Tag Archives: Italy

Italian Offshore Back on Track but Progress Has Been Limited

ImageAlmost a year after Rome reversed a ban on offshore drilling, Italy’s energy sector is showing signs of life with new efforts and interest on the part of foreign firms.

This month has seen progress reported by   Petroceltic, Northern Petroleum and Mediterranean Oil and Gas regarding offshore efforts in Italian waters. However, despite such advancements, progress has been limited in improving the country’s overall energy standing – a situation made worse by a toxic political and economic environment and local opposition.

The Mario Monti government announced an end to a ban on drilling within five nautical miles of Italian shores that had been put into place following the Deepwater Horizon oil spill in the Gulf of Mexico in 2010.

The purpose of the government’s reversal on offshore drilling last year was two-fold. First, an increase in domestic production would help ease the country’s current, heavy dependence on foreign producers. Italy brings in about 90 percent of its oil and gas needs from outside the country and has seen alternative energy options evaporate over the last three years, making those imports all the more important. While renewable development has suffered amid a wave of government cuts and a loss of investor confidence brought on by the country’s economic crisis, Italy’s push to reintroduce nuclear power disappeared almost as soon as news of Japan’s Fukushima disaster reached Rome.

Second, the financial benefits of a boost in domestic production could help jumpstart Italy’s ailing economy, offering little in the way of investment options to outside investors. When the Monti government announced the plan to ditch the offshore ban, the country’s Economic Development Minister Corrado Passera predicted that expected increases in output allowed by the revision could bring in as much as 15 billion euros, while reducing the country’s energy bill by about 6 billion euros, according to Bloomberg.

Nearly a year on from the ban reversal, Italy’s energy options have offered little relief due to a precarious economic and political environment as well as instability in Algeria and Libya, two of the country’s largest providers of oil and gas.

Complicating the offshore situation still further has been the actions of local environmental and political advocacy groups. Even before the 2010 ban had been into place, groups in Sicily and along the Adriatic coast had pushed for drilling bans in the name of environmental and tourism protection. Although the ban has been reversed on a national level, local groups have still challenged exploration efforts in individual cases leading to production delays.

Offshore may have returned to Italy, but it is still far from clear whether it can provide the diversification and revenues

Image: Rigzone.com

Originally Posted: Newsbase Euroil Monitor

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Italy’s Elections Offering Few Energy Specifics Beyond More Local Control

Europe-scrambles-to-save-euro-markets-surge-N1L45LK-x-largeAs Italy prepares to go to the polls after months of frustration about tighter government spending policies and slow recovery, the country’s energy sector faces a wave of uncertainty as candidates hint at solutions, but offer few specifics.

The late February elections present a stand off between supporters of an increasingly unpopular technocratic government led by Mario Monti and critics of his tighter belt approach, led by a newly resurgent Silvio Berlusconi, or as the Christian Science Monitor described it, “the populism of short-term fixes and the long-term reforms necessary to make Italy’s economy solvent, competitive, and sustainable over the long run.

So far, leaders of all sides have hinted at what the country could see as far as expanding an energy sector that is largely dependence on foreign resources for oil and natural gas. After a reversal of an offshore drilling ban late last year, Monti unveiled plans to more than double domestic crude production, suggesting increased development of local resources in favor of expensive and uncertain imports. Similarly, the head of the center-left alliance, Pier Luigi Bersani said he would emphasize domestic reserves with a concentration on natural gas and a further reduction of state support for renewable options, according to Dow Jones. For his part, Berlusconi has offered few specifics, but does bring with him deep ties to Russian producers and affection for a nuclear return in the country.

More than a specific threat to Italy’s energy sector, the country’s national elections are proving to be a source of concern to the economy and investors in general. Despite recent declines in borrowing costs, after a series of painfully high auctions, Italy has seen investors grow skittish about the future or at least about the instability that could accompany a political transition. At the heart of this are critics of the current administration’s strict spending cuts and tax reforms, introduced in an attempt to reduce stress on the economy, with many taking aim at the appointed leadership of Mario Monti. While a full return to power by Berlusconi is not expected, the former prime minister’s ability to block a full parliamentary majority could shatter confidence about Rome’s ability to stay the course and scare off nervous investors. However, even if a Democratic majority is achieved, some have suggested that their policies may prove to be just as destabilizing.

