albania gas system - research on...

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ALBANIA GAS SYSTEM

MArch 2010

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Contents

DEvELopMENT of ALBANIA GAS SYSTEM .......................................................... 3

Top pLAYErS IN ThE GAS SEcTor ........................................................................ 5

Albpetrol ShA ........................................................................................................... 5

LEGISLATIoN .............................................................................................................. 6

prIcES AND oThEr prIcE –rELATED INforMATIoN ...................................... 6

coNNEcTIoN/AccESS To NEIGhBourING GAS SYSTEMS ............................... 7

MArkET DEvELopMENT forEcAST .................................................................... 8

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Development of AlbAniA GAs system

The development of the gas system of the Republic of Alba-nia began in the 60s’ when gas reserves had been found to the southwest of the country. Gas pipelines with an overall length of 600 km had been installed to connect the gas fields with the largest lo-cal consumers – thermal power plants (TPPs), smelters and fertilizer producers.

Presently, the Albanian gas network comprises some 400 km gas mains and ad-joining metering stations. The pipes are 325 mm and have transportation capacity of 100,000 cu m of gas per day. Due to the depletion of most gas fields, major-ity of the network is non-operational.

ExISTING GAS pIpELINES IN ALBANIA (DATA BY ThE oIL AND GAS TrANSporT DIvISIoN of ALBpETroL ShA)

Type operational Nonoperational Total

pipeline (km) 293 333 626

Gas pump stations(number)

3 5 8

Source:Albpetrol ShA

Although gas fields in Albania have outgoing pipelines to deliver natural gas to certain consumers, they could hardly form a gas network. The Albanian Energy Regulato-ry Au-thority (ERA) outlines the existing routes:

- a pipeline along the Adriatic coast, starting at Shkoder, northwestern Albania, through Durres, Kavaija, Divjaka, Pov-elca, Frakulla, Panaija and Vlore, western Albania, to Delvina and Finiq, southwestern Albania;

- a pipeline going to the southeast to Fier through Ballsh-Hekal and Gorisht, central Albania, to Delvina and Finiq;

- a pipeline bending northeast from Fier and extending through Patos and Kucho-va to Elbasan, central Albania.

ExISTING pIpELINES

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Albania does not have underground gas storages (UGS).

The construction and maintenance of the transportation and distribution networks, the gas storages, the terminals for liq-uefied natural gas (LNG), and the interconnection stations are approved by the Albanian government with special permits.

Other priority projects, beside plans for the construction of UGS, are the develop ment of the distribution grid, the re-placement of aged pipelines and the construction of cogen-eration plans.

There are two possible locations for the construction of a UGS – the depleted gas field near Divjaka and the salt for-mation in Dumre, central Albania. Although feasibility stud-ies have been carried out on both locations, their economic attractiveness is ques tionable. The project of Divjaka envis-ages a large number of wells, which means high maintenance costs. Moreover, the lower pressure in the storage could re-quire additional measures, which will probably increase the value of construction works with 50%.

The scenarios for the Dumre gas storage depend on its func-tion. If Dumre is de veloped as a storage to cover only na-tional needs, two 55-60 m caverns will be leached, each stor-ing some 65-75 million cu m of natural gas. Such a decision, however, will di minish the quantities as well as the chances of investment in salt production. The shap ing of the two cav-erns will take four years. In the second scenario Dumre will meet the need of the regional and the transit gas markets. The project includes the leaching of eight caverns with 70-80 m diameter, which will have a combined storage of up to 1.2 billion cu m of gas. It is very likely for the project to attract a salt production company to develop the mine and reduce the operation costs of the storage. Taking away the salt and leaching four caverns will take about eight years.

uGS projEcTS IN ALBANIA

Storage Divjaka Dumre - Alternative 1

Dumre Alternative 2

Working volume (mln cu m)

60 260-300 1,040-1,200

Cushion gas (mln cu m)

170 100 800

injection (mln cu m/day)

0.35 0.43 2.00

extraction (mln cu m/day)

0.50 1.29 6.00

pressure (bar) 110-130 90-215 90-215

project value (eUR mln)

39.0 68.0 73.0

Source: SEE Regional Gasification Study – Final Report, January 2009

uGS LocATIoN

Source: METE

Albania is among the few countries in SEE, together with Kosovo, Montenegro, and Macedonia to a certain extent, that do not have working gas distribution networks. Albania’s gas production and the existing pipeline along the Adriatic coast are prerequi sites for a future development of the gas net-work deeper into the country. The sharp de cline in gas pro-duction after 1990 and the depletion of the gas fields put the expansion of the network to a halt, and the without any gas in them the pipes were destroyed by cor rosion.

