REACHING ENERGY INDEPENDENCE WHILE ......For example, a reduction of one gigaton in CO2 emissions in...

© Aspen Institute Italia

With the contribution of Shell Italia, in cooperation with Università Bocconi,

and with the support of Confindustria Energia and Assomineraria for Aspen Institute Italia

REACHING ENERGY INDEPENDENCE WHILE RESPECTING THE ENVIRONMENT:

A STRATEGIC ISSUE FOR ITALY

National Interest November 2016

© Aspen Institute Italia | National Interest | Reaching energy independence while respecting the environment: a strategic issue for Italy 2

Contents

1. Global scenarios: an overview and future trends 3

1.1 More energy 4

1.2 Where we are today: COP21 and COP22 6

Focus 1.a: the case of Denmark and the energy transition 7

2. The European context: the strategic role of hydrocarbons 9

2.1 Energy and energy dependency 9

2.2 European energy mix 10

2.3 Fossil fuels in Europe 12

Focus 2.a: Socio‐economic performance of producer countries in Europe 12

3. Energy and upstream in Italy: scenarios 14

3.1 Historical series 15

3.2 Future trends 20

3.3 The European and Italian dilemma: limiting emissions and energy costs 22

3.4 The Oil & Gas sector today 23

Focus 3.a: Ravenna revenues 27

Focus 3.b: The Basilicata Region 28

3.5 Exploration and production 31

3.6 Concern for the environment and safety 32

3.7 Future prospects 32

3.8 Dissent 34

3.9 The legislative framework 39

Appendix – The 10 most common “myths” about oil 41


1. Global scenarios: an overview and future trends

The economic, social and geopolitical changes of recent decades have taken place at a speed

unprecedented in the history of humanity. Suffice it to think of the lightning rate at which the

world’s population has grown: from 5 billion 200 million in 1990 to the over 7 billion 300 million

estimated for 2016 – a 40% increase in only 25 years. While in one sense the world is becoming

larger, on the other hand globalization has shortened distances enormously. Global air traffic

handled an annual 2.1 billion passengers ten years ago, which has soared to well over 3 billion

today; the 40 million automobiles selling annually in the 1990s was up to 75 million by 2016; and

sales of mobile telephones rose by one‐third in the space of only five years.

What kind of world can we expect in the future? Precisely those above‐mentioned forces –

demographic and economic growth, higher living standards, and technological innovation –

indicate that humanity’s principal challenge in the coming decades will be the energy question,

and there are two reasons for that:

- The first is that energy supports growth, and growth fuels prosperity. For a progress‐

oriented world that needs to reduce disparity, energy supply and demand is the only

obligatory presupposition, and the second most reliable barometer. The correlation

between prosperity and energy consumption is perfectly exemplified in the graph below.

The most “energivorous” countries are also high on the Human Development Index, which

measures the degree of prosperity (material and otherwise) of every nation.

Graph 1.a: Per capita energy consumption and the Human Development Index1

- The second is that humanity has (in relatively recent times) acquired an ecological

awareness that increasingly permeates, influences and orients governmental and national

and supranational institutional decisions, and choices regarding the energy mix are heavily

conditioned by their related effects on the environment that surrounds us. Rather

paradoxically, humanity finds itself – and will increasingly find itself – in the difficult

position of needing more energy while producing fewer emissions.

1 Source: “A Better Life with a Healthy Planet. Pathways to Net Zero Emission”, A New Lens Scenario supplement, Shell

scenarios


1.1 More energy

It is reasonable to expect that between now and the end of the century, the world’s population will

grow by another 40%, while its energy needs could easily double.

Graph 1.b: Demographic growth and energy consumption

2015 2100

7 billion global population 10 billion global population

Approx. 500 Exajoules annual global energy

consumption

Approx. 1000 Exajoules annual global energy

consumption

As mentioned earlier, there are essentially four forces driving and orienting global energy

demand:

- Demographic growth

- Economic growth, and with it the living standards for a substantial portion of the world’s

population

- Energy efficiency, for both civilian (e.g. homes) and industrial uses

- Technological innovation, especially in terms of energy production

It will only be possible to meet the challenges posed by growth and the need to protect the

environment, and triggered by the aforementioned forces, by adopting a sound, diversified energy

mix, whose sources complete and sustain one another. Here is today’s energy mix (global energy

demand by source):

Graph 1.c: World energy mix2

It is clear from Graph 1.c that fossil fuels

currently account for over 80% of global

demand.

Oil & Gas account for more than half of

demand, and this situation has lasted virtually

unchanged for decades.

Additional insight is provided by a more detailed analysis of the uses of the various energy

sources. Gas, for example, is an important energy source (between one‐quarter and one‐third of

2 Source: Based on IEA data from World Energy Outlook 2015 © OECD/IEA, www.iea.org/statistics, Licence:

www.iea.org/t&c

+40% demographic growth

+100% increased energy demand


the total) in both domestic as well as industrial sectors. Others sectors, such as transport, are

almost entirely dependent on hydrocarbons.

The members of the international community are unanimously convinced that energy needs are

bound to increase. This diagram taken from the World Energy Outlook 2015 shows the rise in

energy needs by 2040, divided by source type.

Graph 1.d: Primary energy demand – “New Policy Scenario”3

It is interesting to note that O & G will

continue to play a fundamental role in the

global energy mix. Hydrocarbons will

increase less markedly than other sources but

they will continue to play an important role.

Renewable resources will continue to expand their contribution and gain in importance in the

global energy mix. A diversified energy mix would make it possible to address the well‐known

problems of storage, supply and continuity. Moreover, it should be underscored that, to date,

renewable sources are primarily utilized to generate electricity and, therefore, the real dimension

of their contribution to the energy mix depends heavily on the degree of electrification of other

sectors.

If we shift our gaze further into the future, the scenarios change and multiply, and predicting the

energy mix becomes a difficult exercise in scenario building. What is certain is that the world

energy mix will change in response to the two above‐mentioned necessities (more energy and

emissions control), will be composite and diversified and will be aimed at achieving Net Zero

Emission.

It is equally certain that an energy mix that will satisfy global demand while respecting the

principle of net zero emission, will require a complex period of transition, farsightedness and

massive joint efforts. In brief, both time and substantial investment are going to be needed.

For example, a reduction of one gigaton in CO2 emissions in one year would require replacing 263

coal plants with 275,225 wind turbines, or eliminating 211 million automobiles.

It is enough to consider the estimated 55 trillion dollar value of energy infrastructures, or

associated with fossil energy, currently in use in the world4 that would have to be converted or

dismantled.

3 Source: Based on IEA data from World Energy Outlook2015 © OECD/IEA, www.iea.org/statistics, Licence:

www.iea.org/t&c

4 Source: “Shell: Energy Transition and Portfolio Resilience”, p. 10

Renewable sources will

increase but to date are

essentially linked to

electricity production


These numbers help in understanding how risky it is to simplify the debate going on around the

energy transition, which is going to need clear and widely embraced policies, a different consumer

attitude toward energy consumption and collaboration among nations at varying stages of

economic and social development whose goals, therefore, can sometimes differ.

1.2 Where we are today: COP21 and COP22

In December 2015, the international community reached what was, in some ways,

a historic agreement on global climate change.

The 21st session of the Conference of the Parties (COP21) was held in Paris for the

purpose of drafting a common policy with the broadest consensus base possible

on containing global warming, whose principal culprits are greenhouse gases –

first and foremost among them carbon dioxide.

It could be said that the conference achieved its general objectives. The accord was signed by 195

countries, prominently featured among which were the United States and China, who alone are

responsible for over 40% of global CO2 emissions. Naturally, the road is long and each individual

country must now ratify the accord. Another gauge of the positive outcome of this conference is

the measurability of the objectives: maintain global temperature increases below the 2° Centigrade

increase over pre‐industrial averages, and make every possible effort to limit the increase to 1.5°.

At one year on from the conference, and precisely as the COP22 sessions were beginning

(November 2016, Marrakesh), 55 nations had ratified the 2015 accord, who together account for

55% of world GHG emissions.

As observed previously, since demographic forces and standards of living will continue to

stimulate demand in these sectors (and with it energy demand in general), it is clear that solutions

lie either in a different energy paradigm or in new technologies that permit storage of the carbon

dioxide emitted (carbon capture storage, CCS) so as to achieve Net Zero Emission.

A new energy paradigm, as analyzed in this chapter, can only become a concrete reality through a

long and complex process of replacing energy sources, which is not likely to happen over the

short‐run. Time is a critical factor however, and this century is going to be crucial to ascertaining

(and containing) the effects of the global warming generated by human activity. At the current rate

of emissions, it has been calculated that the predicted 1.5° increase will soon be here, around the

year 2028.

The path has been traced but, once again, it will be neither smooth nor linear. It is going to take

time, enormous investments and a very high degree of coordination between national and

supranational agencies, along with a detailed and efficient reporting system.

