A new direction for European natural gas?

A string of recent corporate deals show interest in taking the European gas market in a new direction — literally.

Natural gas has traditionally flowed westward across Europe, from Russia in the east to consumers in the west. There has also been a flow southward, from gas producers in the North Sea and Netherlands across Switzerland to Italy.

But Italian gas network operator Snam Rete Gas and its Belgian counterpart Fluxys aim to build up the capacity for a new pattern of flows, from the south of Europe to the north.

Last August,  the two companies signed a memorandum of understanding to develop and market reverse flow capacities from south to north between Italy and the UK. The companies completed the joint acquisition of Italian producer Eni’s 16.41% stake in the UK-Belgium Interconnector pipeline the same day.

Fluxys G, parent of Fluxys, already in September 2011 had acquired Eni’s interests in the German TENP pipeline and the Swiss Transitgas pipeline that flow gas to Italy.

The companies aim to open up the potential for a new pattern of northward flows from Italy, boosting Europe’s security of supply and competition.

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In late December, meanwhile, Fluxys lined up deals to take a 32% share in the Medgaz pipeline that carries Algerian gas to Spain, after agreeing to purchases from Spanish power companies Endesa and Iberdrola.

And Total announced last week that it was in exclusive talks to sell its southwest France gas network TIGF for Eur2.4 billion to a consortium including Snam, French generator EDF and the Government of Singapore Investment Corporation.

The TIGF network manages around 5,000 km of pipeline carrying 13% of the gas transported in France and operates 22% of the country’s gas storage space.

These deals suggested potential for further cooperation in a second northwards route, from Spain to France.

Last week, Spanish oil company Cepsa and Algerian producer Sonatrach blocked the Medgaz sales to Fluxys, exercising their pre-emption rights to increase their own holdings in the pipeline.

However, with Spain well supplied with LNG regasification capacity, as well as its pipeline links to Africa, interest in this northward route is also likely to continue.

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