Moreover, for the first five thermal years this capacity is reserved for the re-gasification company. Note: A "thermal year" is the period of time into which the regulation period is divided and that runs from 1 October to 30 September of the following year.
LNG terminal projects Among the various projects, three ones are worth mentioning because of their progress status: -
-
-
the OLT Offshore LNG Toscana project (under construction): the OLT development will see the 3 138,000 m Moss-type Golar Frost converted into a 3.75 bcm/yr FSRU, moored in 120m of water off Italy's west coast port of Livorno. It will act as a receiving terminal for importing LNG, regasifying the LNG and pumping it into Italy's gas grid. Start-up is scheduled in 2011. Nuove Energie (ENEL, 90%) received from the Sicily Regional Government in december 2009 the authorization to construct and operate the 8 bcm/year. LNG terminal in Porto Empedocle (Sicily). It 3 will be able to receive tankers of a capacity up to 155,000 m . Start-up is scheduled in 2011 or more likely 2012. the 12 bcm/year LNG terminal planned for Gioia Tauro, Calabria, in southern Italy, is expected to begin commercial operations by 2014. A green light has been obtained by LNG Med Gas by the Ministry Of Economic Development in december 2009 . However a referendum among the population would still to be organised.
2.5.4 Issues for accessing importation pipelines Eni has recently announced its willingness to divest its shares in three major pipelines in order to end an antitrust investigation that the European Commission (EC) launched against the company in May 2007. In its case against Eni, the EC accused the Italian company of 'capacity hoarding and strategic underinvestment in the transmission system, leading to the foreclosure of competitors and harm for competition and customers'. Eni has now offered to sell its 49%, 46% and 89% stakes in the Trans Europa Naturgas Pipeline (TENP), Transitgas and Trans Austria Gasleitung (TAG) pipelines respectively. The proposal remains subject to a 'market test' by the EC. Eni's previous opposition to the sale of its share in TAG has been supported by the Italian state, which maintains a 36% stake in Eni. It is likely that TAG will be sold to Italy's public finance agency the Cassa Dei Depositi E Prestiti, according to Paolo Scaroni, Eni's CEO. 2.6 Key players: Transmission system The extensive gas network includes 30,000 kilometres of medium and high pressure pipelines. The vast majority of Italy's gas pipelines are owned and operated by SNAM Rete Gas (a subsidiary of Eni). The principle of non–discriminatory access of third parties applies to the national and regional transmission networks. The allocation of capacity for firm transmission service on the national network is made on an annual and sub-annual basis The transmission system operator allocates the capacity that becomes available (capacity additions, new delivery and redelivery points...). Capacity can also be exchanged on the secondary market based on bilateral transactions according to freely negotiated terms and conditions. OPERATOR NATIONAL SYSTEM REGIONAL SYSTEM TOTAL
At the beginning of thermal year 2008-09, firm transport capacity at the entry points of pipeline connections to neighbouring countries was allocated to 64 operators for an amount equivalent to 95.2% of the total allocable capacity. On June 30, 2009 pipeline saturation had risen to 96.4%. In 2009 the longterm available capacity for the period up to 2014-15 was allocated to a total of 26 operators with multi year import contracts. In 2009, the number of entry points to the national network has increased to six (not accounting for the Panigaglia terminal):
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- Tarvisio (entry point to TAG pipeline crossing Austria) - Mazara del Vallo (entry point to Transmed) - Gries Pass (entry point to TENP crossing Switzerland) - Gela (entry point to Libya-Italy pipeline) - Gorizia (entry point from Slovenia) - Cavarzere (entry point from Adriatic LNG re-gasification facilities) Since 2008 the gas transmission system (divided into national and regional) has been operated by 9 companies: 3 for the national system and 8 for the regional system (Table-5). The main transmission system operator, Snam Rete Gas owns 31,474 km of network out of a total of 33,478 which constitute the Italian gas transmission system. The second operator is the Edison group which as a whole operates 1,365 km of network, of which 203 national. More specifically, such group runs the network owned by Società Gasdotti Italia (1,282 km) as well as the new pipeline connecting the Rovigo LNG terminal (through its subsidiary Edison Stoccaggio). Table-5: Transmission system operator's gas networks in 2008 Main operators