Between 2000 and 2008 state oil and gas company Albpet-rol ShA replaced 16 km of pipes along Balsh-Delina route, 3 km of the pipeline at the Divjaka gas fields and 0.4 km of pipes at the Frakulla field.

The increasing demand for natural gas in the country and the future gas projects in the region require Albania to have a well designed and properly managed gas system. SEE Re-gional Gasification Study, carried out for the World Bank and German investment bank Kreditanstalt fur Wiederaufbau (KfW), shows that the construction of a gas distribu tion net-works in the capital Tirana and Elbasan, one of the largest towns in the country, would cost between USD 1.7 mln and USD 2.3 mln, depending on the number of con nected clients. The installation costs for households will vary from USD 150 to USD 200, considering the type of building -a house or a block of flats.

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ESTIMATED coSTS of TrANSMISSIoN AND DISTrIBuTIoN

Town population Transmis. (uSD/mln cu m)

Distribution (uSD/ml n cu m)

Transm. and Distrib-non residential (uSD/mln cu m)

Transm. and Distrib-residential (uSD/mln cu m)

connection and Installation (uSD/mln cu m)

tirana 700,000 26 39 64 240 175

elbasan 123,200 26 96 122 297 175


Other projects related to Albania’s gasification are for the construction of gas-fired cogeneration and thermal power plants (TPPs). In July 2009 gas-fired Vlore TPP, worth USD 112 mln, began its testing period.

State oil and gas company Albpetrol is the owner of the gas fields and the pipelines.

According to the Albanian Ministry of Economy, Trade and Energy, the share of natural gas in the energy mix of the country is insignificant – close to 1% in 2007. Alba nia extracts natural gas at several fields in the southwest and along the Adriatic coast. In the recent years Albania’s gas consumption marked a decline on top of falling gas pro duction and poorly-developed import infrastructure.

GAS coNSuMpTIoN IN ALBANIA

Year Domestic consumption (mln cu m)

2007 4.460

2006 4.753

2005 5.791

2004 4.841

Source: METE

AvErAGE coNSuMpTIoN of NATurAL GAS BY SEcTorS To 2015

Type of customer volume (mln cu m/ year)

power plants 724

industrial clients 81

services 264

District heating 104

Households 32

Total 1,205

Source: METE

The revised National Strategy of Albania predicts that the domestic natural gas consumption will reach 1.8 billion cu m by 2020.

top plAyeRs in tHe GAs seCtoR

The natural gas market in Albania is in the early stages of its development. The country has not appointed transmission and distribution system operators, which can be explained with the lack of natural gas network. Albpetrol ShA holds the gas fields and produces gas to supply a couple of local industrial customers. Imports of natural gas could meet the rising domestic demand, if the gas system of Albania were connected to neighbouring networks.

Albpetrol ShA Albpetrol ShA was established on April 30, 1999 as a state-owned company for oil and gas exploration and production, transportation and trade in oil and gas. The compa ny is whol-ly-owned by the Albanian Ministry of Economy, Trade and Energy.

Albania’s government announced intentions to start a privati-zation procedure for Albpetrol in 2010.

Albpetrol is headquartered in Patos, western Albania, with divisions in Marinza, Ballsh, Sheqisht, Kucova and Gorisht.

Albpetrol produces oil at the country’s largest oil field – Patos-Marinza, with a total area of 17,806 ha and 2,500 oil wells, working at 3,800 barrels per day. The company also has two smaller oil fields, and seven gas fields, the biggest of which is in Delvina. Albpetrol manages two oil refineries with a combined processing capacity of 1.5 million tones.

Being a national company Albpetrol has the right to operate all oil and gas fields for an unlimited period, save for the cases of joint work with foreign investors. Then, there are concessions for 25-30 years.

Company information shows that gas reserves in Albania for 2008 were: •12.028 million cu m of associated gas, of which 9.337

million cu m were extract ed, •4.899 million cu m of indigenous natural gas, of which

3.958 cu m were extract ed.

Natural gas production in Albania is constantly declining and in 2007 it stood at 11 million cu m, compared to 250 million cu m extracted in 1990. The Ministry of Economy, Trade and En-ergy estimates the country’s gas reserves at 1.5 billion cu m.

NATurAL GAS proDucTIoN IN ALBANIA (MILLIoN cu M)

Year 2007 2006 2005 2004

production 11.089 11.091 11.347 11.965

Domestic consumption 4.460 4.753 5.791 4.841

losses 0.057 0.031 0.018 0.029

third party supply 6.572 6.307 5.538 7.095

Source: METE

In 2008 Albania produced gas from only 20 wells at daily yields of 200-300 cu m.

