Regulation of natural gas pipeline transportation and storage

Ownership and infrastructure

Describe in general the ownership of natural gas pipeline transportation, and storage infrastructure.

Legislative Decree No. 164/2000 introduced a right for operators to have access to gas transport, storage and processing facilities located in the Italian territory. The Decree also granted the Regulatory Authority for Energy Networks and Environment (ARERA) the power to set out the relevant tariffs and non-discriminatory criteria to allow new operators to use the national grid (grid codes). The gas transport grid, divided into national and regional grids, is operated by a small number of companies. The main transport company, Snam SpA, is the major operator in the sector and manages the national grid. The second is Società Gasdotti Italia SpA, which operates a number of regional networks.

Regulatory framework

Describe the statutory and regulatory framework and any relevant authorisations applicable to the construction, ownership, operation and interconnection of natural gas transportation pipelines, and storage.

By means of Law No. 27 of 24 March 2012, new facilities for transportation and dispatching of natural gas that are intended to implement the national grid system are considered to be of public interest; for this reason, they are subject to prior Ministry of Ecological Transition authorisation. Usually, enterprises interested in this kind of business enter into specific agreements with national and local bodies. The activity of gas storage is operated on the basis of concessions granted to operators following public tender procedures. The operator must comply with the concession, and in the event of a breach of the terms thereof, the public authority may enforce the bank guarantee provided by the operator to whom the concession was awarded and, in the worst-case scenario, revoke the concession.

Land rights

How does a company obtain the land rights to construct a natural gas transportation or storage facility? Is the method for obtaining land rights to construct natural gas distribution network infrastructure broadly similar?

The Ministry of Ecological Transition, in accordance with the relevant local authorities and provided that the public interest is met, may grant private investors an authorisation to build up facilities for the purpose of implementing the national grid along with covering national energy requirements.

Once the Ministry has declared that the public interest has been met and has issued the above authorisation, the relevant local authorities (municipalities and other local authorities, as the case may be) are entitled to expropriate the lands to allow private investors to build up the authorised facilities. In such a case, an indemnity is to be paid to the expropriated owners.

The procedure to obtain land rights to construct natural gas distribution infrastructure is the same as the one just described.

To develop Italy’s gas storage capacities and increase competitiveness among companies, the government issued Legislative Decree No. 130/2010, also known as the Storage Decree, with the purpose of increasing the number of storage facilities throughout the country. Over the past decade, the number of storage facilities has increased by almost 35 per cent compared to 2010, today totalling 15 units.

Access

How is access to the natural gas transportation system and storage facilities arranged? How are tolls and tariffs established?

The ARERA, through Resolution No. 137/02 and subsequent amendments, set out the rules for free access to the transportation system, along with guidelines for the implementation of the grid codes. Based on the principles contained in such Resolution, Snam (the entity managing the national grid) has drafted its own grid code, which sets out transparent and non-discriminatory rules regulating access to and use of the transport service on its gas pipeline grid. With respect to gas storage, the government has extended the natural duration storage concession to 30 years. Further, storage concessions can be renewed once for a 10-year period.

The ARERA established tariffs for gas system users and storage in such a way as to achieve a fair balance between the benefits to users and operators of gas terminals. In so doing, the ARERA aimed to guarantee a fair remuneration of the invested capital. Since 2001, the ARERA has been regulating the natural gas transport tariff system through Resolution No. 120/2001, as subsequently amended and implemented, which lays down the criteria for determining such tariffs. Companies that manage gas facilities set out tariffs according to the above-mentioned ARERA rules and are subject to the supervision of the ARERA.

With specific reference to tariffs applicable to gas transport, the last resolution of the ARERA is ARG/gas No. 114/2019/R/GAS, which applies for the period 2020 to 2023. This resolution contains provisions concerning general charges and is aimed at making their application transparent along with integrating charges within the scope of the regulation of tariffs for gas transport and dispatching services for the regulatory period from 2020 to 2023.

As regards tariffs applicable to gas storage, for the period from 2020 to 2023, the above-mentioned resolution also approved common fees due to storage companies for storage and metering services.

Interconnection and expansion

Can customers, other natural gas suppliers or an authority require a pipeline or storage facilities owner or operator to expand its facilities to accommodate new customers? If so, who bears the costs of interconnection or expansion?

Pursuant to article 8 of Legislative Decree No. 164/2000, companies carrying out activities relating to gas transportation have the obligation to allow customers (along with any other entity such as hospitals or schools) to connect to their grid upon request. Such companies, however, may refuse to provide a connection if this is unfeasible either for technical or economic reasons. The ARERA is the competent authority for both regulating and supervising this phase of the gas industry (except for competition issues, which are supervised by the Italian antitrust authority). Capacity and access are regulated in grid codes that must be drafted in compliance with ARERA guidelines and that are subject to the approval of the ARERA. Snam drafted its own grid code, which contains provisions regulating the right of access. The ARERA may require operators to accommodate new customers.

Processing

Describe any statutory and regulatory requirements applicable to the processing of natural gas to extract liquids and to prepare it for pipeline transportation.

There is no specific regulation covering the processing of natural gas to extract liquids. However, the ARERA has a general power of supervision over the quantity and quality standard requirements that are set forth in the grid codes elaborated by the relevant transportation companies in accordance with the guidelines provided for by the ARERA.

Contracts

Describe the contractual regime for transportation and storage.

Gas transport agreements often have a preliminary nature, and the transfer of property occurs at the moment of delivery of the gas. In addition, they include standard clauses, such as the take-or-pay clause, whereby the purchaser commits either to take the whole quantity of gas set forth in the agreement or to take a minor quantity and pay an additional predetermined forfeit amount.

The ARERA influences the drafting of agreements of this nature by issuing guidelines to be implemented in the relevant grid codes.

Storage is an activity that can be carried out only on the basis of a concession issued by the Ministry of Ecological Transition. This concession may be awarded exclusively to entities having specific technical and economic capabilities that provide the Ministry with a storage programme that meets the public interest.