Italy’s energy hub ambitions
Where a state leader’s chooses to go for their first official bilateral trip abroad is calculated to send a clear signal on top policy priorities. For Italian prime minister Giorgia Meloni, visiting gas-rich Algeria this week underlined Rome’s determination to strengthen its energy security and wean itself off Russian fuels. The trip netted a raft of deals: a new gas and hydrogen- pipeline and undersea power cable linking the two countries; agreements between the Italian state-owned Eni and Algeria’s Sonatrach on joint energy projects; plus pledges to cooperate in areas like automotives, shipbuilding, space, and, green energy.
Separately, Italian gas grid operator Snam plans to invest 10 billion euros (10.8 billion USD) through 2026 in the gas industry, with the bulk of it funding the construction of the Adriatic Line to transport gas via pipelines from Africa and Caspian basin.
Italy has already made clear that it intends to become a regional energy hub, leveraging its strategic location in southern Europe and positioning as a critical pathway for gas and hydrogen flows. Deepening energy ties with Algeria are a key step in pursuit of that goal.
Hydrogen pipeline dreams
In other pipeline news, European transmission system operators Gascade and Fluxys are seeking a special regulatory status from the European Commission for their North Sea pipeline green hydrogen pipeline so as to speed up approvals and funding. Named the AquaDuctus, the 400 kilometer project will transport wind- and solar-power derived hydrogen produced at offshore sites to users on the mainland.
Another hydrogen pipeline in the works: a Norway-Germany pipeline, announced earlier this month, intended to transport hydrogen initially made from Norwegian gas fields and eventually from offshore wind farms in the North Sea.
China’s gas shortage, explained
China has been snapping up long-term LNG supply deals, cementing its position as a dominant buyer of the fuel. The country is certainly not short on natural gas supplies. But that hasn’t prevented a gas crunch this winter in Hebei province.
How to explain that? The shortage stems from high natural gas prices due to the Russia-Ukraine war, and Chinese regulations that cap retail gas prices but not wholesale prices. It’s also reminiscent of the country’s energy crisis in 2021 that led to factory shutdowns and rolling blackouts, as coal prices surged beyond what utilities could sell electricity for.
Short term crunch or not, China’s gas demand is expected to be a major swing factor determining how tight the global gas market will be this year. A key beneficiary is Russia: China’s LNG imports from Russia’s Sakhalin-2 project doubled in 2022, according to Reuters. The increased demand, coming also from other Asian buyers, could see the Sakhalin-2 doubling its revenue this year. For the US and its Western partners, this raises the question of when China’s ongoing support for Russia’s economy, and therefore Russia’s invasion of Ukraine, will be too much. And warnings from Washington this week about Chinese State-owned entities supporting the Russian war effort, as well as the sanctioning of China’s Spacety for providing satellite imagery to Russia’s Wagner Group, could signal that that moment is soon.
Trading gas, around the price cap
The Intercontinental Exchange, or ICE, said Friday (January 27) that it will launch a “parallel market” in London for TTF natural gas futures. Its TTF contracts are currently traded in Amsterdam, but ICE will activate the new London market as “insurance” to allow traders to circumvent the EU’s gas price cap. London has said it won’t enforce the EU price cap. Not great news for the price cap champions.
Separately, financial software company and commodities exchange Abaxx this week submitted contract specifications to Singaporean regulators for a new physically-settled LNG futures contract. The regional contracts would cover northwest Europe, north Asia Pacific, and the US Gulf of Mexico. Abaxx says they will improve price discovery and risk transfer.