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Italy-Algeria 8bcm/year natural gas pipe decision due in May

08 Apr 2014 18:16:33 | esgm

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A decision on the proposed 8 billion cubic metres/year Galsi pipeline that would send natural gas from the giant field of Hassi R’mel in Algeria to northern Italy via Sardinia is due in May, but sources think weak demand and low gas prices cast doubt on the project or could delay it more.

Just last week the French system operator GRTgaz decided to suspend the Cyrenee project, which would have connected the Galsi pipeline to Corsica. The gas from Cyrenee would be used to supply the island’s consumption and gas-fired power plants.

A GRTgaz spokesman said on Monday that the Cyrenee project depends on Galsi’s progress. ICIS understands Galsi’s partners are currently evaluating how to proceed. “The market conditions are difficult and at the moment I am not sure of the [project’s] precise time line,” one source from the companies involved in the project told ICIS.

Algerian state company Sonatrach is the biggest stakeholder in Galsi. If it and the other investors – Italian utilities Edison, Enel and Hera Trading, and the autonomous region of Sardinia – decide to go ahead with the project, construction could start in 2015. If building work started that year, first gas could flow through the pipeline around 2019. Galsi, which is expected to cost about €3bn to build, might also get some European funding as it is included in the European Commission’s projects of common interest.

The company behind the project was unwilling to be drawn on its future at this stage. “Galsi is a switched on engine that still has not moved, but it hasn’t been put in the garage,” a spokesman from Galsi said.

The decision to proceed with building the Algeria-Italy pipeline has previously been delayed because of wrangling over long-term supply contracts for gas.

Last May, Italian incumbent Eni said it had renegotiated its long-term contract with the Algerian gas producer Sonatrach, reducing volumes to be exported towards Italy. Edison also won an arbitration case to have its long-term gas contract with Sonatrach lowered.

The clearing up of contract issues could have cleared the way for the investors to back the Galsi project. But sources think current fundamentals could put the investors off. European gas markets are oversupplied and prices at the Italian gas hub plummeted to four-year lows last week. During March gas demand in Italy fell 23% year on year, according to data from Italian system operator Snam Rete Gas.

Algeria does need pipelines to export more gas, participants think. “Algeria does not have a great liquefying capacity,” said an Algerian source. Flows from North Africa, although partially threatened by supply disruptions from attacks, provide an alternative to flows from Russia. But gas flows from Algeria into Italy were down 66% year on year during March. Matilde Mereghetti


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