developing new gas infrastructure, incl. lng requirements and practical experience marco margheri...
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DEVELOPING NEW GAS DEVELOPING NEW GAS INFRASTRUCTURE, INCL. LNGINFRASTRUCTURE, INCL. LNGREQUIREMENTS AND REQUIREMENTS AND PRACTICAL EXPERIENCEPRACTICAL EXPERIENCE
Marco Margheri – Head of EU liaison officeMarco Margheri – Head of EU liaison office
CEER workshopCEER workshop
Brussels – 9th November, 2006Brussels – 9th November, 2006
OBJECTIVEOBJECTIVE
As a leading energy operator in the Italian market, Edison is actively pursuing the increase and
diversification of its sources of gas supply, as well as trying to secure sufficient import capacity to make these supplies available to the Italian and European market.
The aim of this presentation is to share our “new entrant’s view” on the financing issues connected with new infrastructure development,
within the peculiar context of the Italian energy market,geographically bound to become a harbour forcompetitive and diversified supply routes.
AGENDAAGENDA1) WHO WE ARE1) WHO WE ARE
The leading new entrant on the Italian energy market
2) MARKET OUTLOOK2) MARKET OUTLOOK
Italian and European market outlook: why are shippers’ mid-stream investments key for
meeting gas demand and developing competition on the final market. A brief summary of
European examples
3)3) NEW INVESTMENTS: A NEW ENTRANT’S PERSPECTIVENEW INVESTMENTS: A NEW ENTRANT’S PERSPECTIVE
An outlook of project development phases and of key requisites for completion
4) PRACTICAL EXPERIENCE: DEVELOPING EDISON LNG AND PIPELINE 4) PRACTICAL EXPERIENCE: DEVELOPING EDISON LNG AND PIPELINE
PROJECTSPROJECTS
Edison’s latest developments, with drill-down on two projects listed among EU priorities:
North Adriatic LNG terminal and IGI Greece-Italy interconnection pipeline
BRIEFLY... WHO WE AREBRIEFLY... WHO WE AREBorn in 1881, Edison is one of Europe’s oldest energy companies. In 2005, it reported revenues of 6650 mln € (+ 32% in first 6 months of 2006, including a growth of more than 41% on the liberalized electricity market), and is currently carrying out one of the largest investment plans in Europe. it had to diversify its business, when the national monopoly on electricity was established in Italy on 1963; thanks to the first wave of EU Directives in 1996, it could re-focus its business on energy once again.
With more than 10.000 installed MWs and investments to grow up to 14.000 MWs, it is now Italy’s second largest electricity generator. Edison’s generation portfolio encompasses state-of-the-art CCGT thermo plants, as well as hydro and wind power plants, with high environmental sustainability.
13,3 bcm total sales of natural gas in 2005, and investments in both pipeline and LNG supply projects, will make Edison Italy’s second largest gas operator and first investor in new capacity.
THE CONTEXT: A LIBERALIZED MARKETTHE CONTEXT: A LIBERALIZED MARKET
Edison estimatesHistoric data
Electric generation
The liberalization process in Italy has led to roughly 20 billion € The liberalization process in Italy has led to roughly 20 billion € investment in new generationinvestment in new generationcapacity, adding nearly 15000 MW to the portfolio (more than 80% with CCGT technology)capacity, adding nearly 15000 MW to the portfolio (more than 80% with CCGT technology)
These investments were carried out by a number of These investments were carried out by a number of new entrants,new entrants, leading to one of the leading to one of the most most competitive marketplacescompetitive marketplaces throughout Europe throughout Europe
INCUMBENT: 39%INCUMBENT: 39%INCUMBENT: 39%INCUMBENT: 39%
Import with existing
infrastr.; 74
Domestic production;
12Domestic
production; 4
Existing Import
capacity; 84
Existing unused capacity; 6
New capacity to develop;
30
Demand; 118
Demand; 86
0
20
40
60
80
100
120
140
2005 2020
Import with existing
infrastr.; 245
Domestic production;
330Domestic
production; 220
Existing Import
capacity; 305
Existing unused capacity; 60
New capacity to develop;
225
Demand; 750
Demand; 575
0
100
200
300
400
500
600
700
800
2005 2020
ITALY: Gas Demand growth and sources
ITALY: Gas Demand growth and sources
EU30 (EU 25 + N, CH, TK, RO, BG): Gas Demand growth and sources
EU30 (EU 25 + N, CH, TK, RO, BG): Gas Demand growth and sources
Source: IEA World Energy Outlook and Edison internal review data
CAGR: 1,8%
CAGR: 2,1%
THE CONTEXT: GAS IS A KEY ARENATHE CONTEXT: GAS IS A KEY ARENA
530
114
Gas consumption will increase throughout Europe, with gas as the Gas consumption will increase throughout Europe, with gas as the only growing fossil sourceonly growing fossil source; the ; the Italian demand is foreseen to increase steadily, driven by Italian demand is foreseen to increase steadily, driven by power generationpower generation. .
