Italy Tables All Options for Energy Needs

Over that past 24 months, a series of unfortunate events have chipped away at Italy’s already narrow energy options. Compounded by the country’s current economic morass, Italy’s energy sector has been left struggling to find an effective path forward. Now considering and promoting production relationships and strategies long thought to be off the table, the Southern European nation faces an uphill battle towards energy security. With new local efforts and legislation in the pipeline, Rome is hoping for some good news soon. However, with only modest domestic potential and an uncertain political landscape beyond its own border, the question remains, will it be enough?

Long dependent on foreign resources for most of its energy needs, Italy witnessed its limited options for meeting domestic demand fade over the last two years due mostly in part to events far from home. After the Deepwater Horizon disaster in the Gulf of Mexico spurred a ban on offshore drilling in waters within five miles of the Italian coastline, the country suffered another hit to available energy options as the political situation in North Africa flared up. While Algeria, which provides substantial contributions to Italy’s natural gas needs, largely escaped widespread political protests, neighboring Libya did not. After spending a decade and billions of dollars cultivating an energy trade relationship with the government of Muamar Gadaffi, Italy was knocked back to square one as the government fell to opposition movements based in the oil-capital of Benghazi. Left to build a new relationship with a Libyan leadership wary of anyone who had worked closely with the ousted government, Italy then faced pressure from the United States to cut ties with Iran who provided significant amounts of crude to the Italian market. Finally, the country’s unconventional options were dinged by a cash-strapped renewable subsidy program and a nuclear resurgence that fizzled as Japan’s Fukishima disaster reminded Italians why they’d banned it in the first place.

Two years on, Italy is now putting all options on the table to help achieve some sort of progress towards energy security, starting with the ban that started it all. This month saw the Italian government look past public and political protests that came to define the Deepwater Horizon summer and announce that they would re-open coastal waters to exploration efforts. This move has cleared the way for those smaller operations, most notably Mediterranean Oil and Gas, to return to local waters.

This month also saw Rome granted a 180 day reprieve from the US and EU-led sanctions against Iranian crude, allowing some breathing room to help cultivate or expand new trade agreements to replace expected losses. Of all those EU member states expected to be affected by a cut off in Iranian crude, Italy and Spain emerged as those nations with the most to lose. To do this, Italy has looked to expand their presence in Algeria, where the state-associated Italian firm Eni has signed on to help support the expansion of shale gas projects in North Africa. They are also now waiting on final approval for the construction of the planned Galsi Pipeline, which would increase the natural gas flow from Algeria to the Italian market by way of Sardinia.

After quickly reversing their support for the Gadaffi government after violence split Libya in half last year, Italy and Eni have worked to build a strong energy relationship with Tripoli and Benghazi, including a pledge to dedicate several billions towards production and infrastructure development over the next decade.

However, the country’s continuing challenges with security and political stability have caused some concern whether foreign firms will be able to stage full returns to production. This has become especially worrisome in recent weeks as violence spurred direct diplomatic warnings to outsiders operating in the country’s eastern half, also home to the majority of Libya’s oil and natural gas operations, as well as the recently re-opened Ras Lanuf refinery. Even before this month’s direct attack on a US consulate in Benghazi, energy firms had stepped up protection and prevention efforts following a series of actions taken against Western operations in the country.

Locally, Italy has also moved to encourage the country’s natural gas competition with the planned purchase of a 30 percent stake in Snam – the natural gas distribution unit. The deal comes thanks to the government’s sale of 1.7 percent of their stake in Eni, earning them $1.4 billion towards the Snam effort. According to an Associated Press report, Snam has pledged to spend $8.8 billion towards infrastructure development across Italy.

While the country’s economic challenges of the last three years have hardly helped Italy’s energy options, they may have helped only in easing domestic demand, noted in a Reuters report from this week. According to the report, Italy has seen a steady decline in demand for energy products, including 10.1 percent decrease in petrol during the month of August and 8.6 percent for oil products during the same period. Overall, during the first eight months of 2011, “demand for oil products fell 8.6 percent year-on year 43.32 million tonnes, with petrol demand falling 9.7 percent and diesel demand down 9.1 percent.”

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