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Eni still pulls all the strings in Italian gas market Italy is supposedly far advanced down the road of energy liberalisation, but incumbent Eni still has a stranglehold on the gas market and the regulator lacks the political backing to effect meaningful change. With Italy reliant on gas for more than 60 per cent of its electricity generation, import dependence and the failure to break Eni's grip on the gas market are key issues for the energy sector and broader Italian economy. Six years on from market liberalisation, gas for electricity generation is still bought on long-term contracts fixed to retrospective oil prices. Likewise, domestic gas prices remain regulated and linked to oil. Less than 5 per cent of households and businesses have switched supplier since 2003 and energy regulator AEEG is still trying to get prices down for customers. AEEG president Alessandro Ortis has just announced some modest changes to the gas regime that will see prices fall. Smaller suppliers are unhappy the price cuts will hit their margins but prove a mere pinprick to Eni. In another sign of how Italy's gas liberalisation project has stalled, parliament has just extended anti-cartel ceilings on gas imports and distribution for a further five years. The measure, first introduced in 2000 to encourage competition, limits Eni to a 61 per cent share of gas imports. *If the caps fit* Eni chief executive Paolo Scaroni said such caps were "pointless and outdated" because Italy has 38 gas operators, which is more than anywhere else in Europe, according to Scaroni. Eni controls less than two-thirds of the domestic market, compared to Ruhrgas with 84 per cent and GDF Suez with 89 per cent. "Why are we alone among European countries still pursuing this policy?" he asked a recent parliamentary industry committee hearing. Many rival operators also oppose the use of caps, but only because they claim caps are a diversion from the radical market reform that is needed. Storage is another important issue. In June a joint report by AEEG and Italy's competition authority accused Eni of "rationing other suppliers' access to storage capacity" through subsidiary Stogit. The report argued that expanding storage was "crucial" to avoid further supply shocks, but that Stogit - which controls 97 per cent of Italy's storage - had made "absolutely marginal" efforts to add capacity or improve access for other operators. It urged Eni to press ahead with the agreed sale of western Europe's biggest storage operator. Both regulators also agreed that new market entrants would boost storage investments, and that Eni should separately be forced to sell part of Stogit's assets "as already achieved in the power market to improve competition". Eni completed the formal divestment of Stogit to network operator Snam Rete Gas later that month. But with Eni's majority stake in Snam Rete guaranteeing its continued influence in Stogit, the €1.6 billion deal is unlikely to open up Italy's storage market soon. Both regulators want to reform storage ahead of the future increase in gas supplies promised by new regasification plants - the major Rovigo plant is due online in September - and import routes. A storage network freed from Eni's control could also narrow the spread between summer and winter prices. Gas operators also claim that Eni gains commercially valuable information from Stogit. The gas market liberalisation decree of 2000 requires shippers to confirm availability of storage with Stogit before importing non-EU supplies. The Italian Utilities Association wrote formally to European Union energy commissioner Andris Piebalgs last month claiming that competition could not be free and fair when the market incumbent had advance notice of all gas import deals. *Gas exchange* More positive news came in July with government approval for a Development Decree that included provisions for a gas exchange to be launched within six months. The gas exchange will be operated by power market regulator GME, which has run Italy's electricity exchange since 2004. It aims to overcome problems of liquidity on current virtual hub PSV. There are hopes that the new exchange, coupled with the recent collapse in gas demand and the planned expansion of supplies, could finally shake up Eni's entrenched market position. Sceptics point out that GME took eight years to get the power exchange up and running, and the gas project could likewise encounter delays. In that eventuality, Italian gas could also be traded on the new spot and futures exchange due to launch in September at Austria's Central European Gas Hub. *Political differences* AEEG's latest annual report on energy market competition again called for Eni to unbundle its network arm, Snam Rete. The AEEG's president said regulation alone could not deal with Eni's dominance of the pipeline and storage sectors. "It is increasingly urgent that the 2003 gas liberalisation law and later measures concerning the disposal of Snam Rete are enforced," said Ortis. AEEG lacks the political support to drive through this reform. In July, Ortis addressed the Italian parliament on the problems caused for the broader economy by a monopolistic gas market. His remarks were rejected by industry minister Claudio Scajola, who accused Ortis of "going well beyond the regulator's brief" with comments "that could in the long term cause major problems for our larger enterprises". Source: Utility Week © Faversham House Group Ltd 2009. News articles may be copied or forwarded
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