Tag Archives: Iran

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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Iran Steps Up Pressure on EU Customers After Embargo

With the EU embargo on Iranian oil passed and the prospect of sharp declines in deliveries looming, many fragile, export-heavy Southern European economies are struggling to find alternatives before the planned July 1 deadline. However, an angered Tehran has warned that Iran could force the EU’s hand and shut down exports immediately, making the search for new sources of crude all the more difficult.

Passed on Monday the 23rd, the EU embargo was supported by US officials who had long pushed for a stricter response to Iran’s nuclear program and what they suggest is an effort to weaponize their efforts. The move came after the US ratcheted up pressure on the Iranian government to abandon their nuclear program, introducing their own sanctions aimed at the country’s central bank, which handled oil revenue, according The Hill. After pressuring European allies to introduce similar efforts, the US welcomed the news of the passage of the sanctions in Brussels, though they were ultimately passed with an extension that would allow those countries with a heavy dependence on Iranian crude to secure alternatives.

Further, the extension to July 1st was meant to allow European firms, such as Italy’s Eni, to pursue and collect unpaid debts from Iranian companies or the government. In the case of Italy, newly appointed Prime Minister Mario Monti appealed for a special exclusion of a billion euro contract between Eni and Iran, arguing that the loss in revenue would hinder the country’s efforts to rebound from its current economic crisis. Representatives from the United Kingdom also issued appeals for exceptions, including a BP-led collaborative project with an Iranian firm to produce natural gas in the north Caspian Sea. The project is aimed at reducing dependence on Russian product.

However, just days after the Brussels announcement, the Iranian parliament announced that they would speed through a bill aimed at shutting down exports to EU member states immediately.

“We want to cut oil exports to Europe next week for which we are preparing a double-urgency bill,” said Hossein Ibrahimi, a member of the parliament’s national security committee in the Financial Times.

The legislative move follows Tehran’s warning that any future efforts to limit Iranian oil sales would result in the forced closure of the Strait of Hormuz, halting the passage of one-fifth of the world’s oil in tankers from reaching western markets, according to the AFP.

This new pressure has left some countries, including Spain, Italy and Greece, short on time when it comes to nailing down fuel options should Tehran follow through. So far, options have included increasing imports from Russia, Saudi Arabia and Iraq, though it is yet unclear whether these countries will be able increase production and delivery to meet the shortened deadline without impacting the market with a shortfall.

While representing just 5.8 percent of Europe’s total oil imports in 2010, Iranian crude provided 14.6 percent of Spain’s demand, 14.0 percent of Greece’s and 13.1 percent for Italy, making a sudden shutdown of imports all the more impactful across Southern Europe. Complicating the situation still further, those countries most affected by the embargo are the same EU member states struggling with dire economic outlooks for the New Year. Any additional increases in costs or energy deficits could serve to exacerbate already daunting financial pressures. While Saudi Arabia has suggested that they have ample reserves to address any Iranian reduction, cooperation from Russia may be a little more difficult for EU customers as the country’s leadership has expressed concerns about the actual embargo.

“It is obvious that what is happening here is open pressure and diktat, an attempt to ‘punish’ Iran for its intractable behaviour,” the foreign ministry said in a statement, according to New Europe. “This is a deeply mistaken line, as we have told our European partners more than once. Under such pressure Iran will not agree to any concessions or any changes in its policy.”

Further alternatives for Southern European customers exist with an increase in production in a post-conflict Libya, however significant obstacles still hinder the country’s ability to ensure adequate delivery. According to the country’s National Oil Corporation, production has reached 1.3 million barrels a day after the country’s civil war halted all production early last year. Although they have assured customers and foreign investors that they will soon reach and surpass pre-conflict levels of 1.6 million bpd, concerns about security, stability and infrastructure deficits remain. While Libyan exports could help ease the impact of an Iranian shutdown, it would not likely be enough to address all the needs of Spain, Italy and Greece

Could it Backfire?

While the pending deadline is causing additional stress across Europe, ultimately, analysts have suggested that any move on the part of Tehran to force the stoppage would mean worse news for Iran than any EU states, even those searching for other options. According to a Financial Times report, if enacted, the early ban would force the National Iranian Oil Corp to find new customers for up to 600,000 barrels of oil per day, inviting the possibility of heavy discounts to entice new clients in Asia. Dependent on oil revenue for up to 80 percent of government spending, Iran would likely find it difficult to lose customers for very long.

Image: Iran Review

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EU Embargo Weighs Heavily on Med States

As European Union officials gear up for the expected passage of an embargo on oil imports from Iran in response to the country’s continued push to develop a nuclear program, some states are struggling to find alternatives for when the deliveries finally stop.

Under pressure from the United States, which halted all energy imports from Iran in 1979, EU actors have signaled their intent to introduce the sanctions following a meeting scheduled for the 23rd of January. According to Reuters, the embargo would prohibit member states from concluding new oil contracts with Iran or renewing any that are due to expire. The halt in energy imports is expected to impact both the Iranian economy and the European energy market, with many states relying on product from Iran despite a steady easing of trade agreements in recent years. However, despite strong support from the UK, France and Germany to implement the embargo, some states are seeking alternative approaches, especially those already reeling from weakened economies and threats to energy trading partners.

Among those, three of these states have launched efforts to delay, curtail or customize the actual implemented embargo to allow for more time to find alternative resources or protect amounts owed by Iran to domestic firms. In addition to targeted delays of application, states have sought the approval to keep receiving payments related to existing debts. According to EU data provided by Reuters, Italy, Greece and Spain take in about 500,000 bpd our of the 600,000 total coming into the European Union from Iran. Weighed down by dour growth estimates for the new year and massive spending cuts to meet EU demands, these three countries would stand to suffer most from any decrease in available energy products.

So far, the three countries have won approval to at least escape the embargo for the first six months of this year to allow them to seek out product alternatives, including increased input from Saudi Arabia. However, any such cooperation is likely to enflame the already tense relationship between OPEC members.

 

 

 

 

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