Availability of Availability of additional volumesadditional volumes is a key enabler; is a key enabler; diversifyingdiversifying sources & sources & improvingimproving sourcing sourcing conditions will be a key success factor in the competitive arena. conditions will be a key success factor in the competitive arena. And... capacity is missing!And... capacity is missing!
All the projects under development are necessary to meet 2020 demand.Different business model, but significant volumes are key for Italy
All the projects under development are necessary to meet 2020 demand.Different business model, but significant volumes are key for Italy
UE-301: Import capacity* (Bcm)
* Norway gas hub, Ormen Lange, BBL, Interconnector are considered as UE30 internal sources and are not included in UE 30 import capacity
LNG under developmentPipelines under development
Existing pipelines Existing LNG LNG under construction Pipelines under construction
* EU.25 + Norway, Switzerland, Turkey, Romania and Bulgaria
INVESTMENTS: THE EUROPEAN CONTEXTINVESTMENTS: THE EUROPEAN CONTEXT
7
Example 1 - The UK:- focus on volumes
- various TPA exemptions (up to 100% capacity)
- LNG: LT market strategy
Example 2:-Focus on capacity
- LNG: ST market strategy
Italy:a naturalplatform
for anopen mkt
WHY M-S? IT’S A LONG WAY TO THE LAKE!WHY M-S? IT’S A LONG WAY TO THE LAKE!
The existing market structure is still The existing market structure is still strongly dominatedstrongly dominated by the incumbent operator. New entrants by the incumbent operator. New entrants need to need to integrateintegrate all along the supply chain in order to all along the supply chain in order to increase competitionincrease competition on the downstream on the downstream market (both heavy use and retail). market (both heavy use and retail).
Upstream investments (production&supply) on additional volumes are Upstream investments (production&supply) on additional volumes are the strategic goalthe strategic goal. Mid-. Mid-stream investments are a stream investments are a key enabler key enabler to negotiate volumes and make them available to the market.to negotiate volumes and make them available to the market.
INCUMBENT: 65%INCUMBENT: 65%INCUMBENT: 65%INCUMBENT: 65%
Major gas suppliers in Italy in 2005 (bcm)
purchases from domestic sources
ENI ENEL Edison Others
12.1
56.1
16.5 13.3
10.2 7.6
Edison share of total Italian portfolio availability: 15%
TOWARDS A COMPETITIVE MARKETTOWARDS A COMPETITIVE MARKET
A consistent A consistent flow of investmentsflow of investments is currently taking place in Italy, through is currently taking place in Italy, through mid-size industrialmid-size industrial projectsprojects, preparing a diversified and open import market. , preparing a diversified and open import market. ShippersShippers are leading the way. are leading the way.
The Italian Government has adopted relevant The Italian Government has adopted relevant EU legislationEU legislation (with subsequent (with subsequent AEEG regulationAEEG regulation) ) and recently launched a strategic initiative to prioritize initiatives and support and recently launched a strategic initiative to prioritize initiatives and support timely developmenttimely development. .
WIN / WIN: FROM THE LAKE TO THE HUBWIN / WIN: FROM THE LAKE TO THE HUB
Italian DemandSources: MSE, SRG, Edison
Domestic production
Existing + under construction + committed import capacity (North Adriatic LNG, TAG, TTPC)
2 new regas/pipeNew regas/pipe
A solid domestic demand and a diversified competitive arena allow for A solid domestic demand and a diversified competitive arena allow for maximizationmaximization of the system of the system capacity. This will result in the development of a capacity. This will result in the development of a liquid hubliquid hub, with diversified sources of supply to be , with diversified sources of supply to be traded traded across Europeacross Europe. .
The Italian trading hub can thus represent a valuable The Italian trading hub can thus represent a valuable contributioncontribution to the diversification of sources to the diversification of sources of supply for of supply for central Europecentral Europe as well as a as well as a key efficiency factorkey efficiency factor in optimizing the risk of industrial in optimizing the risk of industrial investments under development.investments under development.
New regas/pipe
NEW INVESTMENTS: AN EU FRAMEWORKNEW INVESTMENTS: AN EU FRAMEWORK
A A stable regulatory frameworkstable regulatory framework is required in order to facilitate investments in new infrastructures by implementing Directive 2003/55/CE and its national applications. is required in order to facilitate investments in new infrastructures by implementing Directive 2003/55/CE and its national applications.
