Saturday, 4/4/2020 | 4:30 UTC+0
Libyan Newswire

Italian gas imports from Europe spike as prompt prices plummet

A spike in Italian natural gas imports from northern Europe and Austria in September, paired with a dip in supply from North Africa, shows that short-term delivery contracts are getting more competitive compared to longer-term contracts, traders say.

Italy's grid is supplied with gas from Algeria, Libya, Russia via Austria and northern Europe via Switzerland. Traditionally, the bulk of these imports have been based on long-term contracts, particularly supply from North Africa and Russia via Austria. But supply from shorter-term contracts has jumped as European prompt prices plummeted this September due to high levels of gas held in storage sites across the continent, reducing demand.

Gas imports from northern Europe to Italy through the Swiss Gries Pass entry point have been 35 million cubic metres (mcm)/day in September so far, 12.4mcm/day higher than the previous month and 10.5mcm/day higher compared to the same period last year. Supply via Switzerland tends to be more affected by the prompt price.

Imports through Austria's Tarvisio entry point also rose by 22.4mcm/day to 74.6mcm/day month on month in September. Russian imports via Austria are typically derived from long-term contracts, although there is some flexibility to increase imports from short-term contracts when Austrian prompt prices are cheap enough.

Flow from Algeria through the Mazara del Vallo entry point, also mainly based on long-term contracts, fell by 19.9mcm/day to 35.1mcm/day month on month in September.

European gas imports via Switzerland were determined by Italy's Day-ahead premium to the Dutch TTF equivalent as well as high Italian gas-fired power demand during August, traders said. In September, high restrictions on gas in northern France being able to travel to southern France meant the PEG Nord system was oversupplied, with the excess gas being sent to Italy via Switzerland.

Italian gas traders also said supply via Switzerland increased to make up for the fact less gas was being supplied from Algeria.

"It is more favourable to import from Gries and from TAG [the Austrian pipeline] on the spot rather than from Algeria," one trader said.

The flow changes show contracts based on prompt prices are getting more competitive compared to long-term contracts, other traders said.

"Spot has been more competitive for a while now, and it is a trend that will become more evident year after year," said another trader.

Sources active in the market also said the flow changes were also a result of the major Italian incumbents changing their strategies, reducing their capacity from the Algerian Mazara del Vallo entry point and transferring this to the Swiss point.

Increased supply from Austria also confirmed this practice, traders said.

A higher Italian premium to the Austrian VTP in August and September led to the increased flows from Austria. In September so far, the Italian PSV Day-ahead premium to Austria's Day-ahead has been around Euros 0.88/MWh on average, with the premium spiking higher than Euros 1.00/MWh on six days this month so far. This compares to an average premium of Euros 0.54/MWh in August, with just five days in the whole of August seeing a premium higher than Euros 1.00/MWh.

Days where the PSV Day-ahead premium to Austria is wider, paired with high Italian demand, incentivises traders with capacity on the Austria-Italy border point to increase supply.

Source: ICIS