Caspian Report - Issue: 07 - Spring 2014
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Caspian Report - Issue: 07 - Spring 2014

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AntonIo SIleo 82 the end of 2011, gas consumption reached its 2003 level. the Trans Adriatic Pipeline (TAP), at present the most ambitious project concerning the Italian gas infrastructure system, can be considered consistent with a security-led strategy. On this basis, the Trans Adriatic Pipeline (TAP), at present the most ambitious project concerning the Italian gas infrastructure system, can be considered consistent with a security-led strategy. TAP’s rationale is mainly one of diversification: carrying 10 bcm of Azerbaijani natural gas from the Shah Deniz II field each year, TAP would provide a new and significant energy source. Moreover, a second phase is already planned, in order to increase the nominal capacity of the pipeline up to 20 bcm/ year, through a new compression station. This additional capacity may play a pivotal role in the Italian supply strategy, which depends heavily on imports (particularly from Russia, Algeria and Libya), both in terms of security and industry. In the recent past, Italy has experienced gas shortages, due to the particularly rigid climatic conditions and lack of flexibility in the volumes imported from abroad. On those occasions, the storage infrastructures played a much larger role than usual, raising questions about their economic and strategic sustainability. Moreover, alternative uses of gas, such as unconventional industrial uses in steel production and a substantial shift in fuel transportation, are likely to emerge. 3. A similar figure for 2012: 11.5% (equal to 8.7 bcm). A new southern route may also have strategic implications for Italy, strengthening its role as an entry point for non-Russian, non-LNG gas to travel to Northern Europe. In this sense, the efforts of the European Commission through the Southern Gas Corridor initiative - despite the obstacles posed by divergent national interests – has a strong basis. In this sense, TAP may play an important role in fulfilling the demand of other European countries, whose consumption patterns also seem to be shrinking. 2. Trends in the Italian gas market: an overview Supply and Sources Italy is heavily dependent on gas imports. In 2013, the national production share was limited to 11% of total consumption (7.7 bcm), 3 while net imports (imports minus exports) amounted to almost 88% of the total (61.7 bcm). Most of this imported gas comes from Algeria and Russia. In 2011, Italy imported 22.9 bcm from Algeria and 19.7 bcm from Russia. Among others, Qatar (6.2 bcm) is the main LNG importer, through two regasification terminals (Panigaglia and Portoviro). Domestic Demand Italian natural gas demand has continued to shrink over the last decade, aside from a minor and temporary recovery in 2010. This decline was anticipated, and indeed industry-led since 2004: total industrial consumption has dropped by more than 35%

over 10 years (from 21 to 13 bcm). This reduction is due to: 1) a reduction in gas use as a result of the economic crisis, particularly harsh for the industries involved, and 2) more efficient use of gas, considered a key factor in competitiveness. Meanwhile, the household gas consumption, which amounts to roughly half of the total, has experienced a slight increase, also due to the cold temperatures this winter. Unfortunately, the use of gas for heating is unpredictable, and the patterns observable in the past years can be considered exceptional; therefore few can be used to predict future trends. In addition, natural gas is facing new competition, such as heating pumps, induction stoves and heaters, which will probably limit growth in consumption. Power generation of electricity significantly affects Italian natural gas consumption: in fact, it has historically amounted to one-third of the total. Despite the installation of further capacity in terms of combined cycle plants over the last decade, consumption of thermoelectric generation has dropped significantly since 2009. A structural fall is evident following the peaks in 2007 and 2009 (33 – 34 bcm), when thermoelectric plants helped to fill the power deficit of the electric system. The contraction of consumption in recent years can be explained based on two main factors: 1) the overall decline in electricity consumption and 2) the upsurge in renewable energy sources. All in all, consumption patterns in Italy show both a temporary low and a structural contraction: the actual bottom is surely related to the economic crisis. While that will eventually end, the decline is also the consequence of a permanent shift in the consumption paradigm. In particular, we attend to the rise of the relative (and possibly absolute) importance of residential use. This has two major implications. First, whether or not total gas vol- 83 CASPIAN REPORT, SPRING 2014 A fire at the Ilva steel plant in Taranto after it was hit by a tornado.

over 10 years (from 21 to 13 bcm).<br />

This reduction is due to: 1) a reduction<br />

in gas use as a result of the economic<br />

crisis, particularly harsh for<br />

the industries involved, and 2) more<br />

efficient use of gas, considered a key<br />

factor in competitiveness.<br />

Meanwhile, the household gas consumption,<br />

which amounts to roughly<br />

half of the total, has experienced a<br />

slight increase, also due to the cold<br />

temperatures this winter. Unfortunately,<br />

the use of gas for heating<br />

is unpredictable, and the patterns<br />

observable in the past years can be<br />

considered exceptional; therefore<br />

few can be used to predict future<br />

trends. In addition, natural gas is facing<br />

new competition, such as heating<br />

pumps, induction stoves and heaters,<br />

which will probably limit growth in<br />

consumption.<br />

Power generation of electricity significantly<br />

affects Italian natural gas<br />

consumption: in fact, it has historically<br />

amounted to one-third of the<br />

total. Despite the installation of further<br />

capacity in terms of combined<br />

cycle plants over the last decade,<br />

consumption of thermoelectric generation<br />

has dropped significantly<br />

since 2009. A structural fall is evident<br />

following the peaks in 20<strong>07</strong><br />

and 2009 (33 – 34 bcm), when thermoelectric<br />

plants helped to fill the<br />

power deficit of the electric system.<br />

The contraction of consumption in<br />

recent years can be explained based<br />

on two main factors: 1) the overall<br />

decline in electricity consumption<br />

and 2) the upsurge in renewable energy<br />

sources.<br />

All in all, consumption patterns in<br />

Italy show both a temporary low<br />

and a structural contraction: the<br />

actual bottom is surely related to<br />

the economic crisis. While that will<br />

eventually end, the decline is also<br />

the consequence of a permanent<br />

shift in the consumption paradigm.<br />

In particular, we attend to the rise<br />

of the relative (and possibly absolute)<br />

importance of residential use.<br />

This has two major implications.<br />

First, whether or not total gas vol-<br />

83<br />

CASPIAN REPORT, SPRING <strong>2014</strong><br />

A fire at the Ilva<br />

steel plant in<br />

Taranto after it was<br />

hit by a tornado.

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