CEER and ERGEG should support the CEER and ERGEG should support the harmonisationharmonisation of national and regional regulations of neighbouring countries with the acquis communautaire, avoiding potential of national and regional regulations of neighbouring countries with the acquis communautaire, avoiding potential overlaps and distortion of competition among Member States.overlaps and distortion of competition among Member States.
Implementation of Implementation of compatible regulationcompatible regulation in supplying & transit countries would stabilize the gas business framework. in supplying & transit countries would stabilize the gas business framework.
Gas interconnections between North Italy and Central Europe (e.g. through Switzerland and Austria) should allow for Gas interconnections between North Italy and Central Europe (e.g. through Switzerland and Austria) should allow for bi-directional gas flowbi-directional gas flow. In such way the gas arriving in . In such way the gas arriving in Italy from the “Southern route” could be made available to Central European countries, diversifying the gas suppliers for such region.Italy from the “Southern route” could be made available to Central European countries, diversifying the gas suppliers for such region.
The The unbundlingunbundling of existing interconnections should be implemented to facilitate the access of new operators. of existing interconnections should be implemented to facilitate the access of new operators.
Site selectionSite selection
Local consent Local consent investigationinvestigation
Agreements with site owners
Design Basis definition (~30%)
AuthorisationsAuthorisations
Preliminary commercial contracts
CAPACITY SECURING:CAPACITY SECURING:TPA exemption requestTPA exemption request
Pre-Basic Design (~20%)
Financial structure
Corporate structure
VOLUMES:VOLUMES:Definitive commercial Definitive commercial contractscontracts
Basic Design (~ 10%)
Regulated access Regulated access codecode
Local consent investigation
Design Basis definition
Agreements with Agreements with relevant TSOsrelevant TSOs
Concept Concept identificationidentification
Pre-Basic Design (~20%)
Preliminary commercial contracts
Authorisations
Intergovernmental Intergovernmental agreementsagreements
CAPACITY SECURING:CAPACITY SECURING:TPA exemption requestTPA exemption request
Host country Host country agreementsagreements
Basic Design (~ 10%)
VOLUMES:VOLUMES:Definitive commercial Definitive commercial contractscontracts
Corporate structure
Financial structure
LN
G T
erm
inal
LN
G T
erm
inal
WHEN A SHIPPER DEVELOPS A PROJECT...WHEN A SHIPPER DEVELOPS A PROJECT...
PRE-FEEDPRE-FEED PRE-FEEDPRE-FEED OPS.OPS. OPS.OPS. CONSTR.CONSTR. CONSTR.CONSTR. FEEDFEED FEEDFEEDFEASIBILTYFEASIBILTYFEASIBILTYFEASIBILTY
2 years 1 year 3 years >20 years
2-3 years1-2 years1 year2 years >20 years
1 year
Final investment Final investment decisiondecision
Final investment Final investment decisiondecision
Pip
elin
eP
ipel
ine
Critical pathCritical pathCritical pathCritical path
Preliminary Preliminary investment investment
decisiondecision
Preliminary Preliminary investment investment
decisiondecision
...SUPPLY IS KING! ...SUPPLY IS KING! 1. Cash flow comes from contracted volumes, not from
available capacity:
1. Secure and/or credible (sensitivity analysis as the mainstream financial market methodology) market potential, through financial commitment by customers
2. Availability of volumes within a long-term perspective, through direct negotiation with supplying countries
3. Balanced and predictable transport costs
4. Reliable and economic access to storage & distribution
2. Minimize operational risk for construction and management:
1. Strong political support by EU, national and local authorities
2. Optimal project outline, matching available volumes and minimizing route or operational risks in the long term
Rosignano LNG
IGI
GALSI
Capacity: 8-10 Bcm Commercial ops : 2010/11
Capacity: 8-10 Bcm
Commercial ops : 2010/11
Capacity: 8 Bcm
Commercial ops: 2010/11 Capacity: 8 Bcm
Commercial ops : 2008
North Adriatic LNG
OUR PRACTICAL EXPERIENCEOUR PRACTICAL EXPERIENCE
Main project characteristics:
World’s first offshore LNG regas terminal.
Shareholders: Exxon Mobil (45%), Qatar Petroleum (45%), Edison (10%).
Capacity and volume allocation:
8 Bcm/year Send-Out capacity. 250.000 cm LNG Storage Capacity.
80% for 25 years TPA exemption granted by the Italian government and the EU.
