A mechanism slashing the cost of gas import capacity into Italy from northwest Europe could come into force in a provisional form in Gas Year 2017, according to a draft decree discussed by the Italian cabinet last week and seen by ICIS.
The draft, which is not publicly available, provides additional details into the potential timeline of a measure which could change supply dynamics in import-reliant Italy.
Under the project, known as liquidity corridor, Italian grid operator Snam Rete Gas or another regulated subject would buy transport capacity connecting the Netherlands, France and Germany to Italy through Switzerland via the Transitgas pipeline. This subject would then offer capacity to the market on a short-term basis in the form of bundled products including transport capacity on the different pipelines. This would happen through auctions in which the reserve price could be below €0/MWh. At the moment, the reserve price for interruptible monthly capacity on Transitgas is Swiss franc 1.00/MWh (€0.92/MWh).
The draft decree says that after starting in a provisional form as a measure for ensuring security of supply in case of emergency, the project would then be fully implemented in the following years. The draft decree does not specify which elements of the mechanism would be part of the initial form and which ones would instead start later as part of the full implementation stage.
One source with knowledge of the issue told ICIS that the draft measure was initially part a wider draft decree for the development of Southern Italy, but that it was subsequently taken out and was now being discussed as a separate stand-alone decree.
Since the mechanism would make imports from northwest Europe more profitable than they currently are, it would likely have an impact on market participants’ portfolios.
As this would change market dynamics, the decree would allow shippers to renegotiate their transport contracts with Snam Rete Gas, in particular with regard to entry points and volumes.
In order to avoid anti-competitive behaviour, the draft also mentions the introduction of punitive measures against market participants who hold more than 20% of capacity on pipelines connecting Italy to neighbouring countries and do not use it without providing a justification.
The mechanism was first mentioned by the ministry of economic development in the new National Energy Strategy, which is undergoing a public consultation.
In the consultation paper, the ministry said it intended to realise the liquidity corridor project “in a very short time”, but gave no exact timeline ( click here to read story ).
According to the ministry, the project will bring Italian natural gas prices in line with prices at the benchmark Dutch TTF hub. Import costs on the Transitgas pipeline are currently estimated at around €1.80/MWh, while the liquidity corridor would take out the fixed-cost component and only leave variable costs.
Market participants previously said they were wary about the ministry prompting shippers to choose which supply route to use and about moving capacity costs from shippers to end users ( click here to read story ).
The ministry of economic development did not comment on the draft. The cabinet and Italian grid operator Snam Rete Gas did not respond to a request for comment by publication time. email@example.com and firstname.lastname@example.org