Italy Weighs Energy Future Under New Leadership

Following months of political upheaval and roller-coaster market instability, Italy now finds itself with new national leadership, promising a technical approach to governance and the institution of new financial aimed at calming global worries about the country’s ability to deal with its overwhelming debt. While the exit of controversial Prime Minister Silvio Berslusconi and the appointment of Mario Monti to lead the government in implementing a host of new regulations promoted by the European Union and the International Monetary Fund were welcomed by political and market leaders across the globe, it is far from clear how this new technocratic leadership will work in practice, including how it will impact the country’s precarious energy standing.

Although the news of Bersluconi’s exit was enough to drive up oil and gas prices across the globe last month, further allowing local companies such as Eni the spike in profits necessary to weather current challenges, it is far less clear how his exit will impact the country’s broader energy futures.

The last 18 months have left Italy with a novel collection of energy challenges, including issues pertaining to their domestic operations and production as well as their exploration and production efforts abroad. The country’s most prominent energy exporting partner Libya saw their long-standing government collapse as pro-Democracy movements led to an armed conflict lasting months, resulting in a complete halt in production as well as the end of the sitting government of Muammar Gadaffi. Despite international pressure, Italy had spent the last decade cultivating trade and diplomatic relations with the North African leader through billions in aid and development investment, establishing Libya as one of the country’s three main providers of oil and natural gas alongside Algeria and Russia. The armed conflict saw Italy threaten more than a third of energy imports as companies such as Eni were forced to remove expatriate staff from the country.

Meanwhile, at home, Italy has seen two domestic efforts to increase energy independence curtailed by local protest movements. Offshore drilling projects were restricted after the Deepwater Horizon spill in the Gulf of Mexico inspired calls for new project rules in the Mediterranean, leading to a ban on efforts within five nautical miles of the Italian coastline. While the new regulations mostly hindered smaller operators, such as Mediterranean Oil and Gas, new proposals from the European Union on drilling in the sea could further impact offshore endeavors in the region. Finally, the government’s push to revive Italy’s long-dormant nuclear power program after the events surrounding the tsunami in Japan this year and its impact on nuclear plants sparked a wave of protest from EU and local political leaders. After being tabled until political pressure had subsided, the campaign has now lost its strongest proponent in Berlusconi, causing further uncertainty about a nuclear future in Italy.

These events have left Italy and the country’s largest energy firms increasingly isolated when it comes to their immediate opportunities for not only growth but also the country’s immediate oil and gas needs. This situation may be further exacerbated by the absence of Bersluconi who demonstrated a willingness to seek out energy partnerships beyond and sometimes against wider regional sentiment. This approach, leading to close working and diplomatic relationships with Libya’s Gadaffi and Russia’s Vladimir Putin, will not likely be continued under the stewardship of Monti, a much stronger proponent of EU market integration and member state partnerships. Having announced his campaign to return to Russia’s highest office, Putin echoed this sentiment in a speech last week where he derided EU energy policies while praising the outgoing Berlusconi as a friend and “one of the last of the Mohicans of European politics”, according to the Wall Street Journal.

Although Putin is schedule to return to office, the change in political leadership in Libya may offer Italy some relief as Eni has returned to production efforts in the country after embracing the Libyan Transitional National Government (TNG) following early reservations. Eni has revived production efforts in the country, including their work in the Elephant field south of Tripoli, but levels remain modest. Fully supported by the EU, the TNG will provide a greater opportunity for Italy to expand their presence in North Africa in the months ahead, though infrastructure deficiencies and lingering worries concerning regional stability have slowed a return to pre-conflict production levels. Elsewhere in North Africa, Italy have sought more exposure to the region’s energy potential, recently moving forward on a long-delayed pipeline project linking Algeria, one of Italy’s largest energy providers, with the island of Sicily. The move would increase imports into Italy, as well as side-step potentially unstable transport systems in the transitional political environments of Tunisia and Libya. However, faced with likely spending cuts and a significant tightening of the belt, Italy may not be willing or able to pursue such costly infrastructure projects in the coming year.

For now, the country’s energy futures remain vague, with little allotted for traditional or novel approaches to meeting domestic energy needs or expanding their hydrocarbon presence abroad. Having announced that they have little to contribute to Europe’s expanding shale extraction marketplace and done little to build a government support system for renewables, the country again looks to its traditional providers for an energy answer.

 

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