Edison/RasGas II 25 years 6,4 bcm/y supply contract
Start up in 2008
CASE 1: NORTH ADRIATIC LNGCASE 1: NORTH ADRIATIC LNG
ExtractionExtraction Liquefaction Liquefaction plantplant
ShippingShipping Regasification Regasification terminalterminal
Gas LNG LNG Pipeline
For the North Adriatic LNG Project : Production Facilities have been developed in the field (North Field Reservoir – Qatar) Liquefaction plant constructed and operational A 25 years agreement for LNG supply has been signed (through 80% TPA exemption) LNG carriers have been constructed (roughly 150k mc LNG = 90 mln smc NG) The regasification plant is under construction
AN INTEGRATED VALUE CHAIN TO BE COVEREDAN INTEGRATED VALUE CHAIN TO BE COVERED
CASE 1: NORTH ADRIATIC LNGCASE 1: NORTH ADRIATIC LNG
LT SUPPLY APPROACH KEY FOR LT SUPPLY APPROACH KEY FOR MAXIMIZING VOLUMESMAXIMIZING VOLUMES
NUMBER OF OPERATORS KEY FOR NUMBER OF OPERATORS KEY FOR OPTIMIZING CAPACITY&COSTSOPTIMIZING CAPACITY&COSTS
First offshore storage and regasification terminal in the world:15 km offshore; on the seabed in 30m water depth; not visible from the coast.Operation will start in 2008.
Under construction:Work progress over 40%. Already awarded contracts 1 billion Euro.
Strong environmental commitment:More than 100 prescriptionsThe project is subject to a wide and complex Environmental Monitoring Plan under execution by ICRAM (MOE).
Ongoing activities:26 dedicated employees, additional recruiting ongoingTraining – Investment for over 1 mln €
Terminale
CASE 1: NORTH ADRIATIC LNGCASE 1: NORTH ADRIATIC LNG
A EUROPEAN PRIORITY PROJECTA EUROPEAN PRIORITY PROJECT
The North Adriatic LNG is listed among TEN-E European priority projects The North Adriatic LNG is listed among TEN-E European priority projects (Dec. 1364/2006/EC: Annex I, NG.4; Annex III, 8.12)(Dec. 1364/2006/EC: Annex I, NG.4; Annex III, 8.12)
Main project characteristics:Onshore Section will be realized exclusively by DEPA Offshore section will be realized through a SPV (Poseidon Co) owned by Edison and DEPA on an equal basis 8 to 10 bcm/year throughput capacity
Currently undergoing Pre-FEED phase: Authorization Procedure in Italy and
Greece Marine Survey and feasibility results
updates Commercial Agreements (i.e. supply,
transit) negotiations TPA exemption procedure
CASE 2: IGI PIPELINECASE 2: IGI PIPELINE
The IGI Project (developed by Edison and Depa in cooperation with Botas) represents the missing link that, once realised, will allow the flow of Caspian and Middle East reserves into Italy and western Europe via Turkey and Greece.
The ITG project, linking Turkey and Greece is currently under construction, by Depa and Botas, and operations are soon expected to start..
Italian and Greek Governments have recently signed, in the presence of the Turkish Government, an Intergovernmental agreement, recognising the strategic relevance of the IGI Project and committing to support its fast development
CASE 2: IGI PIPELINECASE 2: IGI PIPELINE
A PROJECT OF EUROPEAN INTERESTA PROJECT OF EUROPEAN INTEREST
The IGI pipeline is listed among TEN-E European priority projects, and included amongThe IGI pipeline is listed among TEN-E European priority projects, and included amongprojects of European interest projects of European interest
(Dec. 1364/2006/EC: Annex I, NG.3; Annex III, 7.12)(Dec. 1364/2006/EC: Annex I, NG.3; Annex III, 7.12)
WHAT DO WE NEED: PROJECT SCENARIOWHAT DO WE NEED: PROJECT SCENARIO
UnleashedNegotiation
Power
Predictablecash flow
Seamlessimplementation
& mgmt.
TPA exemptionfor new infrastructuresfostering competition
on the final market
Stable frameworkfor network access,Including entry / exit
and cross-bordermanagement
Strong political supportat all levels for priority
projects, ensuringcoordination of effortsand a more effective
communication to stakeholders
A jointEU,
national,and local
EFFORT- Legislation- Regulation- Decisions
GOAL ACTORS ACTIONS OUTCOME
MS: national legislation and regulation (Italy: L239/04 and subs.)
Local authorities: EIA, construction permits and monitoring
EU: D 2003/55 and subs. regulation&decisions; TEN-E priorities
- Bring new entrantson the market
- Reduce dominantoperator’s mkt share- Diversify sources
- Ensure non-discriminatory
conditions- Develop a Southern
hub for Europe
- Ensure “Permitting”in due time
- Ensure flawless construction and
management
MERCIMERCITHANK YOUTHANK YOU GRAZIEGRAZIE