Plans for Italy to become a gas hub for Europe are realistic long-term as gas grid operator Snam Rete Gas SpA gears up to accommodate a series of big gas infrastructure projects, but timing is important if competition from countries like Germany is to be overcome, analysts said.

"For Europe, Italy is at the crossroads for gas from North Africa, the Middle East and the Caspian but with Germany and Austria-Hungary fast building import gas capacity of their own with projects like Nord Stream and Nabucco it will be a race of who gets there first as a hub," a London-based energy analyst said.

At the recent presentation of its 2008-2011 business plan, Snam RG chief executive Carlo Malacarne said gas demand and hub operations will be the major growth drivers for the group in years to come.

"Our geographical position vis-a-vis Africa, the Middle East and the Caucasia area, as well as our existing links to Russia and North Europe, make Italy a major gas channel to Europe for gas," Malacarne said.

According to Snam RG, 2007-2020 gas demand in Italy is expected to grow at more than 2 percent per year from 86.7 billion cubic meters in 2007 to around 114 billion in 2020, driven mainly by the power generation sector.

European gas demand is seen growing at 2.1 percent per year to around 700 billion cubic metres in 2020 with imports growing 4.9 percent as domestic production falls.

Italy, whose gas supplies are currently very tight, is expected to be in a situation of excess capacity in the coming years if four planned gas pipeline projects and a series of liquefied natural gas terminals get built.

The 8 billion cubic metre GALSI gas pipeline project (due for completion 2012-2013) will transport Algerian gas through Sardinia to the Italian mainland while the 8 billion cubic meter IGI pipeline (end 2012) will transport Azerbaijan gas via Greece.

The 10 billion cubic metre TAP pipeline (after 2011) will carry gas from the Caspian and Middle East to Italy, while the 30 billion cubic meter South stream pipeline will first cross the Black Sea into Bulgaria and then split into two arms, one to Austria and the other south to Greece and southern Italy.

Eni SpA also has plans, starting this year, to upgrade the capacity of its import pipelines carrying Algerian and Russian gas by an overall 13 billion cubic meters.

"Italy could be the ideal hub since it can guarantee a diversified gas supply portfolio which could clearly help supply security in Europe while Germany is dependent on Russian gas," said Claudio Arcudi, director of the Italian utilities division at Accenture.

Arcudi, who noted that growing gas demand in Europe will be fuelled also by falling gas production in the North Sea area, warned that complex permitting regulations could hold up, or even discourage, the actual construction of energy infrastructure in Italy.

"The gas hub issue should at least make the government reflect on the opportunities we are continuing to lose," he said.

An energy analyst at ABN Amro said the permitting process for liquefied natural gas (LNG) is particularly onerous, noting that LNG is especially important for the development of a gas spot market.

"It's so difficult that until that is resolved any talk of a hub is fanciful. And remember, Spain isn't a hub and it has 5 LNG terminals," he said.

Italy has over 13 projects on paper to develop LNG terminals but to date Snam RG operates the country's only operative plant at Panigaglia.

An 8 billion cubic meter facility being developed by Edison SpA and partners is under construction and could be operative at the end of the year, while a smaller facility at Livorno being developed by Iride SpA and Endesa SA has been authorized.

The forecasts of Snam RG's business plan include an 8 billion cubic meter LNG plant planned by Gas Natural in Trieste, which is still seeking regulatory clearance, as well as another unnamed facility in the south of Italy.

Analysts said Snam RG has told them the southern plant is an 8 billion cubic meter plant being developed by Enel in Sicily, which is close to completing the permitting process.

Copyright 2008 AFX News Limited. All Rights Reserved.

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Galsi Pipeline
Facility Type: Pipeline Owner: Galsi SpA (Edison SpA; Sonatrach; Enel; Hera Trading; Sfirz)
Scope: New Construction Location: Koudiet Draouche, Algeria to Piombino, Italy Algeria