Algeria-Sardinia Gas P/L Proposed; Edison To Raise Italian Sales To 12 BCM/Y.

Edison Gas, an independent gas utility in Italy which is growing fast, is insisting that a marine gas pipeline from Algeria to Sardinia and Corsica must be built by 2005. The company, part of Montedison group, will be ready to purchase most of the pipeline's 10 BCM/year throughput. Edison believes Sardinia alone would consume 2 BCM/year.

On April 22, 1999, Edison Gas signed an agreement with In Salah Gas (ISG) to purchase 4 BCM/year of Algerian gas for a 15-year period starting from 2003. The gas will be supplied from the In Salah fields and will be delivered at the Algerian-Tunisian border. Edison Gas is shortly to finalise an accord with Snam, the Italian state utility, for the gas to be pumped through the TransMed pipeline. TransMed's capacity is to be increased from over 24 BCM/ year to almost 29 BCM per annum by 2003. Edison is to increase gas sales in Italy from 1.9 BCM/year at present to over 12 BCM/year by 2010. The Italian market's gas consumption is expected to grow from 62.1 BCM in 1998 to more than 95 BCM/year by 2010. Edison's production of gas from offshore Adriatic fields is expected to decline from the current level of 1.5 BCM/year.

ISG is a gas marketing JV between Sonatrach and BP Amoco. BP Amoco is developing In Salah gas fields for a production capacity of 9-11 BCM/year. ISG already has an agreement to supply 4 BCM/year of In Salah gas to Italy's power utility Enel under a deal ceded by Sonatrach in May 1997. The deal with Enel will be effective from 2003, as in the case of the supply to Edison. The deal with Edison brings the total of In Salah supplies to 8 BCM/year. ISG is to secure European buyers for another 3 BCM/year of In Salah gas with deliveries to start from 2003. (The 20-year Sonatrach-Enel deal, signed in late 1993, went into effect in 1996 when the Algerian state concern began delivering 2 BCM/year to the Italian power utility. In 1997 the volume was raised to the 4 BCM/year target agreed upon. Sonatrach will continue to supply Enel with 4 BCM/year until 2003, when ISG will take over this deal).

In Salah's production system, by BP Amoco (which is to absorb Arco shortly), will involve about $2.8 bn of investment. This compares with an original outlay of $3.5 bn. BP Amoco is still hoping to bring development and production costs down to $2.5 bn.

Unlike the gas from Hassi R'Mel field, In Salah gas is dry and has a higher water content and more CO2. It requires dehydration and CO2 removal systems at the fields before the gas is pumped north through a 48-inch, 520 km pipeline from Krechba to Hassi R'Mel (the hub of the Algerian gas industry). From there the gas will be pumped to the Mediterranean coast through the Sonatrach pipeline system that links up with TransMed at the Tunisian border.