News / Europe

Italy Faces Dire Situation if Russian Gas Supplies Cut

FILE - Eni [Italian oil and gas company] gas compression plant is seen on the shore of Mellitah, Libya.
FILE - Eni [Italian oil and gas company] gas compression plant is seen on the shore of Mellitah, Libya.
Reuters

Italy will struggle to stay warm this winter if Russia's conflict with Ukraine disrupts gas supplies and Libya veers toward collapse. Either or both of those scenarios will put at risk an already shaky economic recovery following years of recession and sluggish growth.

Caught between dwindling gas imports from North Africa and a rising dependency on Russia, Italy's contingency plans for a complete breakdown in Ukrainian transit flows consist of raiding stockpiles, arranging costly emergency shipments, as well as forcing heavy industry to cut its output.

Import-reliant Italy uses gas to fuel almost half its power plants, triggering fears the conflict between Russia and Ukraine as well as tit-for-tat sanctions between the West and Moscow could disrupt deliveries by Gazprom to Europe.

“It's a problem. In the short term, Italy has no alternative to Russian gas,” said Leonardo Maugeri, ex-strategy head at Italian major Eni and now at Harvard Kennedy School.

Italy's winter gas prices are trading 2.6 euros ($3.43) per megawatt hour above rival benchmarks in northwest Europe, underscoring the view that its energy supplies are most vulnerable to Russian gas cuts and cold snaps.

In 2006 and 2009, price disputes between Russia and Ukraine, which pumps half of Moscow's gas supply for Europe, triggered widespread disruptions and prompted Italy to rush through emergency measures that included tapping strategic gas reserves.

Although things are different this year due to a mild spring and summer and low demand in crisis-hit Europe, just a month of freezing weather with key gas supplies down could see supply shortfalls in Italy, and former Eni CEO Paolo Scaroni has warned a halt to Russian gas flows would raise prices and could cause supply problems.

North Africa also poses threats. Although oil and gas output in Libya has risen recently, Italian importers worry that its exports might collapse as violence escalates.

Risks this year are particularly high after price cuts led Italy to boost Russian imports to 49 percent of supply in the first half, up from 41 percent in 2013 and 32 percent in 2012. At the same time, the glut of Russian gas has led Italian buyers to snub alternative supply deals, reducing its options.

Edison has suspended its contract with Algeria's state-run gas monopoly Sonatrach, Enel has sold some of its liquefied natural gas (LNG) tanker cargoes from Nigeria to Britain's BG Group, while Eni has halved imports from Algeria and could incur extra charges if it requested more gas.

Should gas be rationed, energy-intensive steel and chemicals industry would be first to feel the pain as household supplies are prioritized.

Algeria is key

With Russian and Libyan imports at risk, Algeria has become key in safeguarding supplies.

“If the agreement between Sonatrach and Eni enables Algerian gas to come back to Italy then even a prolonged disruption from Russia shouldn't have much effect, but without Algerian supply it could make things tight,” Wood Mackenzie energy analyst Massimo Di-Odoardo said.

Algeria used to be Italy's biggest gas supplier, but booming internal demand, flagging production, and attractive Asian LNG markets led to a 40 percent drop in flows to Italy last year.

Yet analysts say Italy could increase Algerian imports relatively easily, albeit at a higher price.

“Volumes with Algeria can probably be raised but I doubt it could be done without having to pay a price,” Harvard Kennedy School's Maugeri said.

Other counter measures to avoid a supply crisis include gas tanker imports, using up gas stocks, as well as shifting toward burning more oil and coal.

Storage sites

Italian storage sites are expected to reach record fullness by October based on current refill rates, already surpassing the 10 billion cubic meter (bcm) mark following a mild 2013/2014 winter, Reuters data shows.

Italy's 16 bcm of storage capacity is Europe's biggest along with that in Germany and France.

Based on Russian gas imports last January, a full cut off in gas transiting Ukraine would leave Italy facing a shortfall of 100 million cubic meters/day (mcm) of which Russia could re-route 35 mcm through the Nord Stream and Opal pipes to Germany.