Snam Rete gas Società Gasdotti Italia Edison Stoccaggio Retragas
National system (km) 8 779 120 83 0
Regional system (km) 22 695 1 162 0 399
Total (km)
31 474 1 282 83 399
2.7 Key players-LNG terminals GNL Italia S.p.A., which owns and manages the LNG regasification plant at Panigaglia (La Spezia), was founded on 27 July 2001 in order to pursue the activities carried out by Snam Rete Gas S.p.A. relating to the regasification of liquefied natural gas. The company began operations on November 1st, 2001. Snam Rete Gas wholly owns GNL Italia. Terminale GNL Adriatico Srl, commonly known as Adriatic LNG, is the company that designed, built and operates the LNG Terminal located offshore Italy, in the northern Adriatic Sea. The company was established in 2005 by Qatar Terminal Limited (45%) - a Qatar Petroleum subsidiary – and ExxonMobil Italiana Gas (45%) – an ExxonMobil subsidiary and Edison (10%). In may 2009, British Petroleum was awarded 1 bcm/year for 10 years starting from thermal year 20092010. The Offshore LNG Toscana project has the following shareholding: OLT Energy Toscana with 29%, Endesa Europa with 25.5%, IRIDE Mercato with 22.73%, Golar Offshore Toscana with 20% and Azienda Servizi Ambientali with 2.77%. ASA Livorno, the local municipal gas and utility company, may have joined the venture. Nuove Energie the sponsor of Porto Empedocle project (Sicily), is controlled at 90% by Enel SpA, one of the largest integrated power companies in Italy. LNG MedGas Terminal, is controlled by Turin-based utility Iride and power producer Sorgenia. The terminal will be able to receive vessels of up to 265,000 cm capacity. Sorgenia has generating plants throughout Italy and is the energy unit of Compagnie Industriali Riunite. Sorgenia was established in 1999 from a joint-venture between the CIR Group and the Austrian company Verbund. Iride was created in 2006 from the merger of northern utility AEM Torino and municipal utility AMGA Genova. 2.8 Key players: Underground gas storage Given its abundance of depleted gas fields and concerns about security of supply, Italy has significant gas storage capacity. The storage system is made up of ten depleted onshore fields, nine of which are located in the Po Valley and one in central Italy. Access to underground storage facilities is allowed to a producer, supplier, distributor or consumer following access criteria and priorities in order to guarantee to all users the freedom of access at nondiscriminatory conditions. The access conditions are under the control of the Regulating Authority.
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Underground storage activities are legally separated from supply and distribution but not from transport (transmission). They can be carried out on the basis of authorizations granted by the Ministry of Industry for a period of maximum 20 years.
Source: Regulatory Authority for Electricity and Gas
For the thermal year 2008 -2009 , the storage system offered a “working gas” reserve of 13.9 bcm (Table6). A part of this capacity was allocated to strategic storage (5.1 bcm). Therefore, the capacity available for upstream production activities, flexibility and balancing of the transmission network amounted to 3 8.8bcm. Withdrawal deliverability was equal to a total of 152 Mm /day Table-6: Available underground storage capacity in Italy Million GJ
Million m
Space for strategic storage
200.9
5 100
Space for modulation, underground storage and transmission-system balancing services
346.9
8 818
547.8
13 918
Total Source: AEEG annual report.
3
New storage sites are under construction or study, all of which concern depleted gas fields. It is estimated 3 that the Cotignola-San Potito storage (Edison Stoccagio) with a working gas capacity of 900 Mm would be operational in 2012. Reference is made to the Cedigaz database opened on the Cedigaz website. There are two gas stockholders: Stogit with a working gas capacity of 13.5 bcm in 2008 and Edison Stoccagio with a working gas capacity of 0.4 bcm. A total of 43 entities used Stogit services in 2008-2009 and 15 entities used Edison's storage system. Stoccaggi Gas Italia S.p.A. (Stogit) is the Snam Rete Gas company that operates in natural gas storage activities. In 2001 it received the storage business line including storage concessions, gas in the related reservoirs, surface and underground systems and related personnel from Eni S.p.A., as well as the compression stations needed for storage activities from Snam S.p.A. (incorporated into Eni S.p.A in February 2002). Edison Stoccagio SpA, incorporated on 2 August 2004, is the company dedicated to the activities of the Edison storage and transportation of natural gas.