While the Paris Agreement did mark a watershed in the battle against climate change, it is also

true that the prevailing impression of the immediacy of the conference results is mistaken. A

highly evocative image to describe the Paris Agreement would be a broad highway with multiple

lanes,


one for every country that ratified it, where each travels at its

own rate of speed, which will depend on its individual level of

development, economic fabric, democratic maturity, and need

to improve living standards (i.e. the principle of responsibility

“differentiation”).

That highway does not have off‐ramps, however; once on it all travelers, whatever their speed,

will be contributing to achieving the final objective of containing global temperatures.

Focus 1.a: the case of Denmark and the energy transition5

With its 5.6 million inhabitants and per capita GDP of nearly 60,000 USD, Denmark offers a very

interesting case study mainly due to its role as an energy transition pioneer.

The country’s hydrocarbon reserves are decidedly lower than Italy’s (approximately 65% by

comparison), but at the same time it produces more oil and gas (approximately 6%).

Denmark’s hydrocarbon production at the end

of the 1970s was the equivalent of only a few

thousand barrels/day, which was up to

approximately 200,000 barrels/day by the start

of the 1990s (a quantity similar to that of Italy).

Only ten years later, at the start of the 2000s, its

hydrocarbon production was more than half a

million barrels/day and it maintained that level

for nearly 10 years, after which production

gradually dropped down to its current levels,

that 25‐year span resulting in the bell curve

displayed in the graph to the right.

The Danish government’s decision to exploit its oil reserves to the maximum drastically reduced

foreign imports (with the well‐known advantages associated with reduced dependency: economic

savings and supply security), and significantly increased fiscal revenues deriving from drilling (the oil

industry is among the nation’s largest taxpayers).

At the end of the 1970s, the country also began to implement a farsighted energy transition policy by

investing in renewable resources, particularly wind power, while also maintaining the advantages

associated with traditional sources, thereby creating employment and reaping a considerable tax yield.

The two energy sources have co‐existed for decades, sharing the same growth trend for 20 years.

Three main conclusions can be drawn from this brief analysis of the case of Denmark:

1. Not only can renewable and fossil resources co‐exist, but the former can be used to sustain the

latter.

2. The two sources complete and complement each other, but are not entirely interchangeable.

Despite the enormous effort under way, superimposition of the two curves in the graph below 6

5 Source for data and figures: Wood Mackenzie, Upstream data tools; Eurostat

http://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=en&pcode=tsdcc310&plugin=1

Graph 1.g: Hydrocarbon production in Denmark Barrels equivalent/day


shows a still notable gap in energy production.

3. An important factor missing in the overall picture, and probably further confirmation of point

no. 2 above, is energy dependency. As mentioned above, the country accelerated its

hydrocarbon production between 1990 and the early 2000s, starting from 170 barrels/day to

nearly triple production levels in only 12 years’ time. Simultaneously (and not surprisingly),

energy dependency dropped to the extent that by 1998 the country was a net exporter of

energy. Production began to decline in 2005 and energy dependency increased, until 2012,

when Denmark began to import energy again.

The case of Denmark shows how energy sources can co‐exist and complete each other but are not

entirely interchangeable. An energy transition is a long and complex process that cannot be

accomplished from one day to the next.

6 Source: Wood Mackenzie, EMS Tool, 2016

The country exported

energy from 1999 to 2012

Graph 1.h: O&G production and renevables in Denmark ‐ trend ktoe

O&G Production (kboed

)

Graph 1.i: Hydrocarbon production and energy dependency in Denmark

Energy dep

endency (%)


2. The European context: the strategic role of hydrocarbons

2.1 Energy and energy dependency

The European Union currently produces7 770 million tons equivalent of primary energy annually,

but must import an equal quantity to meet its energy needs, which amount to 16208 million tons of

oil equivalent.

EU strategy has three principal objectives9 with regard to energy:

‐ supply security

‐ competitiveness

‐ sustainability

One of the most important concerns is energy supply security and dependency on foreign

suppliers. Indeed, in relative terms, Europe is the largest importer of energy, with energy

consumption that accounts for one‐third of the demand in advanced countries (OECD) and 12% of

global demand. At the same time, Europe has limited energy reserves.

The map below shows energy production by country (kton of oil equivalent).

Figure 2.a: Energy production in Europe

The EU is currently more than 50% energy dependent, levelling off at 53.4% according to the latest

Eurostat findings of 2014. Even though it has recently decreased, the historic trend over the past 25

years is a growth trend.

7 Source: Eurostat http://ec.europa.eu/eurostat/tgm/table.do?tab=table&plugin=1&language=en&pcode=ten00076 8 Source: “World Energy Outlook 2015”, IEA, p. 69 9 Source: http://europa.eu/pol/ener/index_it.htm; https://www.google.it/#q=le+politiche+dell%27unione+europea+energia


Figure 2.b: Energy dependency by country,

201410

Energy dependency costs (economic and otherwise) impact

profoundly on the Union’s energy budget. This is especially true

for hydrocarbon imports: in 2014, the EU estimated the cost of

Oil & Gas imports at over 350 billion euro annually.

2.2 European energy mix

If, on the one hand, a heavy energy dependency tends to contrast with Europe’s prime macro‐

objective (supply security), on the other it has pushed the continent toward a well‐diversified

energy mix (hydroelectric in Austria, coal in Poland, nuclear in France, Oil & Gas in the northern

countries).

Moreover, it is true that, in contrast with the global trend,

Europe’s energy consumption outlook is diminishing, with an

estimated annual decrease of 0.5% through 204011.

This detailed graph on European Union energy consumption gives a breakdown of the primary

sources12.

10 Source: Eurostat News release “Energy Dependency in EU”, February 2016 11 Source: Based on IEA data from World Energy Outlook 2015 © OECD/IEA, www.iea.org/statistics, Licence:

www.iea.org/t&c World Energy Outlook 2015 12 Source: graphic re‐elaboration from Unione Petrolifera “Statistiche Economiche, Energetiche e Petrolifere”, Table 105

(on BP Statistical Review data)

Europe imports more

than 50% of the energy

it needs

Hydrocarbons account for

60% of Europe’s energy

mix

Graph 2.a: Energy dependency trend – Euro Area (19 countries)

Energy dep

endency rate


Graph 2.b: EU energy consumption by primary source

Graphs 2b and 2c show the 1974 and 2014 mixes13. The European energy mix has diversified over

the years in keeping with the gradual reduction in energy consumption. A reduction that contrasts

with consumption increases in the rest of the world (resulting, therefore, in different energy

trends), to the extent that as an energy consumer Europe has gone from 30% to 12% of the global

total. Important has been the still limited role of renewable energy sources and the lasting

predominance of fossil fuels.

Graph 2.c: European energy mix ‐ % consumption

by primary source, 1974

Graph 2.d: European energy mix ‐ % consumption

by primary source, 2014

It is interesting to note how over this 40‐year span Europe’s energy mix did not change in any

substantial way. As of 2014, hydrocarbons still accounted for over 60% of demand (with the

gradual increase of gas and contraction of oil). The consumption of coal was halved in favor

mainly of nuclear, while renewables (excluding hydroelectric, which remained stable) accounted

for the remaining 7%.

13 Source: graphic re‐elaboration from Unione Petrolifera “Statistiche Economiche, Energetiche e Petrolifere”, Table 106

(on BP Statistical Review data)

1974 2014

NUCLEAR

Millions of TOE

OTHER RENEWABLES

SOLAR

WIND

WATER

OIL

NATURAL GAS

COAL

NATURAL GAS

NUCLEAR

OTHER

RENEWABLES

SOLAR WIND

WATER

OIL

OIL

NATURAL GAS

COAL

OTHER

RENEWABLES

SOLAR

WIND

WATER


2.3 Hydrocarbons in Europe

Europe produces 7.7 billion tons of hydrocarbon equivalent per day.

The countries of northern Europe account for the largest slice of

production (and of reserves): suffice it to think that Norway is among

the world’s 10 largest producers. It follows naturally that the major

producer countries are also the least energy dependent.

If we compare hydrocarbon producer countries and available reserves, some interesting points

emerge, especially as regards the position of Italy. Indeed, among hydrocarbon producers (on a

par with Romania and Denmark, and slightly ahead of Germany, whose reserves however are one‐

third ours), our country holds 4th place in Western Europe for the size of its reserves:

Figure 2.c: Hydrocarbon production in Europe14 Figure 2.d: Hydrocarbon reserves in Europe

Focus 2.a: Socio‐economic performance of producer countries15

Looking back at Figure 1.a, regarding the correlation between the Human Development Index and

a nation’s prosperity, we can apply that same index to a set of six European hydrocarbon‐

producing nations. While the nations in question, although comparable in terms of history,

proximity, democratic maturity and level of social welfare, are all underpinned by complex

economies, it is interesting to note the relationship between Oil & Gas production and the

principal socio‐economic indicators (or at least the lack of any negative relationship).

