BMI View: Economic challenges aside, Italy is at something of a crossroads in terms of energy market development. A U-turn on nuclear appears to have been blocked by the people, leaving the way clear for gas volumes to march steadily higher and forcing the import bill to keep pace. Domestic oil and gas volumes are significant but under threat, while Italy’s refining system will continue to absorb cash but offer little in the way of returns.

Italy Oil and Gas Market Report Q1 2012

Order Now, Contact: + 1 888 391 5441 or [email protected]

The main trends and developments we highlight in Italy’s Oil and Gas sector are: Gas use in power generation is the key to demand growth and consumption looks set to reach 86bn cubic metres (bcm) by 2016. Imports are likely to have reached 79bcm at this stage. By the end of 2011, Eni says it will make 21bcm of its annual capacity available to third parties. This includes 8bcm from Libya and 6.4bcm from both Algeria and Russia.

The outbreak of the Libyan civil war in early 2011 has had a major impact on Italian gas supply, and Italy will be hoping that some kind of normality will return now Colonel Muammar Qadhafi’s rule has ended and the fighting is over. Gas flows from Libya through the 540km undersea Greenstream pipeline were suspended during the conflict but looked set to resume in November 2011. Prior to the disruption, about 25.8mn cubic metres per day (Mcm/d) of gas was flowing through Greenstream, according to Snam Rete Gas, Italy’s gas grid operator. This was equivalent to annual imports of 9.4bcm.

Italian oil consumption has fallen steadily since 1999. There is scope for very modest annual gains over the next several years, although the lack of economic growth could mean this scenario is overly optimistic. By 2016, oil consumption will be 1.51mn barrels per day (b/d).

Italy produced an estimated 120,000b/d of crude oil in 2011. Eni said in September 2010 that it expected to boost production at the 500mn bbl Val d’Agri oil complex. The region’s oil fields can potentially supply 120,000b/d of light oil, plus heavy oil volumes from the Tempa Rossa field. A nearterm rise in domestic oil production is therefore expected. We are now assuming oil and liquids production of 192,000b/d in 2013. Oil imports are set to reach 1.35mn b/d by 2016.

If oil imports reach 1.35 b/d by 2016, the cost would be US$45.8bn. Gas imports are likely to reach 79.4bcm at this stage, costing some US$36.8bn. The value of total oil and gas imports is set to reach US$82.6bn by 2016.

At time of writing, we assume an OPEC basket oil price for 2011 of US$101.90 per barrel (bbl), falling to US$99.40/bbl in 2012. Global GDP in 2011 is forecast at 3.2%, down from 4.3% in 2010, reflecting slowing growth in China, a faltering recovery in the US and a worsening eurozone debt crisis. For 2012, growth is estimated at 3.6%.