The final investment decision (FID) for the $3bn Galsi pipeline has been postponed to 31 May 2015 as the companys shareholders wait for necessary approvals from government authorities.
Previously, the company said it was hoping to make the decision at a shareholder meeting on 30 November this year.
The FID has been postponed by the shareholders meeting, said Stefano Bosco, Galsis chief financial officer, in a statement to MEED.
We are still waiting for the very last local approvals by competent authorities in Tuscany, and the issue of the Autorizzazione Unica decree from the Italian Ministry of Economic Development.
Bids have already been issued for procurement contracts, including for offshore line-pipe supply and offshore pipe-lay.
Bids have also been submitted for an engineering, procurement and construction (EPC) contract for a compression station in Algeria.
Galsi says more tenders will be issued immediately after the FID, if a positive decision is made.
The decision to postpone the Galsi pipeline FID was made one day before Russian President Vladimir Putin announced that Russia was dropping plans for the proposed South Stream project, a pipeline with an annual capacity of 63 billion cubic metres (cm) that was due to run under the Black Sea into southern and central Europe.
Analysts say Europe may be keen to secure new gas supply routes in the wake of South Streams failure, and this could make a positive FID decision on the Galsi pipeline more likely when shareholders meet in May.
The cancellation of South Stream is positive for the Galsi project going forwards, but there are also a number of headwinds, says Trevor Sikorski, head of natural gas at the consultancy Energy Aspects.
Gas consumption in Europes 28 member states is going to see a third year of declines in 2014, driven by factors that include the regions slow economic recovery and the low price of coal. Consumption declined by 9 per cent compared with 2013, according to the latest Eurogas forecast.
Its hard to build capacity when demand is down, and it is unclear whether Algeria will actually be able to fill this pipeline with gas over the long term, says Sikorski.
Algerias gas production has seen a steady decline since peaking at 88.22 billion cm in 2005, with production down by 11 per cent from the 2013 peak.
In July, Algeria announced that it would be spending $100bn to try to turn around its declining oil and gas production, but there are doubts over whether its plan can be implemented.
International oil companies are wary of Algerias onerous contract terms and precarious security environment.
In October, only four out of a possible 31 exploration licences were awarded in the countrys fourth international bidding round.
The Galsi pipeline has already seen significant delays.
It was originally due for completion in 2009, but there were difficulties in obtaining authorisation for the pipeline route and landing points as well as protracted intergovernmental negotiations.
Galsi was created in 2003 and is owned by several stakeholders:
- Sonatrach (Algeria) 41.6 per cent
- Edison (Italy) 20.8 per cent
- Enel (Italy) 15.6 per cent
- Hera (Italy) 10.4 per cent
- The region of Sardinia 11.6 per cent
The pipeline will have an annual capacity of 8 billion cm and sections will be laid at a depth of 2,885 metres.
The 520-kilometre-long Italian section of the pipeline will account for about two-thirds of the cost, with the 310km section between Cagliari and El-Kala on the Algerian coast making up the balance.