Italy Commissions Second LNG Terminal, Gains 25-Year Qatar Gas Feed

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Researched by Industrial Info Resources (Sugar Land, Texas)--Italy's second liquefied natural gas (LNG) import terminal was officially inaugurated on October 19 in the northern part of the country. The 8 billion-cubic-meter Adriatic LNG terminal is expected to be operating at full capacity by the end of the year, helping Italy diversify its energy supplies. According to close observers, full capacity should be attained by the end of November. The terminal will receive imported gas from Qatar for the next 25 years, reducing Italy's dependence on gas imports from northern Africa and Russia.

Speaking at the opening ceremony, Prime Minister Silvio Berlusconi stressed the need for Italy to diversify its energy sources and attain greater energy security. With a regasification capacity of 8 billion cubic meters per year, the LNG terminal will help meet about 10% of Italy's current gas requirements. The terminal's shore base manager, Adriano Gambetta, said that four ships carrying about 150,000 tons of gas each have already arrived at the terminal since August. The first gas was injected into Italy's national grid in September.

The $3 billion Adriatic LNG terminal has been developed as a joint venture between utility company Edison SpA (BIT:EDN) (Milan, Italy) with a 10% stake; Qatar Terminal Company Limited (Doha, Qatar), an affiliate of Qatar Petroleum (Doha), with a 45% stake, and the Italian unit of Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas), which also holds a 45% stake.

The Adriatic LNG terminal is the world's first offshore gravity-based structure for unloading, storage and regasification of LNG. Gas will be transported from the offshore terminal to a metering station near Cavarzere in the province of Venice through a 30-inch-diameter, 40-kilometer-long pipeline that has been constructed by Snamprogetti (Milan, Italy). Another 36-inch, 84-kilometer pipeline built by Edison will carry the gas to the national distribution network near Minerbio in the province of Bologna.

The terminal will help Edison enhance its leading position in Italy's energy sector. Under the current agreements, the company will use 80% of the terminal's capacity during the next 25 years, and third-party operators will utilize the remaining 20%. BP plc (NYSE:BP) (London, England) has signed an agreement to use about 1 billion cubic meters of the terminal. The terminal is expected to increase Edison's annual gas sales from the current 13 billion cubic meters to 23 billion cubic meters by 2013. The terminal will have the capacity to receive 84 cargo ships per year, 72 of which will be earmarked for Edison.

Italy's first LNG terminal has a capacity of about 4 billion cubic meters and is owned by oil and gas major Eni SpA (BIT:ENI) (Rome, Italy). Full capacity of the terminal has not been used recently. Two more LNG terminals are scheduled to come on stream in Italy. One will be located in Sicily and controlled by utility company Enel SpA (BIT:ENEL) (Rome), the other will be located at Trieste in northern Italy and be managed by Gas Natural SDG SA (MCE:GAS) (Barcelona, Spain).

The infrastructure required to handle LNG is very expensive, and although it was recognized as a fuel of the future given its ease of shipping in comparison to pipeline gas, the costs involved have reduced the demand for LNG. Italy's power sector utilizes a large amount of gas, but the economic crisis has brought about a decline in the demand for power as well. Italy has seen a fall of almost 7% in demand for power since January 2009. Claudio Scajola, the country's Economic Development Minister, has waved aside concerns that Italy will have an oversupply of LNG, arguing that the government hopes to develop Italy into the gas-transit hub of Europe.

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