Natural gas storage

The service of storing natural gas

The natural gas storage business in Italy operates on a concession basis and fulfils the various requirements between the supply and consumption of gas. Supply is actually fairly constant throughout the year, while demand is hugely seasonal, being much greater in the winter than in the summer. The storage business is broadly split into two phases: (i) injection – generally concentrated between April and October, and consisting of the injection into storage of natural gas from the transportation network; (ii) withdrawal – usually concentrated between November and the following March, and where natural gas is withdrawn from the field, treated and delivered to users via the transportation network. The storage business uses an integrated infrastructure comprising gas fields, gas treatment centres, compressor stations and the operational dispatch system.

Stogit, the group company that carries out natural gas storage activities, is currently the largest Italian operator and one of the main European players in the sector, with eight operational storage sites spread over Lombardy (four), Emilia Romagna (three) and Abruzzo (one). According to economic and technical efficiency criteria, the company makes available the storage capacities at its disposal by using an integrated system which can satisfy modulation service demands, in accordance with available storage capacity.

Stogit - Presence

Introduction

As indicated previously, the associated effects of consolidating Stogit are recorded from 30 June 2009, the completion date of the transaction. For purposes of fully assessing operating performance, the operating performance of the storage business segment is analysed with reference to the entire 2009 financial year. Comparative information is shown for 2008.

Key performance indicators	(€ millions)	2008	2009	Change	% change
Core business revenue (*)		304	344	40	13.2
Operating costs		68	64	(4)	(5.9)
EBIT		172	214	42	24.4
Net profit		83	121	38	45.8
Investments		266	282	16	6.0
Net invested capital at 31 December		1,874	2,093	219	11.7
Concessions (number)		10	10
- of which operational		8	8
Natural gas moved through the storage system (billions of cubic metres)		11.57	16.52	4.95	42.8
- of which injected		6.30	7.81	1.51	24.0
- of which withdrawn		5.27	8.71	3.44	65.3
Available storage capacity (billions of cubic metres) (**)		8.6	8.9	0.3	3.5
Customers (number)		48	56	8	16.7
Employees in service at 31 December (number)		303	301	(2)	(0.7)

(*) Before consolidation adjustments
(**) Working gas capacity for modulation, mining and balancing services. The value shown represents the maximum available capacity and may not correspond to the maximum replenishment carried out.

Results

Core business revenue (€344 million) increased by €40 million, or 13.2%, compared with 2008. This rise was due mainly to higher storage revenues (+12.2%) connected with the remuneration of new capital expenditure. Storage revenue for the 2009 financial year was €341 million, of which €273 million and €68 million respectively related to modulation and strategic storage (€304 million in 2008, of which €241 million and €63 million respectively related to modulation and strategic storage).

EBIT in 2009 was €214 million, an increase of €42 million, or 24.4%, compared with 2008. The improved operating performance was due mainly to higher core business revenue (+€40 million).

Net profit (€121 million) increased by €38 million, or 45.8%, compared with financial year 2008, owing to higher EBIT (+€42 million) and smaller net financial expense (+€13 million) because of lower market interest rates, the effects of which were partly offset by higher income taxes (-€17 million) as a result of more pre-tax profit.

Operating review

Investments in 2009 amounted to €282 million, an increase of €16 million, or 6.0%, compared with 2008. Pursuant to resolution no. 50/06 of the Electricity and Gas Authority, relating to the second regulatory period (1 April 2006 - 31 March 2010), incentivising investments means applying a rate of return that is four percentage points higher than the base rate, over eight years for upgrading existing capacity and over 16 years for structural investments.

The key investments with an incentive of 4% over 16 years involved the development of new levels for the Fiume Treste concession, entailing the predicted first increase in capacity of 150 million standard cubic metres (SCM), made available for the thermal year 2009-2010, compared with a predicted total final volume of 1,100 million SCM. The major investments with an incentive of 4% over eight years involved increasing pressure at existing fields and building new gas wells to maximise delivery services.

Investments	(€ millions)	2008	2009	Change	% change
Developments of existing sites		135	221	86	63.7
Investments with an incentive of 4% over 16 years		135	221	86	63.7
Capacity upgrades		111	36	(75)	(67.6)
Investments with an incentive of 4% over 8 years		111	36	(75)	(67.6)
Maintenance and other		20	25	5	25.0
		266	282	16	6.0

Natural gas moved through the storage system

Volumes of gas moved through the storage system in 2009 amounted to 16.52 billion cubic metres, an increase of 4.95 billion cubic metres, or 42.8%, compared with 2008. This increase is attributable to:

• significant gas withdrawals relating to the Russian supply crisis in January 2009 and further withdrawals as a result of changing gas market prices;
• subsequent greater injections to restore the volumes withdrawn and gradually replenish the additional capacity made available for the thermal year 2009-2010. The final replenishment of capacity was not total (around 95%).
• considerable withdrawals beginning in October and becoming even greater in December.

The total storage capacity at year-end was 13.9 billion cubic metres, an increase of 1.5% compared with 2008.

Customers

At 31 December 2009, the group provided natural gas storage and modulation services to 56 companies (compared with 48 at 31 December 2008), including 54 companies not belonging to the Eni group.

Regulation

Resolution ARG/gas 50/06 - “Criteria for determining storage tariffs and modifications and additions to the Electricity and Gas Authority’s resolutions 119/05 of 21 June 2005 and 166/05 of 29 July 2005” and resolution ARG/gas 38/09 – “Approval of corporate fees and determination of unique fees for the storage business for the thermal year 2009-2010, enacting the Electricity and Gas Authority’s resolution 50/06 of 3 March 2006”.

With its deliberation 50/06 of March 2006, the Electricity and Gas Authority established criteria for determining storage tariffs for the second regulatory period, which runs until 31 March 2010, by providing for a mixed mechanism of allocated revenue (in terms of capacity) and a price cap (on the commodity itself). A single national tariff was established. With resolution 38/09, published on
30 March 2009, the Authority approved storage tariffs for the thermal year 2009-2010, established on the basis of an RAB equal to €2.8 billion at 31 December 2008.

Resolution ARG/gas 165/09 - “Urgent measures to improve the balancing service and natural gas storage service regulations pursuant to legislative decree no. 78 of 1 July 2009”.

With this resolution, published on 3 November 2009 and enacting Legislative Decree no. 78/09 which laid down measures for reducing the cost of energy for businesses, among other things by enabling the regulator to promote front-line and storage services to industrial and thermoelectric end customers, the Electricity and Gas Authority defined criteria enabling storage providers to offer users of the transportation system on a monthly basis more flexible services, giving the opportunity for the provider to retain a share of the revenues from any service offers taken up. To this end, Stogit has proposed an update to its own storage code, approved by resolution ARG/gas 178/09, which defines the so-called User Balancing Service.