Europe's Natural Gas Traders Have a Bone to Pick With Italy



(Bloomberg) -- Italy is looking to shed its status as one of Europe’s most expensive gas markets, but the way it plans to do so has riled traders.

Lawmakers are aiming to turn a proposed national energy strategy that would overhaul the country’s gas sector into law by the end of the month. The plan, put forth by Economic Development Minister Carlo Calenda would see the nation buy pipeline capacity in neighboring Switzerland, and could cut gas prices by 5 percent.

In most cases, tweaks to a country’s internal energy market don’t get much attention. Yet Calenda’s proposal to use the Swiss capacity to try to boost liquidity and lower prices in Italy has led to a backlash from a lobby group that represents most of Europe’s major energy companies and trading houses. Italy’s intervention would have repercussions far beyond its borders, it says.

“It shouldn’t be implemented at all,” said Pietro Baldovin, a Brussels-based adviser at the European Federation of Energy Traders. “Any gas hub should simply function according to the rules of supply and demand.”

EFET, whose members include companies and traders from Exxon Mobil Corp. to Gazprom PJSC and Vitol Group, has been examining the proposal since June, when it was first laid out. Lobby groups have already helped stymie one attempt by a member of parliament to turn the measure into law and are closely watching further legislative moves, Baldovin said. Aiget, the Italian Association of Wholesalers and Energy Traders, also opposes the plan, Secretary-General Paolo Ghislandi said.

Calenda declined to comment further. A discussion on the energy strategy scheduled for Wednesday was canceled because legislators needed to vote on electoral law. They haven’t yet rescheduled talks.

Italy pays more for gas than other countries in Europe because about a quarter of its fuel enters the country via Switzerland, which isn’t subject to European Union rules on access to transport capacity that help damp costs across the continent. Under the “liquidity corridor” plan, the government would assign a company, such as gas grid operator Snam Rete or another regulated entity, to buy unused Swiss transportation capacity and sell it at a discount to companies that ship fuel to Italy.

That may lower gas prices in Italy by about 5 percent by aligning them with other prices in Europe, according to Pierluigi Frison, a gas trader at London’s Green Network Plc who trades the fuel in Italy. On Tuesday, the price of gas was 19.85 euros per megawatt-hour on the Italian PSV hub, 12 percent above that on the Title Transfer Facility in the Netherlands, a regional benchmark.

“That is a problem for the Italian industries,” said Fabio Cedronio, head of trading at proprietary gas and power trading company Enet Energy SA. “Especially the Confindustria is pushing to reduce the spread with the rest of European countries,” he said, referring to the the employers’ federation with 150,000 member companies.

The plan might mean transport capacity is bought at market value and sold for less, creating a financial loss. It’s not clear how the capacity would be priced, EFET’s Baldavin said. The plan could also benefit bigger companies better equipped to absorb the change, said Aiget’s Ghislandi.

“The association has responded to the consultation. We are against it,” he said by phone. The bill “could favor larger players,” he said.

Snam declined to comment.

Furthermore, the liquidity corridor has raised fears Italian politics will determine gas prices throughout Europe. For instance, if Snam orders higher exports from Germany to boost flows into Italy that could lead to price increases there, EFET said in its comments. The price disparities should be addressed at the EU level and not nationally, it said.

It’s only fair for Italy to make steps to reduce costs for gas consumers, said Green Network’s Frison. He said market participants are now looking for more clarity.

“We appreciated the proposal and the government initiative,” Carlo Bagnasco, chief executive officer of Italian energy provider Eviva SpA, said by telephone. “But there are still too many questions to answer.”

With assistance from John Follain. To contact the reporters on this story: Kelly Gilblom in London at kgilblom@bloomberg.net; Chiara Albanese in Rome at calbanese10@bloomberg.net. To contact the editors responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net Rob Verdonck, Andrew Reierson.



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