2014-04-14 21:22:43 - New Energy market report from Business Monitor International: "Italy Oil & Gas Report Q2 2014"
Although Italy is thought to retain moderate untapped hydrocarbons potential, bureaucratic and regulatory challenges are set to hamper previously outlined goals to reduce the country's hefty import burden. Despite the start of production from the Tempa Rosa field from 2017, we see only limited upside risk to our production forecast from current exploration and production efforts. While we expect increased reliance on liquefied natural gas (LNG) imports as new infrastructure comes online, we are not yet assuming all planned terminals will go ahead, given delays to other plans. We also see risks that Italy's sizable downstream sector will see further downsizing as the sector struggles under the pressure of persistently low margins.
The main trends and developments we highlight in Italy's
oil and gas sector are:
* According to the EIA, Italy is estimated to have produced 156,530 barrels per day (b/d) in 2013. We see this remaining broadly stable until 2015. We forecast that Italy will see an increase in oil production from 2017 onwards, as the Tempa Rosa field comes online. Production is set to peak at around 210,000 b/d in 2020.
* Italy is seeking to reduce its spending on energy by cutting imports. On October 16 2012 it unveiled a new energy strategy that seeks to reduce imports to 67% of demand by 2020. However, the ability to meet these already ambitious targets is hampered by an absence of policy clarity with successive changes in government. Challenges also stem from a complicated bureaucracy and regulatory environment, with exploration and production efforts frequently delayed.
* Italy is thought to retain moderate untapped oil and gas potential. Activity both onshore and particularly offshore presents some upside risk to our outlook. The Mediterranean is increasingly gaining interest, due to the substantial hydrocarbons potential in the southern Mediterranean near to Cyprus and Israel, but Italy's waters remain prospective and underexplored. However, a cumbersome drilling process with regulatory hurdles has slowed investment. Onshore, a number of smaller prospects are under appraisal but have only a minimal impact on Italy's sizable import burden.
* Italy's oil consumption was 1.28mn b/d in 2013. By 2018 we forecast that oil consumption could fall even further to hit 1.21mn b/d and then slightly rise to 1.23mn b/d by 2023. Overall, we expect that by 2023 net imports will amount to 1.03mn b/d.
* Therefore, we expect LNG imports to progressively ramp up from 8bcm estimated in 2012 to 14bcm by the end of our forecast period. Pipeline imports will remain dominant, hovering around 60bcm over that same period. There is some upside risk, should all planned terminals go ahead. However, given the expectation that Europe will only see modest growth in gas demand over the coming decade, we see risks that other terminals will follow Priolo in being placed on hold. From the end of the decade, we also could see a small increase in pipeline exports as supplies of gas from Azerbaijan via the Trans-Adriatic Pipeline enter Southern Europe.
* As with oil, gas consumption will be affected by the lack of economic growth in the next decade. Although gas use in power generation is the key to demand growth and gas consumption, it has fallen from 83.10bcm in 2010 to 74.9bcm in 2012. Consumption looks set to reach 78bcm by 2018 and increase to 81bcm afterward on the back of better economic conditions.
* Hungarian oil and gas company MOL announced the closure and conversion of its Mantova refinery into a 'products logistics hub' from January 2014. This highlights the unfavourable and uncompetitive state of the refining sector in Italy and in Europe generally, as refiners are hit by high oil prices and weaker demand in Western European product markets, which has severely reduced refining margins. Italian industry minister Flavio Zanonato warned in June 2013 that Italy has excess refining capacity of 15-20mn tonnes annually, putting four big sized refineries at the risk of closure within the next few years. Alessandro Gilotti, chairman of the oil union, in turn warned that at least two refineries could be closed by 2014.
* In late 2013, Italian oil and gas company Eni shut its gasoline production plants at the Gela facility in Sicily, cutting 105,000b/d of capacity from its portfolio. According to the company's new strategy, it will continue reducing the refining capacity over the next three years with several refineries to be downsized and refocused on diesel production.
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