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Table-7: Allocation of space in underground storage facilities
Stockholders Stogit Edison Stoccagio
Thermal year 2007-2008 Nb of users Capacity Million GJ 36 319. 5 10 14.2
Thermal year 2008-2009 Nb of users Capacity Million GJ 43 332.6 14 14.3
Source: AEEG annual report.
2.9 Natural gas distribution Gas distribution has been unbundled from gas sale and all the existing concessions are being re-granted on a tender basis. The legislator imposed the cessation of local monopolies and the calling, commune by commune, of a competitive tender for the granting of the natural gas distribution service. Most of the operators are private companies. .Access – governed by the Regulating Authority (AEEG)- means the right of a producer, supplier and/or end-user to use the network paying tariffs and meeting the obligations for its use. Natural gas distribution is part of the regulated sector of the market. The network operators must avoid discriminatory practices. Prices and tariffs are set by the AEEG according to its own methods. With regard to facilities, distribution involves around 13,300 substations, nearly 201,500 pressure limiting terminal units, and networks measuring around 238,500 km in total, broken down into medium pressure (40%) and low pressure networks (nearly 60%). Networks are mainly located in the North (141,600 km vs. 53,700 km in the Centre and 42,300 km in the South and Islands) and, on average, are owned to the extent of 78% by distributors and 11.7% by municipalities. On May 2009 a total of 308 distributors were registered in the Authority’s database. Table-8 summarizes a survey performed by the Authority. The number of respondents was 263. A process of industrial restructuring has been going on for some time now in natural gas distribution which every year implies either merger/acquisition deals (including transfers of business lines or assets) or a natural reduction in the number of companies active in the sector.
Table-8: Distribution activities 2006-2008 2006 TOTAL NUMBER Very large distributors
2008 253
249
7
8
8
Large distributors
22
24
27
Medium distributors
31
33
29
133
117
113
94
71
72
Small distributors
DISTRIBUTORS(4A)
2007 287
Very small distributors DISTRIBUTED VOLUMES – Mm3
34,917
31,094
33,485
Very large distributors
18,194
15,921
17,276
Large distributors
7,841
7,394
8,952
Medium distributors
3,843
3,978
3,543
Small distributors
4,584
3,475
3,407
326
306
Very small distributors 455 2006 2007 2008 (A) Very large: distributors with more than 500,000 customers. (B) Large: distributors with 100,000 to 500,000 customers. (C) Medium: distributors with 50,000 to 100,000 customers. (D) Small: distributors with 5,000 to 50,000 customers. (E) Very small: distributors with less than 5,000 customers. Source: AEEG calculations on distributors’ declarations.
As a whole, in 2008, 33.5 bcm were distributed to around 21,400 resident customers in 6,566 municipalities. The traditional breakdown of results between North, Centre, South and Islands shows a predominance of the North in the share of distributed gas volume with 70.9 % of total, followed by the Centre with 20.0%, and the South and Islands with 9.1%.