14 Figures 2.c and 2.d are graphic re‐elaborations of data from the Wood Mackenzie Upstream Data Tool 15 Sources: re‐elaborations of data from the Wood Mackenzie Upstream Data Tool; World Bank,

http://data.worldbank.org/indicator/NY.GDP.PCAP.CD; International Labour Organization,

http://www.ilo.org/global/research/global‐reports/global‐employment‐trends/2014/WCMS_233936/lang‐‐en/index.htm

United Nations Development Program, http://hdr.undp.org/en/content/table‐1‐human‐development‐index‐and‐its‐

components

Italy holds 4th place in

Western Europe for

verified reserves

Production

Barrels equivalent/day

Remaining reserves

Millions of barrels

equivalent

million

million

thousand

thousand

thousand

thousand

million

million

million

million

million

million


In the figures that follow, the vertical axis shows

production (thousands of barrels

equivalent/day), the size of the sphere indicates

reserves and the horizontal axis shows the

measure analyzed: Human Development Index

in the figure here to the right, per capita GDP in

the figure below left, unemployment in the

figure below right.

This brief analysis seems to suggest that the more endowed countries, and which have amply

exploited their (massive) natural energy resources, have, in all probability, been successful not

least thanks to a mining industry that plays an important role in the economic fabric of major

producers in supporting growth, both in terms of per capita GDP and employment. A more

qualitative analysis of the performance of human development (education, equality, welfare, etc.)

is also coherent with the above quantitative analysis.

Graph 2.e: European producer countries and HDI

HDI ranking

Graph 2.f: European producer country per capita GDP Graph 2.g: European producer countries and unemployment

% unemployment


3. Energy and upstream in Italy: scenarios

As we have seen, energy dependency is a topic of deep concern to Europe due to the large and

rising percentage of energy it imports, with all the attendant economic, social and political

implications (first and foremost, financial burden and supply security). Energy dependency takes

on even greater importance for our country, where the quantity of energy imported is more

pronounced – indeed, Italy imports over three‐quarters of the energy it consumes:

Figure 3.a: Energy dependency by country, 201416

Belgium, Ireland and Lithuania all fall within the same range. What is surprising, however, is that

those countries are poor in natural energy resources, while Italy’s hydrocarbon deposits, as

demonstrated in the previous chapter, are among the continent’s largest.

Naturally, the imbalance lies in the disproportion between national energy production and relative

consumption. A situation that has improved slightly over recent years (for the most part as a result

of diminished energy consumption, which is a clear indicator of the economic crisis that began in

2009), but that has been substantially stable for at least two and a half decades.

16 Source: Eurostat News release “Energy Dependency in EU”, February 2016

Italy is the only country in

Europe that has

hydrocarbon reserves but

whose energy dependency

is over 75%.


Graph 3.a: Trends in Italian and European energy dependency17

3.1 Historical series

Energy consumption and production

A more detailed analysis of the composition of national energy demand and production yields

some interesting points for reflection.

Graph 3.b: Energy consumption – historical series

and composition

Graph 3.c: Energy production – historical series and

composition

Analysis of energy consumption, indicated in

the colored areas of the graph, foregrounds

three aspects:

1. Total energy consumption on a slight

decline (yet still four times higher than

production);

2. Preponderant consumption of

hydrocarbons, equal to approx. 70% of

total demand (which goes up to nearly

100% for automotive fuel);

On the production side, the percentage of Oil &

Gas (especially gas) has been shrinking, while

renewable sources have doubled (up to almost

40% in the case of electricity), although these

have stabilized over the past 3 years.

17 Source: graphic re‐elaboration from: Eurostat News release “Energy Dependency in EU”, February 2016

Energy dep

endency (%)

MTOE

MTOE

CONSUMPT. SOLID FUELS

CONSUMPT. RENEWABLES CONSUMPT. OIL&GAS

CONSUMPT. IMPORTS NET OF

ELECTRICITY

OIL&GAS PROD. RENEWABLES PROD.


3. Increased use of renewable sources over

the past 5 years that has stabilized over the

past 3 years.

Graph 3.d: Production and consumption, overlapping curves

The overall picture of the national energy mix shows the strategic importance and high‐profile role

of hydrocarbons, which account for 70% and thus form the backbone of the nation’s energy

system.

After years of decline, in 2015 our country’s

energy demand rose by 3.2% to 5.3 million tons of

oil equivalent (MTOE). Instead the contribution

from renewables, on a steep rise over recent years,

fell by 4.5%, mainly due to the effect of exceptional

climatic conditions in 2015 on hydro‐electrical

sources, which dropped back down to historic

average levels. Figure 3.e shows the partitioning

of renewable energy sources18, which highlights

the considerable portion still accounted for by

hydroelectric.

Graph 3.e: Alternative source breakdown

The slight decline in alternative source energy production went hand‐in‐hand with incentives for

using renewable sources, which slipped to 12.6 billion euro in 2015 from 2014’s 13.4 billion.

Consumption and production of hydrocarbons

Figure 3.d reveals a deep gap between hydrocarbon production and consumption. What is most

surprising is the downward trend in the national production of hydrocarbons (considering, as

noted in the second chapter, that Italy is not poor in reserves) observed in light of their importance

on the demand side. The following figure offers a historic overview of hydrocarbon production

and demand in Italy19.

18 Source: MISE, Bilancio Energetico Nazionale 2014, p.12 19 Source: graphic re‐elaboration from Unione Petrolifera “Statistiche Economiche, Energetiche e Petrolifere”, Tables 31,

40, 41, 80

Consumption‐

production

delta that

generates

imports

MTOE

COAL CONSUMPTION

OIL&GAS CONSUMPTION OIL&GAS PRODUCTION

CONSUMPT. OF IMPORTS NET OF ELECTRICITY RENEWABLES CONSUMPTION

RENEWABLES PRODUCTION

estimate

Bioenergies Geothermal

Water Wind and Solar


Graph 3.f: Hydrocarbons – production, consumption, foreign dependency

The above graph clearly shows the conspicuous difference between production and consumption,

which generates a percentage of Oil & Gas imports that hovers at around 90% despite shrinking

consumption (owed fundamentally to efficiency, a generic drop in post‐crisis energy consumption

and – mainly limited to electricity production – an increased use of renewables). It should also be

noted that oil and gas consumption increased in 2015 by 9% and 3.4% respectively.

Why then is hydrocarbon production falling? What effects and costs will result? Some of the

answers can be had by zooming in separately on the main fossil fuels – gas and oil – and, once

again, by observing the historical trends in research and exploration.

Consumption‐

production

delta that

generates

imports

Oil&Gas consumption kboe

Oil production kboe

Gas production kboe

Oil&Gas foreign dependency


Gas

Gas production in the mid‐1990s was over

20 million standard cubic meters, three

times as much as the current amount. The

production of natural gas has been

dropping steadily since that time to return

to levels of half a century ago. Meanwhile,

consumption has increased (in line with

global trends), bringing with it an

exponential increase in our degree of

foreign dependency20.

The financial burden of imports comes with relatively

low supply security since approximately three‐

quarters of imports are from politically unstable

countries.

20 Source: re‐elaboration from Unione Petrolifera, see note no. 23. The same applies to Figures 3.b and 3.c and Graph 3.h

Approx. 80% of hydrocarbon

imports comes from North Africa,

Russia and the Middle East

Figure 3.b: Gas imports

Graph 3.g: Gas – Production, consumption, foreign dependency

Gas production Gas imports Foreign dependency


Oil

The discussion changes for oil. The

entry into production of the Trecate

Villafortuna oil fields, followed by the

Agri fields, has clearly reduced

foreign dependency but it remains

high nonetheless. National

production has tipped the commercial

energy budget positively to the tune

of 26.5 billion euro over the past ten

years.

Concerns over supply market fragility

echo once again in the case of oil.

The economic costs of energy dependency

Another of the picture’s elements is the economic cost of an energy dependency associated with a

disproportionate production/consumption ratio: 550 billion euro in the past ten years alone, 480 of

which for gas21 and oil.

Graph 3.i: Energy bill and oil bill22

21 For gas, the year 2015 was estimated as a replica of 2014 22 Source: re‐elaboration from Unione Petrolifera, “Databook 2016”, Tables 82 and 84

550 billion euro – our

country’s energy bill

Graph 3.h: Oil production and foreign dependency

Figure 3.c: Oil imports

Foreig

n dep

endency

National crude production

Degree of foreign dependency

Degree o

f foreig

n dep

endency

Billions of eu

ro

Total cumulative energy bill (mil €) Cumulative O&G bill (mil €) Energy dependency Oil dependency


By contrast, it is estimated that national production generated energy savings of 3.2 billion euro in

2015 alone23.

Historical series: concluding observations

Observation of historical series shows that:

‐ Italian energy dependency is on a slight decline, but a constant (and significant) gap with

other EU countries persists.

‐ The above is all the more true if we limit our observation to the disproportion between

hydrocarbon production and consumption – up considerably over the years for gas and

down for oil –, which remains overall at a high level (90% of demand is met by imports).

‐ The country pays a hefty energy bill every year, amounting to 550 billion euro over the past

ten years alone. The largest portion of this expense derives from hydrocarbon imports.

