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Italy's Snam warns of September gas shortage

10 Aug 2017, 12.09 pm GMT

Italy's Snam warns of September gas shortage

London, 27 July (Argus) — Italy may struggle to meet consumption during planned Tag maintenance in late September, system operator Snam said.

Supply may be about 20mn m³/d of expected consumption during a scheduled Tag halt for 4.5 days from the start of the gas day on 25 September even if injections completely stop, which may require a switch to withdrawals, head of Snam's gas transport contract division Antonio Anchora said.

Storage operator Stogit may choose to offer withdrawal capacity on those days, a possibility that the firm is still studying, Anchora said.

There are often withdrawal nominations during the injection period as firms balance their position, but there has never been an instance where the whole system switches to a physical stockdraw before the withdrawal period, he said.

Stogit capacity holders do not have physical withdrawal capacity available during the injection season. The only withdrawal capacity that may be available in September is Snam's dedicated 12mn m³/d, most of which is frequently offered at day-ahead auctions for additional short-term capacity.

But this may not be sufficient to meet consumption that is 20mn m³/d higher than supply before taking into account storage movements.

Snam's analysis

Aggregate supply does not exceed 155mn m³/d on 25-29 September in Snam's analysis. This would imply consumption of just over 170mn m³/d, along with exports of 4.5mn m³/d to Slovenia included in the firm's forecast.

System offtake — excluding storage injections — was 141.8mn m³/d in September over the past three years. But it has been about 18.3mn m³/d higher than the three-year April-July average so far this summer because of low hydroelectric stocks and higher industrial demand.

Demand has been slightly lower in the second half of September than the first half of the month in two of the past three years as cooling demand eases and heating demand is yet to rise.

System offtake could be close to 160mn m³/d in late September, assuming demand remains similarly far above average to earlier in the summer.

There may be nominations for exports to Slovenia, which will also be cut from supplies via Austria, Anchora said.

Tag flows are scheduled to be completely halted from the beginning of the 25 September gas day to 18:00 on 29 September because of maintenance at the Baumgarten compressor station, which will also halt deliveries into the Austrian market area.

The maintenance was delayed from the previously planned 4-8 September. Snam had raised concerns with the Tag operator that the halt would coincide with Transitgas constraints, which would have further curtailed Italy's supply flexibility, Anchora said.

There are still Transitgas restrictions on 25-29 September, but the potential capacity reduction is smaller than on 4-8 September, Anchora said.

Transitgas capacity is expected to be 52mn m³/d on 25-29 September compared with 25mn m³/d on 4-8 September, Anchora said.

Limited contractual flexibility

Aggregate supply is not exceeded to 155mn m³/d, despite available pipeline capacity to increase imports from Libya or Algeria, because of contractual limits.

Algerian pipeline deliveries are not expected to exceed 55mn m³/d in September because of clauses in place in the deals with Sonatrach, Anchora said.

Flows could be slightly higher — up to 57mn-58mn m³/d — but that would test maximum summer nomination limits under the long-term contracts, market participants said.

And the flexibility to ramp up supply late in the gas year could also depend on how much Algerian gas had already been taken since 1 October.

Algerian pipeline receipts of 16.8bn m³ so far this gas year were already above the 15.1bn m³ in the full 2015-16 gas year. But contractual volumes were expected to be higher this year following annual renegotiation with Sonatrach for each gas year.

Other sources of supply

Most of the flexibility to increase receipts comes from LNG with Snam encouraging market participants to consider importing more cargoes in September.

The firm already assumed 3mn m³/d of sendout from Panigaglia. But sendout from the terminal has been 6.2mn m³/d on 10-26 July with a cargo delivered every Monday.

And a substantial increase in LNG supply could require bringing cargoes to the 3mn t/yr Offshore LNG Toscana (OLT) terminal.

There may be an incentive to maintain a brisk sendout from the Adriatic LNG and Panigaglia terminals as the PSV September contract has remained above premium markets in northeast Asia. This could encourage long-term capacity holders to bring in cargoes as they consider most costs sunk, aside from about €0.51/MWh of variable costs.

But the OLT terminal has received no delivery outside the LNG storage and regasification service this year. And the PSV would need to open a much wider premium to cover the variable costs of a short-term booking.

The PSV September contract's premium to northeast Asian prices has been too tight to cover the costs of regasification capacity, entry tariffs and variable costs, which total around €4.42/MWh in the case of OLT.

And maximum daily sendout capacity is 15mn m³/d, still not enough to meet Snam's forecast 20mn m³/d shortfall by itself.

But domestic production may be higher than 11mn m³/d as output is gradually ramping up following the restart of the 4.7mn m3/d Cova oil and gas centre in southern Italy. Domestic production in September may have already returned to the 15.9mn m3/d in the first quarter before the Cova halt.


Italy supply mix on 25-29 Septembermn m³/d
Tag 0.0
Transmed 55.0
Transitgas 52.0
Greenstream 12.0
LNG 25.0
— GNL Italia (Panigaglia)3.0
— Adriatic LNG (Rovigo)22.0
— Offshore LNG Toscana (OLT)0.0
Domestic production 11.0

Italian gas production mn m³

Italian consumption mn m³/d

September consumption mn m³/d

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