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Only 35 distributors (14% of companies active in the sector) exceeded the threshold of 100.000 customers served - from which the obligation of functional unbundling of the business applies, in accordance with the provisions of the Authority’s unbundling regulation. As a whole, they covered 78 % of the volumes distributed in Italy (in 2007 there were 32 in total covering 75% of volumes). The remaining 214 companies active in 2008 distributed one fifth of total volumes. The Eni group is dominant with a 26.6 % share (2008), which is at least two times higher than that of lower ranking groups (Enel, 10.8%; Hera, 6.4%; A2A, 5.7%) 2.10 The Wholesale market The wholesale market takes into account transactions between suppliers and a few final consumers. As mentioned previously these transactions are part of the free market. Among market participants, those classified as wholesalers are companies having made less than 95% of sales to consumers and also include companies with their own natural gas production which they offer on the wholesale market. 2.10.1 Activities on the wholesale market (Figure-15) In 2008 wholesalers were in the number of 78. Since the complete opening of the gas market in 2003, the number of gas wholesalers has almost doubled. According to the 2008 survey, taken together, wholesalers sold 109.6 bcm, of which 43.2 bcm to the retail market (end-users ) and 66.4 bcm to other intermediaries in the wholesale market. It seems that the wholesale market is showing a growing liquidity, with a reduction of the sales to the retail market, and the increase of those sold on the wholesale market over the past years. The Regulating Authority noted various characteristics and trends of the wholesale market, among which: - the average sales contract is calculated to 1.4 bcm - there is a reduction of the volumes sold by the larger wholesalers to the advantage of medium sized competitors whose sales grew by more than 17% year for year. What are the sources of natural gas on the wholesale market ? Figure-16 illustrates the origin of wholesalers' supplies in 2008. In addition: - 60 % of wholesalers’ gas was purchased through imports - almost 20 % of imports of medium sized wholesalers were purchased from Eni outside Italy. - 23 % of the gas supplied to the wholesale market was purchased from other suppliers in Italy - 7% was directly generated - almost 10 % was purchased at the Virtual Trading Point (VTP). What were the uses of natural gas on the wholesale market in 2008 ? - as a whole, 54.6% of procured gas was resold in the wholesale market, - 35.5 % went to consumers (of which 29 % were organisationally affiliated consumers ) - the remaining 9.9% was for self-consumption, i.e. directly used in the power generating plants of wholesalers. - sales to other suppliers prevail in small and very small companies - Eni seems to allocate its procured gas in a more balanced way between wholesale and retail market - almost one fifth of the gas available to medium-sized wholesalers is meant for selfconsumption 2.10.2 Key players on the wholesale market (Table-9) In 2008 the main players on the wholesale market were: - Eni with 22.6 bcm representing 34% of the gas sold to the wholesalers and retailers (excluding direct sales to consumers) - Enel Trade with 5.8 bcm accounting for 8.8% of the same market - Edison accounting for 7.3% with 4.8 bcm
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Figure-16: Origin of wholesalers supplies in 2008
Figure-15: Wholesalers' activity in the period 2002-2008
(volumes in bcm) 48.7
70
Sold volumes (bcm)
Eni
40
Large wholesalers Medium wholesalers
30
Small wholesalers
20
Very small wholesalers
31.6
10
Purchases from storage facilities Purchases from suppliers in the national territory Imports
Large
Medium
0 2003
2004
2005
2006
2007
1.1
Purchases at the VTP
Eni
2002
15.6
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
60 50
12.7
2008
Small
Very small Total
Domestic production
Source: AEEG annual report.
Table-9: Sales of major wholesalers in 2008 (106 m3) To Whosalers & Retailers
COMPANY Eni Enel Trade Edison Plurigas Gaz de France - Branch office Hera Trading E.On Energy Trading A2A Trading Blugas AceaElectrabel Trading ENOI Source: AEEG annual report.
To Consumers
22,648 5,851 4,845 3,054 2,795 2,471 2,263 2,150 1,726 1,362 1,289
26,009 6,858 2,165 839 0 54 38 3 41 16 8
TOTAL 48,656 12,709 7,009 3,893 2,795 2,525 2,301 2,153 1,767 1,378 1,296
2.10.3 Virtual Trading Point Transactions are made at the points of entry into the national gas transmission system and at the Virtual Trading Point (VTP) by users of the transmission system and also by pure traders at the VTP. Over the last few years, the VTP has significantly grown in importance in terms of traded volumes and number of transactions. It accounted for 10% of the wholesale volumes in 2008. In 2009, Snam Rete Gas's virtual trading point saw 24.5 bcm of gas handled (≈ 50% more than in 2008).