‐ As we will see in the next section, the historical trend in exploration shows a steady decline

over the past 30 years. Exploration feeds cultivation: one of the next chapters will treat the

effects of this dynamic on the national energy mix in the near future.

3.2 Future trends

Institutional vision: the National Energy Strategy (SEN)

The National Energy strategy (SEN) was published in March 2013 by the Monti government with

the principal objective of identifying energy sector incentives aimed at supporting the country’s

sustainable growth over the medium to long term. The SEN reads as follows:

“In this difficult and uncertain macroeconomic context, all the country’s efforts must be directed

toward the resumption of sustainable growth. This cannot but take place through the substantial

improvement of the Italian economic system’s competitiveness.

In this context, our energy system can and must play a key role in improving Italian

competitiveness. Confronting the sector’s main problems represents a major structural reform for

the country“.

The SEN underscores four main objectives:

1. Significantly reduce the gap in energy costs to consumers and businesses, aligning with

European prices by 2020 and ensuring that the long‐term energy transition (2030‐2050) does not

compromise Italian and European industrial competitiveness (…);

2. Achieve and surpass the environmental and decarbonization goals set out in the 2020 Climate

& Energy Package (known as the “20‐20‐20”) (…);

3. Continue to improve our supply security, especially in the gas sector, and reduce foreign

dependency. We especially need to improve our capacity to respond to crises (as the gas crisis of

February 2012 showed) and reduce energy imports, (…), which directly expose us to price and

supply volatility risks in the near future;

4. Encourage sustainable economic growth by developing the energy industry chain, which can

and must be an energy strategy objective in and of itself (…);

23 Source: Unione Petrolifera, Annual Report 2016, “Facciamo Muovere l’Italia”, p. 39


The model suggested by the SEN also indicates the need to rely on an economically solid and

efficient energy mix with guaranteed supply security and environmental sustainability, and is

summarized in the following graph on the evolution of the consumption composition:

Graph 3.j: Evolution of energy consumption in Italy24

The graph to the left leads to three general

observations:

‐ Energy consumption is expected to

decrease by 2020 (‐4% ca).

‐ At the same time, the total contribution

of renewables (especially electricity) is

expected to rise by 22‐23%.

‐ The substantial predominance of fossil

fuels (over 75%).

Expanding this picture to a global one, our country cannot but be acknowledged a leader in

hydrocarbons in the near future, given that these will remain a primary source for certain sectors

(automotive transport) and continue to make a major contribution – especially in terms of supply

continuity – in all energy sectors.

Precisely from the standpoint of building a solid and credible energy mix and, at the same time, of

better exploiting our country’s natural resources, the National Energy Strategy sets the goal of

increasing hydrocarbon production to 80 million tons of oil equivalent per year, which is

practically double our current production levels.

This would then, as the SEN itself lists, make it possible to:

- considerably diminish foreign dependency, with a proportionate reduction of associated

costs and risks;

- mobilize investments of 15 billion euro;

- support employment by creating approximately 25,000 jobs.

To these benefits we can add the greater contribution to the government coffers: average revenues

from oil royalties alone over the past five years have amounted to 360 million euro per year. It

follows easily that doubling the activity would lead to revenues of approximately 700 million euro

annually.

24 Source: “Strategia Energetica Nazionale: per un’energia più competitiva e sostenibile”, p. 31

Evolution of gross primary energy and mix source consumption

MTOE (Eurostate conversion method) %

Electricity imports

Coal

Renewables

Oil

Gas


Operators’ vision: Unione Petrolifera

Alongside SEN estimates, it is interesting to analyze those of an observer such as Unione

Petrolifera, which are summarized in the graph below.

Graph 3.k: Evolution in energy consumption25

3.3 The European and Italian dilemma: limiting energy emissions and costs

The historical series examined earlier indicates that the Old Continent’s energy consumption, and

with it that of our country, has declined over the years; the vision of the future of institutions and

sector observers and operators is substantially in line with this de‐growth trend. The main reasons

for it lie both in the real economy, which suffered a particularly harsh slowdown in Europe (it is no

accident that the decline sharpened in 2008, the year in which the economic downturn was most

acutely felt), as well as, on the positive side, in technological innovation. The greater efficiency

owing to this latter (examples include improved automotive performance and the efficiency of

latest generation building construction) has led to energy savings.

The first chapter illustrated the challenge the planet will be facing in the decades to come: the need

for more energy and, at the same time, to curtail emissions. Moreover, energy demand is not

equally distributed. It will increase principally in Asia and emerging countries and decrease in

Europe, resulting in a surplus (Asian demand more than compensates for Europe’s decline). That

places Europe, and with it Italy, before a further challenge. It is going to be necessary to invest in

developing the best and latest technologies for limiting emissions in a way that means obtaining

energy at sustainable cost.

25 Source: Unione Petrolifera, “Databook 2016”, Table 65.

Predominant role of hydrocarbons

confirmed

Growth in renewables reaching

stability at 20%

Consumption decline that

then stabilizes

% Contribution

170 million TOE

Oil

Natural gas

Solid fuels

Imports net of electricity

Renewables


Many factors go into making up a country’s energy costs, and these are often exogenous in nature,

from taxes to distribution costs. In any case, a rapid glance at the European situation, taking the

cost of gas as an example, confirms the obvious: a substantially linear relationship between gas

import level and price.

Portugal, which imports 72% of the energy it needs, pays the highest price for it, followed by Spain

(73% in imports); Italy, Sweden and the Czech Republic are at the same price levels (with

respective imports at 76%, 32% and 30%).

Once again, it is surprising that, of the countries cited, only Italy manages the paradox of having

natural energy reserves and limited production, which encourages imports and maintains energy

dependency and high prices.

It is obvious that greater energy costs affects both family budgets and industrial competitiveness.

3.4 The Oil & Gas sector today

In line with Europe in general, Italy’s current energy mix is based essentially on hydrocarbons,

which satisfy approximately 70% of national energy consumption needs26. This percentage

changes according to the energy segment examined:

Graph 3.l: Italian energy mix by sector

Heating

Electricity

Transport

Separation by segment reveals more clearly the role of traditional fuels, and their indispensability

to the transportation sector clearly stands out.

Production

Italy today produces27 approximately 240,000 barrels of oil and gas equivalent a day, largely in the

Adriatic, the Sicilian channel and, most importantly, in the region of Basilicata:

26 Source: re‐elaboration from Unione Petrolifera, 2015 estimates 27 Source: re‐elaboration from Unione Petrolifera, “Statistiche Economiche, Energetiche e Petrolifere”, Table 20

Traditional sources

Renewables


Graph 3.m: Hydrocarbon production areas in Italy

As we have seen, 5.7 ktons of oil and 7 million cubic meters of gas cover only about 10% of

national consumption (respectively 57.6 kton and 62 mln m3).

Employment

The sector directly employs28 10,000 workers, with an additional 20,000 employed in jobs that

provide support to the sector; all the activities involved in exportation considered, total jobs

number 115,000.

Investments

Economic growth is indispensable to development. A fundamental component of economic

growth, measured in relation to GDP performance, is investment (understood as total investments,

not only those in energy) and their effect on national GDP.

28 Source: Assomineraria

Piedmont

Emilia Romagna

Basilicata

Sicily

Zone A (northern Adriatic)

Zone B (Central Adriatic)

Zone C (Sicily offshore)

Zone D (Southern Adriatic and Ionian coast

Zone F (Southern Adriatic and Ionian, deep waters


Graph 3.n: GDP trends in the main Euro Area countries29

Over the last decade, Italy has lost

considerable terrain compared with the rest

of Europe in terms of GDP.

This trend is echoed by that of investments.

The gap between investment levels in Italy

and Europe is clear, both in terms of today

and of trends since 2012 in the Union average

and in individual countries. Spain, for

example, a country equally hard hit by the

downturn, has been able to attract

investments and rise back up to the European

average.

Graph3.n(a): Total investments in principal EU countries30

(and EU average)

Graph 3.n(b): Total investments in Italy in % of GDP

A close‐up of Italy shows a country

where total investments that collapsed

between 2008 and now31, and only began

to stabilize in 2014.

29 Source: Bank of Italy on national statistics re‐elaboration, Economic Bulletin, January 2016, fig. 5 and, for Graph 3.o,

figure 38. 30 Source: ISTAT, “Nota Mensile sull’Economia Italiana”, March 2016, fig. 10 31 Source: Bank of Italy, Bulletin 01/2016

Germany: +15%

Italy: ‐ 5%

GDP of Euro Area and main countries (1)

(quarterly data; Indexes: 2005=100)

Investments in % of GDP (1)

Investments in AMMT (2) (3)

Total investments

Average 1999‐2007 (3)

Average 1999‐2007


This investments void is pulling the

national GDP downward32. Indeed,

although consumption by families remains

stable and exports increase, the drop in

investments nullifies that positive

performance, sending GDP down.