“I’m investing in the euro zone but not in Italy, because although they have a primary surplus, there’s huge uncertainty politically,” Torgeir Hoien, head of fixed income at $19 billion Norwegian investment firm Skagen told Reuters.” What kind of policies will the Democratic Party pursue if they win?”

Originally Posted in Newsbase’s Euroil Monitor

 

 

 

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Southern European Energy Looks for Footing in New Economic Environment

As governments across Southern Europe struggle to adjust to a new and limited political reality, many state energy policies are reflecting a more conservative planning approach. While most attention has been paid to how these new policies stand to affect renewable sectors in Spain, Italy and Greece, state strategies to conventional energy resources will also be influenced by fiscal limitations and new political leadership.

At the heart of most energy policy decisions from Madrid to Athens is the effort for new governments to reign in spending and reduce budget deficits to meet goals laid out in conjunction with stakeholders on the European and international market level. This environment has increased uncertainty among foreign investors, a sharp reduction in the amount of government funding available for any new energy endeavors and an almost across the board increase in energy prices for consumers.

In the case of Spain, a precarious energy landscape and daunting 27 billion euro sector budget deficit has been met with a pledge by industry minister José Manuel Soria that the financial burden will be shared across the industry. While that pledge has so far only affected renewable and coal subsidies and an increase of consumer prices of 7 percent for electricity and 5 percent for gas, there is worry that it could soon spread to more traditional efforts. Heavily dependent on foreign resources, Spain has seen new domestic exploration projects in the form of shale efforts in the north and offshore drilling near the Canary Islands.  

Similarly dependent on foreign resources, Italy and its technocrat government led by Mario Monti has pledged a wide-array of cuts to existing traditional and unconventional energy endeavors, though they have so far not seen a spike in consumer prices thanks to a steady decline in demand brought on by economic pressures. Having faced a steady decline in available energy resources as a result of both foreign challenges (Iran, Libya) and those closer to home (offshore bans, the failure of nuclear resurgence), Italy has signaled a focus to shift support towards less traditional energy support as opposed to revisiting conventional options. Last week saw the Monti government introduce the idea of a carbon tax aimed at providing funding for sustained support for green energy options.

In Athens, the government’s aim of debt reduction has spurred a move away from state-backed energy endeavors with a host of privatization efforts planned for this summer. After signaling a willingness to seek investment for a sprawling 20 billion euro solar farm project, the appointed Greek government announced an effort to sell off state holdings in Hellanic Petroleum and the state natural gas firm DEPA. The move comes as many in the region have expressed strong interest in further investment in natural gas discoveries in the Eastern Mediterranean.

In all cases, such privatization efforts come at the very real risk of losing out on significant future revenues in favor of short-term fiscal relief.

David Parker, Emeritus Professor of Privatization and Regulation at the Cranfield School of Management told Reuters, “We are certainly going to have a risk that the government sells off industries without really thinking about the long-term implications.”

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Leaked Italian Energy Plan Adds Stress to Country’s Outlook

A leaked draft of a new energy plan for Italy has left some wondering what direction the country’s new government will take just months after the last energy plan was released. Following up on a fourth Conto Energia, implemented in late spring of last year, the draft has been circulating online over the last month, spurring speculation about the plans of the country’s new government when it comes to energy issues amid a steady decline in domestic demand.

Much of the recent focus on the leaked draft has centered on the government’s likely reduction in solar subsidies, joining Spain and Germany with cuts to feed in tariffs and an overall decrease in the budget set aside for installation projects. However, reports of the new plan and its focus on shifting financial support away from some sectors has spooked investors and developers in the region. Government and industry officials have remained largely silent on the issue, suggesting it could be an incomplete draft produced by an industry group.

However the new plan turns out, the country now faces an increasingly restrictive energy environment thanks to nearly two years of set-backs and obstacles, both at home and abroad. Following a halt in imports from Libya last year, Italy faced the scrapping of plans to reintroduce nuclear energy after two decades, restrictive offshore regulations and new restrictions on crude from Iran as a result of European Union-backed sanctions. Coupled with the spending cut efforts on the part of the new Mario Monti government, including raising gas taxes to the highest in Europe, Italy’s energy landscape has become fraught with uncertainty.

