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Libyan gas exports from Greenstream pipeline set to flood Europe

The restart of the Greenstream pipeline to Italy will flood an already oversupplied European gas market. Gas prices look set to drop

The restart of Libyan gas exports to Italy could trigger a slump in European prices, with the continent’s storage levels already high and an unseasonably warm start to winter. Other suppliers, such as Russia, Norway and Qatar, may be forced to consider lowering or diverting volumes.

Pipeline inspections are under way on the Libya-Sicily Greenstream link, with export volumes to be decided in late November to mid-December.

The subsea pipeline was flowing 26 million cubic metres a day (cm/d) of gas to Italy before it was shut down in February at the outset of the Libyan civil war. Initial tests will send around 3 million cm/d to Italy, said operator Eni. Greenstream, with an export capacity of 8 billion cm/y, is a 50:50 joint venture between Eni and Libya’s National Oil Corporation (NOC).

“First tests were run with 3 million cm/d, from the Wafa field, about 500 km southwest of Tripoli in the Libyan desert,” Eni said. Wafa was producing gas throughout the conflict, used for domestic power generation, and Eni is also working to restart the offshore Sabratah platform at the Bahr Essalam gasfield. “Bahr Essalam is an important source of supply for Greenstream and resuming production will trigger a gradual increase of the volumes available,” Eni said.

NOC chairman Nuri Berruien said official export volumes would be decided by the end of November or mid-December, with domestic consumption taking priority.

Price slump

But the restart comes during a time of brimming inventories and low demand resulting from a warm start to winter and the economic downturn lowering industrial gas consumption across Europe. “Demand is down and with this warm weather, it's kept a lot of gas in the ground,” said a gas trader at a European utility.

Italian storage was 99.98% full (15.596 billion cm) on Thursday, compared with 90.43% (14.107 billion cm) at the same time last year. Total European gas stocks are at 93% of capacity, according to trade association Gas Infrastructure Europe.

“If material volumes of Libyan gas were to arrive in Italy during winter 2011/12, other suppliers [Russia, Norway and/or Qatar] would have to curb supply to avoid flooding the European market,” said Société Générale European gas and LNG analyst Thierry Bros. “With storage at record levels and a massive drop in demand in 2011, a quick return of Libyan gas could push gas prices further south all along the curve.”

Libya supplies around 12% of Italy’s gas demand. Other large exporters to the country are Russia, Algeria, and the Netherlands, according to Cedigaz. Libya’s energy exports have been ramping up after the most intense fighting ended, with oil shipments expected to hit nearly 750,000 barrels a day by the end of November.

Transitgas pipe problems

Problems with the Switzerland-Italy Transitgas pipeline are creating bottlenecks in Europe’s gas network and distorting prices. Without the 35 billion cm/y link, which connects European gas markets, a gas glut builds in the gas-producing north, forcing southern consumers to take more from long-term suppliers such as Russia.

“After extremely heavy rainfall in the Riebgärtli – Boden area ... the pipeline section has been temporarily stopped for safety and precautionary reasons,” pipeline operator Transitgas said earlier this week. It expects to test the pipeline until *Tuesday to determine the extent of the damage. “The objective is to understand, if the pipeline has been damaged and if any repair works were needed to resume transport operations as soon as possible.”

*Updated to Tuesday from Sunday in original story following a new announcement from Transitgas. 

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