Annual investments in the Oil & Gas sector can be quantified33 at 1.2 billion euro, in addition to

300 million for research and development.

Taxes and royalties

Last year, the Oil & Gas industry contributed 990 million euro to the public coffers in combined

ordinary taxes and oil royalties. These latter, calculated at 10% of production value, amount to

approximately 350 million euro a year (average of the last 5 years), the majority of which goes

directly to benefit the local regions and municipalities concerned34.

Graph 3.o: Royalty revenues over past 5 years35 and royalties subdivided by allocation

32 Source: Bank of Italy re‐elaboration of ISTAT, “L’Economia Italiana in Breve”, February 2016 33 Source: Assomineraria 34 Note that the State devolves its part only to the local agencies of the Southern Italian regions not covered by special

statute. 35 Source: Ministry of Economic Development (MISE) website,

http://unmig.sviluppoeconomico.gov.it/dgsaie/royalties/2015/2015.asp

Graph 3.n (c) Effect of investments collapse on GDP

GDP and principal demand components (1)

(quarterly data; Indexes: 2007=100)

GDP exports family consumption fixed gross investments

millions of eu

ro

Total royalty revenues Average

Environment & security

Fuel price reduction fund

Municipalities

Regions

State Total royalty revenues

(average)


Areas of production

In order to gain a full understanding of the economic and social impact this sector has on the areas

where drilling takes place, we need to take a closer look at those. Two examples: the city of

Ravenna (and environs), an iconic site in the history of Oil & Gas in Italy, and the region of

Basilicata, which boasts onshore deposits that rank 4th in Europe for extension and produce 70% of

national crude oil.

Focus 3.a: Ravenna revenues

Oil & Gas has generated a vast array of high technology industries that supply goods and services

to energy companies, which in Italy have traditionally been grouped in clusters located around

major oil development centers. Moreover, a network of Italian oil industry‐related subcontractors

has achieved world peaks in technological innovation. As regards activities at sea, the heart of this

network is located in the oil district of Ravenna, on the Romagna portion of the Adriatic coast,

where the majority of Italian offshore hydrocarbon drilling takes place.

The Ravenna cluster hosts 13% of Italian companies and accounts for 29% of employment in oil

industry‐related jobs. A wealth of resources and technologies that, according to the data supplied

by ROCA (the Ravenna Offshore Contractors Association) in 2015, counts 50 companies and 6,000

workers, plus nearly 1,000 others in ancillary industries, for overall revenues of 1.6 billion euro,

approximately one‐half of which is produced abroad, proof of the level of competitiveness

achieved by these firms. It should be noted that 2015 employment and orders dropped by nearly

one‐fifth as compared with 2014, while 2016 estimates are stable. Ravenna has been investing in

Oil & Gas technologies since the 1950s and, in particular, in those offshore plants that would later

contribute to national hydrocarbon production at sea. Ravenna today hosts the center/north’s

production district, the Eni E & P, and the headquarters of dozens of specialized firms of various

dimension – ranging from small and medium‐sized to colossal multinationals – that receive orders

from all over the world for the production of strategic plants in highly advanced technological

fields. For volume of activity and international importance, Ravenna is acknowledged across the

Oil & Gas sector as comparable to Norway’s Stavanger and Scotland’s Aberdeen.

The Ravenna hub, although sorely tried by the drop in investments that followed the oil price

plunge of the past two years, the blockage of activities in the Emilia‐Romagna region and the 12‐

mile drilling limit, has remained solid and is buoyed by an entrepreneurial spirit with a natural

propensity for internationalization. Another distinctive aspect of the Ravenna cluster is its highly

specialized work force. Moreover, it is an important center for the training and preparation of new

professionals useful not only to Oil & Gas but to Italy’s entire industrial future.

Ravenna hosts the Biennial Offshore Mediterranean Conference & Exhibition (OMC), the most

important international sector trade‐fair, founded in 1993 by the ROCA, the Ravenna Chamber of

Commerce and Assomineraria. The fair’s latest edition, in 2015, welcomed 688 exhibitors, 33

technical sessions, two special sessions and two workshops, and drew approximately 21,000

visitors, many of whom came from Africa and the Caspian region – even the hotel operators of

Ravenna consider the OMC a major tourism driver. Apropos of tourism: with its beaches having

been awarded top‐ratings (the coveted ‘blue flag’) in 2016, Ravenna is an excellent example at

national level of the co‐existence of the O & G sector and upstream activities.


It is also a good example of the sector’s virtuous co‐existence with the fishing industry. Its

platforms are a fish repopulation oasis thanks to the Fish Aggregating Device (FAD) effect. In the

1970s, ENI and Ravenna area fisheries signed an agreement on the disincrustation of mollusks on

the platforms, which led to the creation of cooperatives that are still active today. Approximately

25% of the Ravenna Province’s mussels come from the platforms off the coast of Marina di

Ravenna.

Focus 3.b: The Basilicata Region

The Val d’Agri oil field, which has been producing since the 1990s, is located in the valley of the

same name in the province of Potenza, in an area with a population of approximately 25,000

scattered among twenty or so towns. Production stands at approximately 100,000 barrels

equivalent/day (mainly oil) that are treated in the oil center of Viggiano and sent via pipeline to

Taranto for refining or exportation.

Since the drilling began, the region and the towns involved have received approximately 1.8

billion euro in royalties alone (in addition to various contributions such as the “social card”, etc.).

This massive exogenous “shock” has generated benefits for the region’s economic and social fabric

that, at times, are difficult to see but become that much clearer when comparing it with

neighboring regions.

Numerous indicators show that today, and throughout the years of drilling development, show a

marked improvement in the economic and social performance of the Basilicata region, and growth

as compared with the Puglia, Calabria, Campania regions and, in some cases with the national

average.

The drilling sector in Basilicata is the top contributor to regional GDP, and is certainly a

differentiating factor within the Mediterranean industrial fabric.

Indeed, the oil industry is responsible for

creating thousands of jobs, not only direct

and ancillary, but also on a secondary level:

restaurants, hotels, etc.36. Moreover,

revenues from oil royalties make a

substantial contribution to regional coffers

with which it is possible to meet the cost of

public services (healthcare, university, and

forestry corps). It is no accident that trends

in unemployment in Basilicata diverge

significantly (and positively) from those of

neighboring regions37.

36 As regards ancillaries, not to be underestimated is the training provided by centers such as the Assoil School – an idea

generated by Assomineraria’s Goods and Services Sector and 16 of its members ‐ which, over the past five years, has

trained the approximately 2,200 attendees of the 39 types of courses it offers at its Viggiano (PZ) location. 37 Source: ISTAT re‐elaboration, http://www.istat.it/it/archivio/16777, http://dati.istat.it/#

8,0

13,0

18,0

23,0

28,0

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

unem

ploy

men

t rat

e

Graph 3.p: Employment, historical series

Campania PugliaBasilicata Calabria


The additional revenues from royalties

also make it possible for the region to

contain local debt at a level equal to

about half the national average, while

also boasting the lowest regional taxes in

all of Southern Italy (from which the

towns involved in drilling activities are

exempt)38.

The region’s per capita GDP39 – the area’s highest (and trending upward) and also an indicator of

fair and sustainable prosperity40 (an indicator that weighs factors not directly associated with

economic size, such as the environment, education, the landscape, life expectancy) – shows

Basilicata’s excellent performance compared with the rest of Southern Italy.

It is also interesting to note how oil industry development in the region seems not at all at odds

with other economic activities:

Tourism is undergoing a veritable boom in

Basilicata. The region’s tourism index41 (days

of stay in hotel facilities per inhabitant), which

recently took second place among neighboring

regions.

According to the latest ISTAT data, the region

with the highest concentration of hydrocarbon

production (especially oil), also has the highest

the highest percentage of renewable source‐

generated electrical power42 of the total

produced: 70%, well above the national average.

38 Source: Ministry of Economy and Finance

http://www.finanze.gov.it/export/finanze/Per_conoscere_il_fisco/Fiscalita_locale/newaddregirpef/aliquote.htm 39 Source: re‐elaboration ISTAT http://dati.istat.it/# 40 Source: graphic re‐elaboration from ISTAT and IRES Piedmont, http://www.regiotrend.piemonte.it/clima‐

sociale/cruscotto‐italia 41 Source: re‐elaboration ISTAT, http://www.istat.it/it/archivio/16777 42 Especially hydroelectric. Source: re‐elaboration ISTAT http://www.istat.it/it/archivio/16777, OT4 ‐ Sostenere la

transizione verso unʹeconomia a basse emissioni di carbonio in tutti i settori

1.167

2.012

2.619

863

0

500

1.000

1.500

2.000

2.500

3.000

Basilicata Calabria Campania Puglia

Graph 3.q: Local debt (in € per capita, 2015)

16.822 16.919

18.740

16.177

12.000

14.000

16.000

18.000

20.000

Campania Puglia Basilicata Calabria

euro

Graph 3.r: Per capita GDP, 2014

Basilicata

Campania

Puglia

Calabria

Graph 3.s: Index of fair and sustainable prosperity

AMBIENTE SALUTE BENESSERE MATERIALE

ISTRUZIONE TEMPI DI VITA RETI

SICUREZZA BENESSERE SOGGETIVO PAESAGGIO

INNOVAZIONE SERVIZI POLITICA

Environment

Education

Security

Innovation

Material prosperity

Networks

Landscape

Politics

Health

Leisure

Perceived prosperity

Services


The Val d’Agri itself is no exception, having

registered increases of 53% in tourism, 60% in

hotel facilities and 114% in visitors over the

past 10 years (concurrent with the

development of drilling activities).