2.11 The retail market 2.11.1 Activities and key-players on the retail market The retail market encompasses transactions only with final consumers. Total sales to the retail market (end-users) amounted to 69.9 bcm in 2008 according to the survey. The retail market includes: "pure retailers" whose sales were estimated at 26.7 bcm in 2008 wholesalers whose direct sales to the retail market (end-users) amounted to 43.2 bcm It is to be noted that the final consumption is calculated at 83.4 bcm in 2008 including the addition of 13.5bcm representing the gas consumed in the power plants of "wholesalers/retailers". In 2008, six companies out of a total of 209 were classified as "large retailers" with sales over 1 bcm/year. They covered 57% of the "pure retailers" activity (15.3 bcm) The most important ones are listed in Table10. The pure retailers purchased natural gas exclusively from other domestic suppliers and at the VTP. To get a comprehensive outlook of the market competition, wholesalers who directly offer gas to final consumers have to be considered. Table-11 lists the five most important suppliers (as corporate groups) on the retail market with their estimated market volumes.
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Table-10: Estimated activities of main "pure retailers" in 2008 Main "pure retailers" Enel Energia Italcogim Energie Hera Comm E.On Italia Power & Fuel Edison Energia E.On Energia
Retail sales (bcm) 5.9 3.2 2.1 1.5 1.3 1.2
Source: AEEG annual report.
Table-11: Main suppliers of the retail market (by corporate group) in 2008 Main suppliers on the retail market Eni Enel E.On Edison Energie Investimenti
Retail sales (bcm) 28.9 12.8 3.9 3.4 3.1
Source: AEEG annual report.
These five groups cover approximately 72% of the retail sales (end-consumer sales). The share of Eni (38.4%) is decreasing in time while Enel's share has increased to 18.3% Table 12 provides an estimate of the number of final users and their global consumption: Table 12 Estimate of the number of final users and their global consumption in 2008 Final users
estimated nb consumers 19.6 million
Households, Trade & service sector Industrial customers Power generation
consumption (bcm) (source: MSE) 31.0
172 000 600 Total
18.5 33.9 83.4
2.11.2 Free and protected market According to the enquiry, sales realized on the free market accounted for 50.2 bcm in 2008 (i;e. 60% of total final consumption of 83.4 bcm) against 19.7 bcm realized on the protected market. Table–13 shows the estimated breakdown of final consumption in both the free and protected market. Table–13 Breakdown of final consumption in both free and protected market in 2008 Final users Domestic customers Trade & service sector Industrial customers Power generation Total
Free market 9% 67% 97% 65% 60%
Protected market 91% 33% 3% ≈0 24%
Self-consumption ≈0 ≈0 ≈0 35% 16%
In terms of number of clients, it is estimated that the protected market encompasses 96% of Domestic users, 61% of Commerce and Services, 48% of Industrial users. It must be noted that the protected market includes clients who can choose another supplier but have not made this choice and have retained the protected tariffs.
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In the domestic segment (households), 81% of the consumption relate to unit consumption below 3 5,000 m /year. For Commerce and Services, 54% of the consumption relate to unit usage between 5,000 3 and 200,000 m3/year. For any consumption above 200,000 m /year, most of supplies are contracted on the free market. Tendencies: In the non-domestic sector, small business and services continued to switch to the free market. Globally, there have not been any signs of switching back from the free market to the protected market in any of the consumer classes.
3. Gas prices Due to the long-term import contracts, Italian gas prices are assumed to be linked to oil prices with some lag. 3.1 Final consumers prices Table-14 Comparison of prices on the free and protected market in 2008 Free market 3
Average price, (€c/m net of taxes) Average growth 2008/2007
36.01 28%
Protected market 47.46 10%
Market average 39.24 21.5%
Source: AEEG annual report.
The average price on the free market is lower than on the protected market. Nevertheless the protected market exhibits a lower price growth between 2007 and 2008. It is relevant to compare prices for the same 3 3 category of consumers: globally, smaller customers (less than 5,000 m /year) paid 4.02 €c/m more on the 3 protected market than on the free market. Intermediate consumers (5,000 to 200,000 m /year) paid 3 1.39 €c/m more on the protected market. 3.2 How do prices compare to other countries? Calculations performed by Eurostat show that for domestic users and higher consumption classes (use of gas extended to domestic heating systems) prices were in line with the European Average (22 countries) when calculated net of taxes, and above the average if calculated gross of taxes (positive deviation of over 15%). These calculations apply to the first half of 2008. Also Sweden, Austria, Netherlands, Germany and Portugal are among the countries with the highest prices gross of taxes in comparison with the European average, noteworthy for the medium consumption class (with annual consumptions between 3 525 and 5.254 m ).