The single gas trading company in Albania is Albpetrol.

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The country has no active companies for natural gas trans-mission and distribution.

Oil refinery ARMO ShA and Albpetrol are the biggest gas con-sumers in Albania.

Among the big industrial consumers of natural gas are also: chromium production company Albanian Chrome Sh.p.k, met-al company Kurum International Sh.p.k. and ce ment factory Elbasan Cement Factory Sh.p.k.

leGislAtion The Law on Natural Gas is the main legislative act, regulating the gas activities in Albania.

The activities on natural gas exploration and production are listed in the Law on Hydrocarbons No.7746, from 28.07.1993.

Albania has not still brought its legislation in the natural gas sector into line with the European gas directives:

•Directive 2003/55/EC concerning common rules for the internal market in natural gas

•Directive 2004/67/ES concerning measures to safeguard security of natural gas supply

•Regulation 1775/2005/EC on conditions for access to the natural gas transmission networks

Albania is among the countries that signed the Treaty es-tablishing the Energy Community on October 25, 2005 in Athens.

ERA has not granted licences for activities in the gas sec-tor to any if the local companies, due to the lack of working natural gas market in Albania.

As stated in the law ERA has the right to issue licences for:•transmission of natural gas; •distribution of natural gas; •supply of natural gas; •trade in natural gas •operation of natural gas storage facilities; •operation of LNG facilities. •transmission of natural gas to a legal person only for a

certain territory. •distribution and supply of tariff customers to a person

only for a certain service area. ERA has the right to de-termine the transmission and distribution zones by an ordinance based on technical and economic criteria. Mu-nicipalities and communities may undertake transmis-sion, supply, distribution and storage if they have a valid licence from ERA.

According to section VI, article 36, every person engaged in the activity of natural gas supply shall get a licence by ERA.

The supply with natural gas of tariff customers shall be car-ried out by the public supplier, which is the distribution sys-tem operator for all tariff customers located in the licensed area. Eligible customers will be supplied by any qualified sup-plier licensed by ERA and chosen by them.

According to section II, article 26, the distribution of natu-ral gas is an activity of public interest and it shall be carried out by a distribution system operator within a cer tain terri-tory. The distribution system operator shall be independent in terms of its legal form, organization and decision making from other activities not relating to distribution. The operator shall be responsible for transparent and non-discriminatory work of the na tional distribution network. No other company shall have jurisdiction or authority in the area of gas distribution or own gas distribution assets except as authorised by ERA.

pRiCes AnD otHeR pRiCe –RelAteD infoRmAtion

ERA has not approved prices for any of the gas activities as there is no functioning gas market and appointed companies for the respective services.

Albania’s National Energy Strategy by 2020 sets a profit tax of 25% and value added tax of 20% for companies in the local gas sector.

ALBANIA’S proGrESS IN ThE IMpLEMENTATIoN of ThE Eu DIrEcTIvES IN NATurAL GAS AS of fEBruArY 2008 (oThEr ENErGY coMMuNITY MEMBErS INcLuDED)

country Directive 2003/55/Ec

Market Structure Wholesal e Market

retail Market Tariff reform Market Integration

Albania

bosnia and Herzegovina

Croatia

macedonia

montenegro

serbia

Kosovo

Legend: bottleneck Source: The Energy Community some provisions are available some provisions are missing all provisions are available

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ConneCtion/ACCess to neiGHboURinG GAs systems

Albania has no gas mains and is not connected with gas sys-tems of neighbouring countries. The only gas deliveries are from the gas fields to big industrial customers. Like the rest of the countries in Southeastern Europe, Albania awaits the start of gas projects as Nabucco and South Stream and small-er regional pipelines as the gas ring on the Western Balkans.

Albania has three options for gas supply and connection to the gas systems of its neighbours:

•with Croatia through Montenegro to the planned Ionian-Adriatic Pipeline (IAP) and Trans Adriatic Pipeline (TAP) at Fier;

•with a transit pipeline through Albania – from the Cas-pian Sea, through Turkey and Greece to southern Italy via TAP ot the Interconnector Greece-Italy (IGI)

•with Macedonia by extending the transit pipeline from Russia as a part of the gas ring on the Western Balkans.