Possibly signaling a component of a revised government approach, the country’s minister of economic development Corrado Passera said earlier this month that Italy should work towards using all its underused oil and gas fields to address the country’s domestic energy costs.

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Italy’s Pipeline Hopes Dashed by Algeria

After finally winning the support of hesitant Italian authorities, the Galsi pipeline appeared to have been given a new chance at completion with leaders in Rome looked to diversify their vital energy imports. However, opposition is now emerging from the Algerian side of the project, with national officials warning that costs and technical challenges could delay or even halt the transport effort.

Dependent on imports for 90 percent of their natural gas needs, Italy set their sights on broadening their roster of production partners following last year’s political unrest in Tunisia and Libya. Violence and instability in both countries during 2011 led to delays or halts in production and output, threatening to cut Italy’s energy supplies. Libya’s civil war forced an evacuation of the staffs of most foreign firms leading to production shutdowns while Tunisia’s political protests led to a short closure of the pipeline used to ship Algerian natural gas to Italian shores, amounting to 35 percent of the country’s demand.

Eager to avoid such uncertainty again, Italian officials began voicing their support for the completion of the Galsi pipeline, linking Algerian fields with the island of Sardinia and the Italian marketplace. The result of an MOU signed in 2007, bringing to together the interests of Algeria’s state-backed Sonatrach, Euro energy firms Edison, Enel and Hera, the 900km pipeline would mark the second such project linking the North African nation with Italy, via a landing in Sardinia. However, unlike the Trans Mediterranean pipeline, the Galsi would carry an estimated 8 billion cubic meters of gas northwards upon completion directly from country to country, skipping a passage through Tunisia.

In October, Italian political leaders issued an appeal to Algeria to approve and move forward with the pipeline project with haste, allowing for Italian companies to pursue natural gas projects in the country with the assurance that transport lines will be available to them. However, resistance to the project has now begun to emerge in Algeria, with Energy and Mines Minister Youcef Yousfi casting doubt on the viability of the transport line in the near future.

“With regard to the Galsi project, the partners are waiting for technical and economic conditions to be present and also to obtain administrative authorization in Italy to go ahead with the project,” he told a local newspaper, according to Reuters.

Image: Eni

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Eni’s Gas Grid Split May Not Be Enough for the EU

A pressured push to decrease Eni’s stake in continental Europe’s largest regulated gas business has won the support of Italian government leaders and shareholders. However, if the Italian energy giant succeeds in retaining partial ownership of the company, the split could potentially run afoul of European Union rules.

Originally majority shareholders in Snam Rete Gas SpA, the country and continent’s largest regulated gas business, Eni was pushed to reduce their stake in 2009 as a part of a European Union energy liberalization accord. The move was meant to free up Italy’s gas transporting network for greater competition with regional partners.

For proponents of the ownership unbundling, which includes both anti-trust officials and shareholders, the move would benefit Eni by allowing for the deconsolidation of Snam’s 12.2 billion euro in debt, reducing Eni’s debt to 7 billion euro, allowing for increased funding of new exploration and production efforts. For regulators, the move would reduce the chance that Eni could distort natural gas flows into the European market by blocking fuel pipelines from the region’s high priced markets, which it has been accused of doing, according to Bloomberg. Further, the move would allow for the delayed implementation of a law meant to put distance between oil and gas production entities and transportation operators.

For Snam, the split would free the transportation operators to increase investment in European projects, according to the Financial Times.

While the exact details of the government-forced break-up remain uncertain, analysts have predicted that it will require Eni to reduce their stake in the company from 50 to 20 percent, garnering the firm approximately 3.5 billion. Company CEO Paolo Scaroni has signaled that the amount would help Eni increase funding towards projects in Mozambique and the Barrents Sea, according to the Financial Times.

Seemingly cleared from all sides, the deal garnered negative attention last week when the head of Italy’s gas authority remarked that Eni’s 20 percent retention of Snam would violate EU rules on the matter. While reports on the comments did not expand on how exactly they would run afoul of official regulations, given the context of EU pressure towards a reduced Eni role, the warning suggests that more divestment may be needed before moving forward.