3.5 Exploration and production

The previous chapter underscored how Italy is neither poor in hydrocarbons nor in demand for

them (with 90% of consumer needs being met by imports, as shown). Why reduce production

then? Technically, the answer lies in the fact that hydrocarbon research and development do not

attract investments.

Suffice it to compare43 the curves describing research (km drilled for exploration) and production,

after an interval of approximately 10 years, to note the clear link between the two.

Graph 3.v: Exploration and production

The exploration peak of the early 1980s

was followed by a production peak in the

early 1990s, just as the drop in exploration

in the second half of the ‘80s was echoed

in the production slump of the 2000s.

Indeed, hydrocarbon production

necessitates prior exploration that ensures

its replaceability and continuity.

While hydrocarbon demand is prominent on the Italian energy panorama (and will continue to be,

as indicated by institutional and sector predictions), we cannot but be concerned about its future

contribution to national production, since exploration activity has dwindled to zero over the past 5

years.

43 Source: re‐elaboration from Unione Petrolifera, “Statistiche Economiche, Energetiche e Petrolifere”, Tables 19, 31, 40

0,0

1,0

2,0

3,0

4,0

5,0

1995 2000 2005 2010 2014

Graph 3.t: Tourism index

Campania Puglia Basilicata Calabria

0,010,020,030,040,050,060,070,080,0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

%

Graph 3.u: Electrical power from renewable sources out of total

Basilicata Italia

Production (kboe)

Exploration (in km)

Drilling for exploration (km)


It is easy to see that a definitive stop to exploration will lead to negative effects on national

production over the medium term, once again fostering imports and increasing energy

dependency, with the well‐known consequence of greater associated costs and risks.

?

Zero exploration puts

production at risk in the

near future, with the

resulting increase in

imports.

Exploration peak Production peak

Zero exploration Decreased

hydrocarbon

production

Exploration

collapse

Production (kboe)

Exp

loration (in km)

O&G prod. (kboe)

Drilling/Exploration

(thousands of meters)


3.6 Concern for the environment and safety44

All the indicators regarding environmental and safety

performance reflect the importance the sector attributes to a

theme it considers vital to the continuation of these activities.

The positive trend in those indicators confirms Italian Oil & Gas

activity at the summit of global rankings.

Prominent among the various indicators (often technical in nature), are Greenhouse Gas (GHG)

emissions, which is an especially important theme in light of the November 2015 Paris Accords

(see chapter 1).

Approximately 430 million tons of GHG are emitted in Italy every year, which is approximately

10% of the combined emissions of the 28 EU members (in 4th place after Germany, the UK and

France). The Oil & Gas sector accounts for around 2 million tons of CO2 (if we include gas storage

activities – hydrocarbon exploration and production activities alone account for approximately 1.5

million tons). In other words, greenhouse gas emissions associated with drilling activities

contribute to less than 0.4% of the national total. Moreover, this amount fell by approximately 13%

over the 3 years between 2012 and 2014.

The sector has also invested 57.7 million euro (2014 data) in environmental protection, which was

up as compared with the 49.7 million euro invested in 2012.

One datum, possibly more than all the others, underscores the importance the sector places on

security as an essential prerequisite for successfully carrying out its activities, and that is worker

safety.

Indeed, according to the most recent available INAIL data, its extremely

high standards make this sector one of the safest.

Its Lost Time Injury Frequency (LTIF) is the lowest (fewer injuries per hours worked), after the

credit brokerage sector, in a survey of 29 commercial sectors.

Here too the trend is a positive one: 20 injuries were reported in the Oil & Gas sector in 2014 (10

million hours worked), which was 44% fewer than in 2012.

3.7 Future prospects

We have observed that, on a par with the rest of the planet, to date energy demand in Italy is

mainly met by hydrocarbons (70%). This fact alone should suggest how unrealistic it is to imagine

making an abrupt transition. Nevertheless, our country and for advanced economies in general

must be proactive in containing greenhouse gas emissions by devising a sustainable energy mix.

The concept of sustainability must likewise be extended to the economic aspects associated with

energy. As we saw in the first part of this study, energy is a growth driver; the availability of

energy at competitive prices means advantages as much for private citizens (freeing up part of the

family budget for purchases or savings) as for industry, by promoting competitiveness. Indeed, the

dilemma of advanced economies lies in containing emissions at the price of sustainable energy.

Certainly, producing energy at home contributes to the creation of a sustainable energy mix, and

44 Where not otherwise specified, the data cited in this paragraph were taken from the Assomineraria environmental

Report, 2015 and 2013 editions.

The Oil & Gas sector is

responsible for 2 million tons of

greenhouse gas emissions

annually – 0.4% of the national

total of 430 million tons.

The lowest index of

on the job injuries of

all industrial sectors


to a solid, governable transition less exposed to exogenous risk factors (typically associated with

foreign supply markets).

With respect to hydrocarbons, if we consider the potential of unexplored reserves, the benchmark

with other European producer countries and the results of a great deal of research, we can agree

on the possibility of doubling national hydrocarbon production in 10 years’ time, resulting in two

orders of effect: those quantifiable and those resulting in virtuous circles.

Quantifiable effects

The initial direct effects concern the impact on the public coffers. On a par with other parameters

(principally prices), royalties alone would rise to approximately 700 million euro per year.

Investments – currently the main driver of the downward trend in GDP – would benefit

considerably. Conditions being equal, it is possible to foresee additional investments on the order

of 15 billion euro – private and, in many cases, foreign. Along with these, it is legitimate to imagine

the creation of tens of thousands of directly and indirectly related jobs.

Italy does not have the critical mass in terms of reserves to be able to seek energy independence.

But doubling national production would lead directly to a lower dependency on foreign markets,

resulting in a positive impact on the balance of payments and consequent greater supply security.

Virtuous circles

In addition to the above‐cited quantitative effects, doubling hydrocarbon production would also

yield some equally tangible, although less quantifiable, benefits. It would generate additional

resources for the areas that host these activities. Not only in economic terms, but also in terms of

secondary revenues and, especially, of support for the formation and/or maintenance of important

industrial clusters, with the resulting positive fallout on know‐how and research, of which the

multiple research activities being conducted with various university groups are an excellent

example.

The last (but not least important) effect of increased production, and surely deserving of mention,

could at first seem almost surprising: the environmental advantages associated with home

production. Indeed, importing energy means increasing global emissions levels, since the “carbon

footprint” principle must also be applied to the energy sector. Whether it is a question of wasting

energy by transporting gas by pipeline (it requires energy just to pump the gas), or crossing the

Adriatic with oil tankers (here the example is self‐evident), importing energy incurs considerable

environmental costs.

Conclusions

Analysis of historical series shows us that our country’s energy dependency has continuously been

above the European average. The situation becomes more critical if we limit ourselves to Oil & Gas

analysis, in which dependency has risen to 90% and total production has dwindled substantially

over time. This has led to the 55 billion‐euro financial burden associated with importation, as well

as to non‐economic ones associated with the potential instability of supply. Neither is the country

poor in hydrocarbons – in fact, it holds 4th place among European reserves.

Global estimates regarding the future outlook for both institutions and sector operators indicate

that hydrocarbons will continue to play a prominent role in the Italian energy system, fostering

transition while remaining predominant among energy sources.


If we add the sector’s current importance to the country’s growth (employment, investments,

royalties, taxes, etc.) and the benefits it has brought to the areas that host it, it is difficult to

understand why production is struggling to double – which, moreover, was one of the

recommendations of the 2013 SEN.

The two most prominent roadblocks are the legislative framework and the phenomenon of dissent.

3.8 Dissent

Opposition to infrastructure projects, a spreading global phenomenon to which neither Italy is

immune, is a grassroots‐style opposition that goes by the acronym NIMBY (Not In My Backyard).

The 10th edition of the NIMBY Forum Observatory45 painted a picture of a country where active

protest is intensifying. The NIMBY Forum’s unit of measure is the number of contested projects,

plants or infrastructures:

Graph 3.w: Number of contested projects (detailing new protests

per year)

Graph 3.w(a): Composition by sector

Although the number of contested projects nearly doubled over a 10‐year span, the number of new

contested projects fell from 152 to 91 in only 3 years. The rate of replacement that dropped over

those three years (new projects made up 43% of the total in 2012, and only 26% in 2014) can be

interpreted as an indicator of the increase in the duration of the protest – probably facilitated by

the lower total number of new projects.