ThE IAp projEcT – TEchNIcAL pArAMETErS

pipeline route

Length (km) Diameter (mm)

Max working pressure (bar)

Investment (Eur mln)

Albania 170 700 80 90

montenegro 100 700 80 60

Croatia 130 700 80 80

total 400 700 80 230

Source: METE

ThE TAp projEcT – TEchNIcAL pArAMETErS AND INvESTMENT

origin of gas The caspian Sea, The russian federation

transit countries Albania, Greece

total length 500 km

Undersea pipeline 90 km

Depth 800 m

transportation capacity 10 billion cu m per year

total value eUR 1.1 bln

Source: METE

projEcT for SuppLY ThrouGh MAcEDoNIA – TEchNIcAL pArAMETErS

pipeline Transport capacity (mln cu m/hour)

Diameter (mm)

Length (km)

tetovo (macedonia) – tirana 154 500 130

offtake to tirana 81 - -

tirana-elbasan 18 250 35

offtake to elbasan 18 - -

total in Albania 154 - -


rouTE of ThE offTAkE froM ThE MAcEDoNIAN SYSTEM – MAp


Other future gas projects in Albania include the construction of LNG terminals along the Adriatic coast in the vicinity of Fier.

There are three proposed projects for LNG terminals:

1) a project of Swiss company Elektrizitats Gesellschaft Laufenburg AG (EGL) worth EUR 1.1 bln plus development of pipelines;

2) a project of international consortium ASG Power SA esti-mated at EUR 800 mln plus development of pipelines. The company signed a memorandum of understanding with the government in April 2006 for:

•an LNG terminal with a regasification capacity of 10 bil-lion cu m per year, and an option for expansion to 20 billion cu m;

•a cogeneration plant with an installed capacity of 1,200 MW;

•a 120 km underwater link between Fier and Brindizi with an annual transmission capacity of 8 billion cu m.

There is no progress on the projects for the time being and a start before 2014 is unrealistic.

3) a project of Trans European Energy B.V./ Falcione Group worth EUR 800 mln plus development of pipelines. In Decem-ber 2008 the company signed a contract for the construction of an LNG terminal at Levan, near Fier, with a working capac-ity of 8 billion cu m per year and an option for expansion to 12 billion cu m. The terminal will allow for discharging of ships carrying up to 140,000 cu m liquefied gas, and the building of two additional reservoirs will expand the capacity to 280,000 cu m. The project also includes the construction of an undersea pipeline working at 120 bars, to supply gas to Italy.

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projEcTS for LNG TErMINALS IN ALBANIA

Source: METE

Greek company Prometheus Gas SA carries out a feasibility study for the con struction of a pipeline connecting Albania with Greece and a 350 MW TPP in Korca. The project is es-timated at EUR 278 mln, of which EUR 185 mln will go for the TPP.

mARKet Development foReCAst

Despite its favourable location and the fact the Albania is among the few countries on the Balkans to have own gas production, the present situation on the local gas market is quite inauspicious. The connection of the national gas sys-tem to neighbouring systems is of major importance for the government and every delay will put the country outside the route of the big gas projects in Europe.

A major problem is the poorly developed gas network of the country. Eastern Al bania has no gas pipelines and the nearest

connection point with other systems is in Tirana. The pipe-line project from Macedonia, as part of the gas ring on the western Balkans, requires the installation of some 130 km of pipeline and could be bring a partial solution to the gas shortage in Albania by carrying Russian gas through Macedo-nia. Should that project succeed, the towns along the pipeline route will stand better chances for gasification, which in turn will bring gas to local household and increase the consump-tion of natural gas as primary energy resource.

The other two projects – IAP and TAP, to cross Albania’s ter-ritory, have certain structural and political impediments and their future is still unclear. According to the sur vey Natural Gas in Greece and Albania: Supply and Demand Prospects to 2015, if Albania is to receive gas through Greece, Tirana has to negotiate with its Greek counterpart the connection to the pipeline carrying gas to Italy via Greece and Turkey. Besides, Greek transmission system operator DESFA SA would prob-ably want the right to operate the pipeline to participate in its construction. In case both conditions are satisfied, Albania could receive natural gas not later than 2015.

Albania’s gasification plan puts priority on: •electricity sector and industrial consumers; •district heating; •household consumers.

The future of the LNG terminal projects is still debatable, al-though millions of euro have already been spent on feasibility studies. The terminals will allow natural gas to be used for power generation and to tackle electricity shortage in Alba-nia. Funds needed for a project of such scope exceed EUR 1 bln, and the return on investment is insecure, hav ing in mind the poor gasification in the country, the terms for building and putting into operation cogeneration plants, and the high rate of electricity losses.

Albania will take measures in the natural gas production seg-ment to maximize the production from active gas wells and restart closed ones, and to improve the transporta tion and storage of associated gas.

In the field of legislation ERA is to approve and appoint trans-mission and distribu tion system operators in line with the EU directives for unbundling of activities in natural gas. A new law on concessions is needed to regulate the construction of transportation and distribution pipelines for the future gasi-fication of Albania.

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