UPDATE 2-Italy OKs gas emergency measures

Mon Feb 6, 2012 3:33pm EST

Related Topics

* Measures include switching on oil-fired power plants

* Eni CEO sees end to crisis next weekend

* Gas committee to meet again on Tuesday (Adds Eni, Gas Intensive execs, comments on Algeria, Libya)

By Stephen Jewkes and Alberto Sisto

Feb 6 (Reuters) - Italy introduced a series of emergency measures on Monday to offset the impact of reduced natural gas imports from Russia as cold weather bit into supplies and sent gas demand to record high levels.

Gas supplies to the European Union from Russia improved over the weekend but have not fully recovered, and Italy convened a crisis committee to handle what it called critical shortages of Russian gas.

In a statement on Monday, the Italian Industry Ministry said it had decided to enforce so-called "interruptible" gas contracts with industrial clients and to switch on oil-fired power stations to partly replace gas-fired plants.

Italy uses cleaner natural gas to fuel around 50 percent of its power generation portfolio.

Paolo Scaroni, chief executive of Italian oil and gas group Eni, which imports the lion's share of Italian gas produced abroad, told Italian TV that the switch to oil-fired plants and other measures taken by the government could generate some 25 million cubic metres per day, or 8 percent to 9 percent of consumption.

"I expect things to return to normal as of next weekend," Scaroni said on Italian TV.

Gas demand in Italy reached all-time highs on Sunday following a sixth straight day of curtailed supply from Russia, with Italian Industry Minister Corrado Passera describing the situation as "critical."

Italy, which consumed some 78 billion cubic metres (bcm) of gas in 2010, is 90 percent dependent on imported gas. In 2010 it imported some 22 bcm from Russia and around 25 bcm from Algeria.

Gas imported from Libya through the Greenstream pipeline has only recently come back on line after the conflict in the country, with around 75 percent of pre-war flows back on tap.

According to data from Italian gas grid operator Snam , the amount of Russian gas pumped into its network on Monday was almost 20 percent less than the amount requested.

"Italy's dependence on (gas) imports is a problem, and the Russian squeeze is certainly testing. But it's nowhere near as dramatic as in the past when Russian gas imports were cut," says Davide Tabarelli, head of energy think-tank Nomisma Energia.

The Russian-Ukraine gas crisis in the frigid winter of 2006 set alarm bells ringing across Europe and forced Italy to tap strategic reserves. A second crisis in 2009 also affected flows.

Tabarelli said that while limited Russian imports was not an immediate threat, cuts from another source such as Algeria, if they occurred, would cause serious problems.

The cold spell in Europe has spread to areas of North Africa and reports said Algeria has been hit by snow.

STORAGE SPACE

Italy's gas crisis committee, which is due to meet again on Tuesday, has already called for a greater use of gas storage capacity as well as stepping up national gas production and alternative sources of gas imports.

Italy has some 10 bcm of working gas storage on top of 5.2 bcm of strategic reserves, which can only be tapped after a ministerial decree. According to Snam, around 40 percent of working gas capacity remains unused.

Gas Intensive, a gas consortium comprising 300 Italian energy-intensive companies, said the priority should be to use storage capacity and not enforce interruptible contracts, which will increase costs for industry.

"The conditions do not justify, as a first move, the interruption of supplies to companies. It seems to us a priority to act on the reserves (storage) that are available," said the president of Gas Intensive, Paolo Culicchi, on Monday.

Interruptible contracts allow large industrial customers to get gas at cheaper rates, but the gas can be stopped in cases of emergency.

Bad weather has also affected the offshore liquefied natural gas (LNG) plant at Rovigo, in northern Italy, which normally has a capacity of 8 bcm. Energy group Edison controls the Rovigo LNG.

"The LNG terminal is not fully operational. Last Saturday it was functioning at 50 percent because of the bad weather. which is slowing down loading operations," Edison director of development Roberto Poti said on Monday. (Additional reporting by Giancarlo Navach; Editing by Jane Baird and Steve Orlofsky)

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