Edison Investing $5.2 Billion to Make Italy European Gas Hub by 2012

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Researched by IndustriaI Info Resources (Sugar Land, Texas). The board of Edison (Milan:EDN) (Milan, Italy), the major Italian power utility, has approved a strategy for the company over the period 2007–2012 to consolidate its position as a leading operator in the electric power and hydrocarbon industries by building transnational mid-stream infrastructures in the field of natural gas. This strategy allows Edison to step up its hydrocarbon exploration and production activities while further expanding its electric power operations, with special emphasis on renewable sources. In pursuit of these objectives, an investment of more than $5.2 billion will be planned for the period and will be applied to the group’s 50% share in Edipower.

The company intends to increase its role in the hydrocarbons market by increasing its penetration of the end-user market and securing at the same time competitively priced fuel for its gas-fired, combined cycle power plants. This will strengthen the integration between its hydrocarbons and electric power operations, which is a critical success factor in an environment characterized by strong price pressure in the oil market.

The Edison industrial plan is to gain access to a gas supply of 22 billion cubic meters per annum by 2012 (estimated to be approximately 20% of Italian gas supplies at that date). This target will be made possible by the European infrastructure the group is currently building, which will transform Italy into a crucial gas hub for the whole of Europe. Currently, Italy is a gas consumer country.

In the period of the plan, the LNG Rovigo gas terminal, currently being developed by ExxonMobil (NYSE:XOM ) (Irving, Texas), will come on stream in 2008. Although a number of new terminals are planned, Rovigo is the only terminal currently under construction and will have a capacity of 8 billion cubic meters per annum, giving Edison access to 6.4 billion cubic meters of gas.

In November, Edison and Sonatrach, Algeria’s state-owned hydrocarbons company, signed an agreement for the supply of 2 billion cubic meters of gas per annum, which will add to the same amount of gas already contracted from the Algerian company to be delivered to Italy through new capacity available on the Transmed pipeline. The newly contracted gas will be delivered annually over fifteen years through the Galsi pipeline. This project, which is currently being developed, will interconnect Algeria, Sardinia and Tuscany. Edison is the major stakeholder (18%) in Galsi, which has other Italian and international stakeholders. The pipeline will have a total length of 900 kilometers and a capacity of 8 billion cubic meters per annum, part of which will meet Sardinia’s needs with the balance conveyed through to Italy’s pipeline system. Approximately 3 kilometers of the pipeline will 2,500 meters underwater as it crosses the Mediterranean between Algeria and Sardinia.

Edison is also developing the IGI natural gas pipeline linking Turkey to Greece and Italy. This will provide the company with a minimum of an additional 4 million cubic meters of gas per annum by 2012. Edison will then have achieved a diversified portfolio of long-term contracts for the supply of natural gas from different geographic regions and will purchase the gas directly from the producing countries, giving the group greater autonomy and flexibility.

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