London, 28 May (Argus) — Italy's Eni will reduce the quantity of gas it imports from Algeria in 2013-14 after reaching an agreement with Algerian state-owned Sonatrach, the Italian company said today.
Eni had previously said it was renegotiating all of its long-term contracts and hoped to bring its contract prices into line with those at European hubs. But traders had seen a reduction in the firm's take-or-pay obligations as a more likely outcome.
The company's gas and power unit has been struggling in the past 12 months, largely as a result of falling prices at Italy's PSV hub. Falling Italian demand combined with an abundance of pipeline supply and storage capacity weighed heavily on prices at the hub through the winter. But Eni had previously said the growing differential between its contract prices and those at the PSV had also benefited the company in the renegotiation process.
Algerian gas exports to Italy slowed significantly at the beginning of this summer, averaging just 19.9mn m³/d since 1 April, compared with 65.4mn m³/d during the same period in 2012. Some traders said the gas is being diverted under a swap agreement to Algeria's newly commissioned LNG train at Skikda, while others suggested it is being diverted by pipeline to Spain under a similar agreement.
Despite the reduction in overall imports, the Italian system has remained largely oversupplied thanks to falling demand from the power sector, where growing renewable generation has crowded out a significant amount of gas-fired output in recent years.
Eni's deal with Sonatrach is the first indication of the Italian firm reaching any agreements with suppliers. The company is also in discussions with Dutch firm Gasterra, Norway's state-controlled Statoil and Russia's state-controlled Gazprom over its long-term supply contracts. Shipments from Russia have accounted for the largest share of Italy's gas imports since deliveries from Algeria slowed.
The Gazprom negotiations are likely to have a similar outcome to those with Sonatrach, according to traders, with some saying Eni is more likely to secure a reduction in its take-or-pay obligations than to align its Russian contract prices with those at European hubs.
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