Energy infrastructures are a perfect target for protesters. It is interesting to note that 10 years ago

these represented just 11.6% of the total (while the issue of garbage accounted for nearly 80%).

Within the energy sector, the most contested plants are small biomass centers (oddly enough, a

source of renewable energy), probably as a result of their capillary proliferation across the country.

Protests ‐ motives and channels

Popular undertakings account for one‐third of

the total. Note that the sum of the protests

arising from political/public agency spheres

45 Most of the data and analysis of the NIMBY phenomenon was taken from the “X Nimby Forum Report”, published by

Aris, Agenzia di Ricerche, Informazione, Società

Total plants protested Plants protested for the 1st time

Energy

Waste

Infrastructure

Other


account for almost 50% of the cases. Also

noteworthy is the 2% increase in environmental

associations.

Graph 3.y: Protests

The top five motives for protesting the new infrastructures are:

‐ environmental impact

‐ shortcomings at the level of procedure and involvement

‐ health effects

‐ effects on quality of life

‐ pollution

Traditional press releases remain the main means of disseminating information, followed by

public meetings and sit‐ins; internet and “social media” are also gaining ground (15.5%). To cite

the X NIMBY Forum Report:

“The Web is the ideal organizing tool for the movement. Powerful precisely because it sets off from

individual contacts, not an anonymous network but a series of connections with people we know –

“friends” – and that therefore acquires immediate authenticity and has a different capacity to

involve. The initiatives that are born in the shadow of the Web have a clear advantage and make

the most of that wealth of confidence that others have to work so hard at winning”.

The immateriality of network communications makes it possible for protests to surpass

geographical limitations. Take “No‐Tav”, the best known anti‐public works movement. The

geolocation of the social network posts shows that the majority (in absolute numbers) of comments

in opposition to the works are concentrated, not surprisingly, in the Piedmont region, followed by

the nearby Lombardy region, but – and here’s the surprise – with Sicily in third place.

No‐Triv

EXPO Milano 2015 was an event that witnessed the eruption of a very strong and transversal

protest movement that led to public disorder just a few days before it opened to the public. The

No‐Expo movement was the second largest (after No‐Tav) for web‐generated activism, but it

gradually dissolved with the conclusion of the event.

The No‐Expo and No‐Tav movements, the largest in protest against new infrastructure, were

followed in 2015 by No‐Triv, the third‐largest organized protest movement:

“The purpose of the No‐Triv movement is to impede a national development model based on the

exploitation of fossil fuels and to promote a new energetic, economic and social system founded on

the broader principles of sustainability”46.

46 Source: http://www.notriv.com/campagne‐no‐triv/

Popular

Political

Gov’t. agencies

Environm. Groups

Unions


No‐Triv was coordinated more recently than No‐Tav, and the differences between them are useful

for understanding how the online protest phenomenon is evolving.

No‐Tav began back in the early 1990s, before the existence of social networks; No‐Triv was formed

in 2012 (in Pisticci, Matera), and could be described as “digital‐born”. Consequently, its use of the

Web and social media is highly informed and efficient.

It is no accident that the No‐Tav movement has eleven official web pages, while No‐Triv’s official

communications occupy a single web page (www.notriv.com) At the same time, the official No‐

Tav page is not linked to a Twitter account, while No‐Triv’s is; No‐Triv also has a dedicated

YouTube channel.

Even the subdivision of links on the pages of each of the two movements (linked to a specific area

or a specific category of user) reveals much about their respective on‐line skill: over 50 for No‐Tav,

just 8 for No‐Triv.

Start Early 1990s 2012

Number of web pages 11 1

Twitter Profile No Yes

Youtube Channel No Yes

Facebook pages linked 50 11

Number of “Likes” 56,000 38,000

“Like”

The most immediate gauge for verifying the success of a Facebook page is the number of “likes”

the page earns. Clicking “I like” on a social media page is a simple and immediate operation (no

need for deep introspection, no risk, no obligation), while engagement activities (publication of

links, videos, comments, etc.) are more complex, requiring greater involvement. It nevertheless

remains interesting to observe the spike in “likes” on the No‐Triv Facebook page in the days

leading up to the referendum on the duration of offshore concessions, and the dynamics of the

period immediately following it.

From 6,000 “likes” in November 2014, which held relatively steady through early 2016, as the

referendum approached, the page went on to register almost 40,000. Since then however the

number of “like” votes has remained stable at just under 40,000 (39,570 as of 10 October 2016). It

should be noted that this gesture is almost impossible to revoke – once the icon has been clicked,

even if engagement wanes or disappears, “like” remains.


That protest movements via Web are volatile can be deduced from the trend regarding Google

searches for the words “No Triv”, which shows a longer historical horizon. See the time curve

below:

Only in the immediate pre‐referendum period, were the No‐Triv movement’s web pages searched

out and visited, while in previous years visits had been limited. What is striking is that as the

referendum phenomenon passed, search engine queries on the words “No Triv” dropped back

down to very low pre‐referendum levels. Once again, it can be observed how “real” events such as

the 17 April referendum directly condition, determine and reflect on web‐generated activism and

its own very high volatility. If there had been no referendum, there would not have been the same

interest on the web.

What’s more, the above‐described dynamic can be read as the latest proof of how the phenomenon

of dissent lives essentially and uniquely off saying “no” to something without the responsibility of

having to propose anything in its place. It is incapable of attracting attention once the flame of

protest has died out.

“No Eolic”

As observed above, protests – and especially web protests – are not reserved solely for traditional

energy sources. The best example is the movement against wind farms, which has rooted itself in

the social media by the same means and timeframes as those in opposition to fossil fuels.

The storyline of the protests has the same dynamics of “traditional”

opposition, highlighting people’s right to safeguard their environment

(in this case mainly from the point of view of the landscape). The main

difference lies in the absence of national level coordination of activities,

which could begin to develop in step with the increased diffusion of

wind farms.

For the present, what reigns is a fragmented micro‐territorial system. It is

interesting to note how the protests against this source of entirely renewable

energy have spread even to areas that have hosted drilling activities for

decades. It is hard to find any reliable articulation on alternative energy

proposals in the social media.

“No to No”

If the Web is the ideal place to prepare, organize and mobilize a protest given, for example, its

absence of filters and barriers to comments and opinions, it is also true that it stimulates and

facilitates debate; it is not rare for voices to rise above the crowd to say “no” even to “no”.

Referendum

period

oggi today 10 apr 2016 12 oct 2014 14 apr 2013 16 oct 2011


A recent example is the Ottimisti e Razionali

(Optimists and Rationals) Committee that formed in

the run‐up to the aforementioned referendum on

offshore concessions. The committee claimed it

received over 200,000 visits and 60,000 interactions

with posts to its Facebook page, which goes by the

name “Nonspecareenergia” (dontwasteenergy) and

has garnered nearly 5,700 “likes”.

Conclusions

This brief analysis of the phenomenon of dissent provides an image of an energy sector in the

spotlight as regards protests, often organized in large or small committees, often with the

participation of politicians and always represented and animated by a web‐based debate

channeled through the social media. Some movements have grown sufficiently, in terms of

participation and organization, to require coordination on a national scale. Nevertheless, there are

three salient features common to them all:

‐ Volatility of adhesion. These movements have an undeniable capacity to attract followers,

develop the protest and animate the debate. Observation of the dynamics of the social web,

however, show the volatility of adhesion and participation, which are principally led by

events that are in no way virtual. As we have seen, the expression of consensus for the No‐

Triv movement in “likes” registered on its Facebook page rose sharply during the run‐up

to the 17 April referendum, only to level off later. The No‐Expo movement, formed in 2015

to protest the Universal Exposition in Milan, was the second largest national movement

after No‐Tav for number of web adherents. It disappeared without a trace after a brief span

– a few weeks after the start of the event – and not even its Facebook pages remains today.

While, on the one hand, this may not seem surprising, since the event has long since ended

(what’s more, without any of the calamities foreseen by the movement), on the other it is

surprising how fast the phenomenon – the second largest at national level – petered out.

The ultimate aim is to protest, while achieving the goal takes second place.

‐ A minority. It is simple, immediate, free and anonymous to “like” a social media page;

often an intuitive gesture that, precisely for the reasons just given, comes easily.

Nevertheless, it is an unequivocal expression of appreciation for the page itself and its

content. While, on the one hand, the No‐Triv movement’s “likes” quadrupled in the two

months preceding the referendum, from 10,000 to 40,000, is it also true that the number

represents a relatively small portion of the population – i.e. 0.085% of Italy’s 47 million

potential voters. On the other hand, we must not minimize the undeniable power of

attraction these movements have and their relative capacity to amplify the voice of protest.

The referendum on offshore concession duration drew 12 million Italian voters to the polls.

‐ Transversality. Objects of protest include as much biomass plants as offshore drilling, large

industrial infrastructures as wind farms. It is easy to see that protests unite people with a

multitude of aims. Since the trigger is the desire to protest, it is highly probable that a

single individual can support many opposition movements. Further proof of this lies in the

fact that the transversality is also geographical: as noted above, the region most active on

behalf of No‐Tav after Piedmont and Lombardy, is Sicily.