Figure-17: Recent records of natural gas prices, Italy
Figure-18: Comparison of natural gas prices (excluding any taxes, 2nd semester 2008) 18.0
25.00
16.0 14.0 12.0
15.00
Households taxes incl.
10.00
Industry taxes excl.
6.0 4.0
Industry taxes incl.
2.0
5.00
€/GJ
Households taxes excl.
€/GJ
20.00
10.0
Households
8.0
Industry
H22007
H12008
H22008
H12009
Bu Cz lg ec ar h Re ia pu bl i Hu c ng ar y Ro m an ia
H12007
Sp ai n
0.00
I ta ly G er m an y
Fr an ce
0.0
3
Note: to obtain prices in €c/m , multiply by 0.038
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3.3 What is the breakdown of prices for the Italian consumer ? The Italian Regulator calculates an average national price for a reference domestic consumer with an 3 annual consumption of 1400 m and an individual heating system. At second quarter 2009, the calculated average price amounted to 73.41 €c/m3 including: Table-15: Typical breakdown of natural gas prices Cost component infrastructure costs: sale components (Wholesale marketing, Retail marketing): Raw materials: Taxes:
% 16.3% 8.8%
Infrastructure cost component storage: transmission: distribution:
% 1.4% 4.8% 10.1%
37.1% 37.8%
Source: AEEG annual report.
3.4 About taxes Tax rates are fixed by ministerial decree following the transposition of European Directive 2003/96/EC. Tax rates vary according to two classes: civil uses and industrial uses and inside each class, they vary according to the consumption class (volumes consumed). taxes include: - the Excise duty - the Regional Surcharge differentiated among Italian regions - the VAT 3.5 Tariffs for transmission, regasification and underground storage Gas transmission and dispatching: the tariffs for gas transmission and dispatching are calculated according to the criteria established by the Electricity and Gas Authority (AEEG). The transportation tariffs envisage the payment of amounts for the committed capacity at the Entry and Exit Points of the national gas pipeline network, as well as an amount for the committed capacity on the regional network and a variable amount for the energy associated to the gas delivered at the Entry Points of the national gas pipeline network, excluded the underground storage site's. At 2nd quarter 2009, transmission tariffs accounted for 4.8% of the average price to the reference domestic consumer. LNG regasification service: GNL Italia and Terminale GNL Adriatico submit to the AEEG their tariff proposal for regasification services. After approval, the tariffs are applied for the coming thermal year. Tariff structure includes: - a commitment charge associated with the contractual LNG quantities - a charge associated with the docked ships and variable unit charges for energy associated with regasified volumes Tariffs depend on each terminal and also on the type of service: "Firm Service" or "Spot Service" Underground gas storage: the national single charges for the thermal year are fixed by the AEEG following its review of the proposals of the national stockhokders. The charges include mainly:: - a space unit charge (€/GJ/year) - an injection capacity unit charge (€/GJ/day) - a withdrawal capacity unit charge (€/GJ/day) - a gas handling unit charge (€/GJ) - a strategic stockholding unit charge (€/GJ/year) For 2nd quarter 2009, storage charges accounted for 1.4% of the average price to the reference domestic consumer.
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3.6 Distribution tariffs New provisions have been implemented for the regulatory period 2009-2012 which include a compulsory service to be applied to consumers and a reference tariff which defines the admissible revenue per distributor intended to cover their regulatory recognised costs. An equalisation scheme is intended to cover any imbalances between admissible revenues from the reference tariff and actual revenues obtained by applying the compulsory tariff. Tariff structure includes a fixed and a variable part. The fixed component depends on the geographical area. The variable component provides for 8 consumption ranges. For 2nd quarter 2009, distribution tariffs accounted for 10.1% of the average price to the reference domestic consumer.
CEDIGAZ INSIGHTS is an internal publication of CEDIGAZ 1 et 4, avenue de Bois Préau, 92852 Rueil-Malmaison Cedex, France Tel. +33 1 47 52 60 12 - Fax +33 1 47 52 70 14 Website : http://www.cedigaz.org Contact :
[email protected]
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