Image: Trek Earth

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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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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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The Cost of Inaction – Southern Edition

Returning to a theme of an earlier post, I remain at a loss as to why Euro leaders in France and especially Germany seem so timid about pursuing financial stability programs or what almost seem like inevitable steps towards greater economic integration among EU members states. Merkel has remained firm even though the costs of letting certain members of the community slide into default and/or leaving the Euro to collapse would leave Germany with far more of a burden than even a flat bailout of Greece, Ireland and Portugal – much, much more, it seems.

“One thing UBS notes is that it would be much, much cheaper for Germany to simply bail out Greece, Ireland, and Portugal outright (that would cost about 1,000 euros for every German man, woman and child in one swoop) than it would be for Germany to exit the euro zone (which would cost the average German 8,000 euros the first year and 4,500 euros thereafter).” -Washington Post

The actions called for seem like inevitable steps towards an EU economic integration so why beat around the bush as the markets continue to punish countries already struggling? Furthermore, as the punishing and insecurity spread to normally stable financial situations, what exactly is causing the delay?

Still, the inaction in this equation is hardly one-sided, though I am starting to see a strong narrative emerging to suggest otherwise in Spain, Italy and Greece. ‘Europe wants to shove reforms down our throats’, the story goes. ‘Look how they’ve installed new leadership in Athens and Rome’ or ‘Look how they’ve wiped the slate clear of left of center heads of state in favor of right wing politicians who are sure to be more obedient to the demands of an over-bearing Europe’. Leaving aside the political leanings of the outgoing Berlusconi and likelihood that France’s right of center Sarkozy faces a substantial challenge in next year’s election (my take is that anyone caught holding the bag come election time is sure to face as much), I am not sure I understand the argument here. Countries need funds to stay afloat due to a wider economic slowdown but more so because of irresponsible or outdated borrowing and spending practices. So, the idea that those entities asked to put forth said funds would ask for some behavioral change seems like a logical next step, both because they are the lenders and what responsible lenders in the world would distribute funds without some sense of where the money was going or how it was going to be spent and because its the next logical step in Europe’s planned economic integration. This was the plan, wasn’t it? Getting everyone on the same page economically? That sort of operation requires much from all those taking part, including the richer countries helping to stabilize those less fortunate and those with antiquated or unsustainable systems adjusting their practices to better reflect the system they had chosen to take part in. So if this was the plan and these were the changes needed, why are figures on all sides fighting so hard against it? Is it  theater, pride or are some deciding they’d no longer like to be on board this particular train?

To be clear,despite his obvious and public distaste for the EU,  Silvio Berlusconi was not tossed aside because he ran afoul of Merkel and Sarkozy as he led a noble campaign to rescue his country from an economic collapse. He was tossed out because he did little to spur actual growth or help ready his country for participation in the continental and global community he had chosen to be a part of, made all the worse by the fact that he kept being caught with his attention elsewhere as Rome burned. And to be clear, Merkel’s grandstanding is not for the benefit of the country as I believe deep down that she understands the real costs of letting this European experiment dissolve with her at the helm. Both sides need to put pride and worries about political futures aside and realize the wave is coming whether they act or not – its how they prepare for its arrival that will matter.

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Lost Generation(s)?

As the reality of austerity cuts and high unemployment for the foreseeable future takes hold across Southern Europe, its worth asking just what is going to happen to the millions of young people entering the labor force at this moment and in the years until the region can get back on its feet. While the numbers of unemployed across the region are dispiriting, the numbers among the young are terrifying, reaching nearly 45 percent in some corners of the Northern Mediterranean. Its difficult to see how this situation will remedy itself in the near future – even if the economies of Greece, Italy and Spain rebound quicker than predicted, labor laws in the region still tend to favor older workers, with the young and energetic left to scramble for the short-term contracts that leave them with little choice and even less stability. Making matters still worse is a region top-heavy with aged populations who will be difficult to convince that the safety nets they expected to enjoy all their professional lives are barely possible even in good times and pure fantasy in an environment when the workforce meant to pay for it can’t seem to find a job to  pay for an apartment, let alone their retirement. Its going to take some tough and unpopular choices and sacrifice all around and in the long run, its going to take a wave of leadership that can convince those with the reigns to loosen their grips and hand them over to a younger work force who can do more than just sustain.

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