3.9 The legislative framework

Every year the World Bank publishes its Doing Business Report, which uses 10 parameters to

describe the ease (or lack thereof) of starting and/or running a business in various countries. The

top rankings go to Singapore, New Zealand and Denmark; the main European countries generally

find themselves near the top of the list (the UK is in 6th place, Sweden is 8th, Norway 9th, Germany

15th, just to name a few). Italy ranks 45th of a total 189 countries47, one place before Montenegro and

one below Belarus; and looking solely at OECD countries, Italy ranks 28th out of 32. Compared

with last year, the country has dropped one place in the global ranking (from 44th to 45th) and,

specifically speaking, has lost ground on seven out of ten parameters (a full seven positions as

regards the ease with which building permits are obtained).

The discouraging picture painted by the World Bank in its Doing Business Report 2016 makes no

exception for the energy sector.

Naturally, such a vast sector has multiple situations and contexts: it is enough to compare

traditional and renewable source production, which differ in terms of technical timeframes, degree

of risk, human capital involved, tax conditions, and so forth. Take, for example, the system of

incentives for encouraging the development of renewable sources, or the specificities of Oil & Gas

royalties. Therefore, our focus will now shift to the legislative/regulatory framework associated

with the drilling industry.

The topics treated in chapter 3 highlighted as much the missed opportunities as the benefits linked

with the development of Oil & Gas activity in Italy. Instead, untapped upstream sector potential

could provide major impetus to jumpstarting and maximizing national and local level benefits (not

least through substantial investment) and developing industrial synergies.

The opportunity to mobilize investments in this sector has paradoxically been hampered, however,

not by Italian or even foreign interest in investing, but by a problematic legislative and

authorization framework, and a complex decision‐making process that has slowed or stalled many

initiatives over the past decade. The uncertainty of whether they will see a return on investments is

a formidable deterrent for private investors.

Specifically, the Oil & Gas sector is up against authorization waiting times that can be as much as

10 times those envisaged by the legislation itself and that in any case are very long compared with

global averages (up to 70% longer). The situation could be streamlined if regulation were aimed at

safety and quality control rather than navigating authorization procedures, and at the radical

simplification of the same cumbersome and stratified legislation (which dates back as far as the

early 20th century to Royal Decree 1443 of 1927).

We need to realize that Italy still lacks a clear‐cut energy policy. In reality, the aforementioned

National Energy Strategy of 2013 has never been implemented through the package of key

measures designed to do so, particularly with regard to the national production of hydrocarbons.

Indeed, everything has remained a set of excellent proposals that have never been acted upon.

Efforts to simplify, streamline and speed up authorization within reliable timeframes and in a

stable legislative context is the primary challenge our country’s policy makers face. In a sector in

which investments are on the order of billons of euro, uncertain timeframes and time‐to‐market

(TTM) spans are among the principal causes of the country’s poor ability to attract foreign

47 Source: http://www.doingbusiness.org/rankings


investments, and not only those. Themes crucial to development, such as energy policy, certainly

deserve the concerted attention of all actors involved, but development guidelines and (certain)

timeframes must be decided centrally and rendered less vulnerable to the delays that often

compromise the country’s strategic projects. The new National Energy Strategy will play a key

part in this, and the hope is that farsighted policies will be embraced that push Italy to become a

leader in the development of national resources.


Appendix – The 10 most common “myths” about gas and oil

1. The world will soon have no need for hydrocarbons.

Energy demand has historically increased, and analysts agree the trend for the future is an

upward one: by 2050, global energy demand will have risen by 50% compared to today’s

and, in particular, demand for gas could double. It is precisely the consumption of

hydrocarbons, despite the trend toward slower growth, that will undergo an increase in

absolute value, and in the coming decades will account for 60% of the world’s energy mix.

2. Traditional sources are in competition with renewable sources.

There is no competition. Indispensable to meeting the energy challenge of the future

(supply, consumption and emissions) is a diversified energy mix in which energy sources

support and complete one another. Denmark has supported the development of wind

farms with Oil & Gas revenues; Norway (among the world’s largest producers of

hydrocarbons) supplies 7% of the continent’s renewable energy. Italy too is not lacking in

examples: in Basilicata, Italy’s top hydrocarbon producing region, the production of

electricity from renewable resources can be as high as 70% of the total – twice the national

average.

3. The drilling industry creates neither wealth nor employment in the places that host it.

Observation of European producer countries clearly shows that the relationship between

the main socio‐economic indicators and the drilling industry is a positive one. Great

Britain, the Netherlands and Norway, Europe’s largest producers, also have the best

performance figures on the Human Development Index, as well as per capita GDP and

unemployment. While the Oil & Gas sector is certainly not the only determining factor in

this, it is equally plausible that it contributes heavily to that positive performance

considering the size of the industry itself and the respective incomes of the aforementioned

countries.

4. Italy is poor in energy reserves.

Exploration is practically at a standstill, but it is conceivable that Italy’s energy reserves are

even vaster than our ranking as 4th largest in Europe would indicate. Nevertheless, despite

having considerable reserves, we produce relatively little; indeed, our hydrocarbon

production is equal to that of Denmark, a country whose reserves are only 65% those of

Italy, and slightly more than Germany’s, which has one‐third the reserves we have.

Nevertheless, we are an energy‐hungry nation, especially when it comes to hydrocarbons,

and consume ten times the amount we produce.

5. That which is not produced can be imported.

Of course, but this is a costly choice. Over the past 10 years, energy imports have taken a

550 billion‐euro bite out of the national energy budget, 480 billion of which has been spent

on hydrocarbons – without considering the scarcity of investments in Italy (in the economy,

infrastructure and know‐how), rising unemployment, lower revenues and the

environmental emissions associated with transport.

The other side of the coin in terms of import costs is supply security. Three‐quarters of the

countries that supply Italy with hydrocarbons are politically unstable.


6. The sector does not bring the country benefits.

Research and mining bring the society benefits by employing approximately 30,000 people

(often highly specialized), contributing to the public coffers through production royalties

(in addition to ordinary taxes) to the tune of approximately one billion euro annually, and

channeling significant private capital investments. These investments – 1.3 billion euro a

year (and over 300 million in R&D), become even more important in light of the downward

trend in gross investments in Italy and how that is a drag on GDP.

7. The sector does not bring benefits to the areas that host it.

There are two areas in the country that have co‐existed for decades now with drilling

activities: the area of Ravenna, which hosts the Oil & Gas sector’s largest services chain,

and the Basilicata region, specifically the Val d’Agri. A total of 6,000 workers are directly

employed in the Oil & Gas district of Emilia‐Romagna, with business turnover estimated at

1.6 billion euro, 50% of which abroad. Drilling is Basilicata’s top GDP contributor, and its

direct and indirect effects emerge in all their clarity if we look at the principal socio‐

economic indicators and compare them with neighboring regions. Indeed, Basilicata boasts

the highest per capita GDP, lower taxation and public debt, which are indicators of a better

quality of life and, above all, of a decidedly better employment picture than Campania,

Calabria and Puglia: unemployment in Basilicata is slightly under 14%, against an average

of over 20% across Southern Italy.

8. The sector is not compatible with the natural propensity of its host regions.

The majority of offshore production is concentrated along the Adriatic coast of Romagna,

but the presence of 357 wells does not prevent over 25 million tourists from crowding the

area’s beaches every year. Neither has drilling stood in the way of the global success of the

region’s food products, over 41 of which carry DOP or IGT labels. Basilicata itself has seen

an exponential increase in tourism in recent years, pushing it from last into second place

among Calabria, Campania and Puglia on the tourism vitality index (tourist presences per

capita); and the Val d’Agri is no exception, where tourism has increased 53% over the past

ten years. Sector operators themselves by now admit that these areas’ natural offerings are

not a barrier to their activities but an element deserving of the highest attention and

consideration since they generate opportunities and not costs.

9. Drilling activities are incompatible with the environment and potentially damaging to

health.

The percentage of greenhouse gas emissions that drilling adds to the total national

emissions is negligible. Moreover, the sector adheres to the strictest environmental safety

standards. Proof is this lies, for example, in the sector’s low rate of on‐the‐job injuries,

which is among the lowest of all industrial sectors.

10. Public opinion is predominantly opposed to Oil & Gas

Protest movements are an undeniably effective way to galvanize both public and decision‐

maker opinions. Nevertheless, it should be remembered that the active agitation of protests


remains in the hands of relatively few individuals. The No‐Triv movement’s Facebook page

earned 40,000 “like” reactions, which is equal to just 0.085% of the adult population of Italy.

REACHING ENERGY INDEPENDENCE WHILE ......For example, a reduction of one gigaton in CO2 emissions in...

Documents

Transcript of REACHING ENERGY INDEPENDENCE WHILE ......For example, a reduction of one gigaton in CO2 emissions in...