Analysts say Italy could also shift towards using more oil and coal-fired power stations in order to plug gas shortfalls.

Idle terminals to import LNG tankers may also help, but overseas LNG imports take time to be shipped to Europe and they will be costly as Italy would have to compete with other buyers in Europe as well as Asia, where prices tend to be much higher.

“We need to make preparations for contingencies ahead of time. We have three LNG terminals that are hardly being used but delay would make picking up shipments very difficult,” said Paolo Ghislandi of gas trader and supplier association AIGET.

You May Like

Israelis Quietly Expand Enclave in Palestinian District of Jerusalem

Estimated 500 settlers, armed or protected by paramilitary police, live in Silwan among 50,000 Palestinians More

Video US, Iran Face Similar Challenges in Syrian Fight Against IS

Both Washington, Tehran back fighters battling Islamic State militants in Iraq -- but in Syria they support opposing sides in country’s civil war More

China Boosts Efforts to Help Afghan, Regional Stability

Observers say China’s increased regional involvement are due to concerns that Afghan instability and the presence of anti-China militants in Pakistani border areas could fuel Xinjiang troubles More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
China Political Meeting Seeks to Improve Rule of Lawi
X
William Ide
October 20, 2014 10:23 AM
China’s communist leaders will host a top level political meeting this week, called the Fourth Plenum, and for the first time in the party’s history, rule of law will be a key item on the agenda. Analysts and Chinese media reports say the meetings could see the approval of long-awaited measures aimed at giving courts more independence and include steps to enhance an already aggressive and high-reaching anti-corruption drive. VOA’s Bill Ide has more from Beijing.
Video

Video China Political Meeting Seeks to Improve Rule of Law

China’s communist leaders will host a top level political meeting this week, called the Fourth Plenum, and for the first time in the party’s history, rule of law will be a key item on the agenda. Analysts and Chinese media reports say the meetings could see the approval of long-awaited measures aimed at giving courts more independence and include steps to enhance an already aggressive and high-reaching anti-corruption drive. VOA’s Bill Ide has more from Beijing.
Video

Video Ebola Orphanage Opens in Sierra Leone

Sierra Leone's first Ebola orphanage has opened in the Kailahun district. Hundreds of children orphaned since the beginning of the Ebola outbreak face stigma and rejection with nobody to care for them. Adam Bailes reports for VOA about a new interim care center that's aimed at helping the growing number of children affected by Ebola.
Video

Video Latinas Converting to Islam for Identity, Structure

Latinos are one of the fastest growing groups in the Muslim religion. According to the Pew Research Center, about 6 percent of American Muslims are Latino. And a little more than half of new converts are female. VOA’s Carolyn Presutti travelled to Miami, Florida -- where two out of every three residents is Hispanic -- to learn more.
Video

Video Nigeria Agrees to Cease-Fire With Boko Haram

Islamist militant group Boko Haram and the Nigerian government have agreed to a cease-fire. The Nigerian government issued an order Friday, telling all military chiefs "to comply with the cease-fire agreement in all theaters of operations. Why now and the significance of the agreement are questions on some people’s minds. VOA's Mariama Diallo reports.
Video

Video Kobani Fighting Sends 400,000 Refugees to Turkey

The offensive by Islamic State militants against the northern Syrian city of Kobani has caused hundreds of thousands of residents to flee to Turkey. They receive help from Turkish authorities and individuals, but say much more is needed. VOA’s Scott Bobb reports from the town of Suruc a few kilometers from the border.
Video

Video Exclusive: American Joins Kurds' Anti-IS Fight

The United States and other Western nations have expressed alarm about their citizens joining Islamic State forces in Syria and Iraq. In a rare counterpoint to the phenomenon, an American has taken up arms with the militants' Syrian Kurdish opponents. Elizabeth Arrott has more in this exclusive profile by VOA Kurdish reporter Zana Omer in Ras al Ayn, Syria.
Video

Video South Korea Confronts Violence Within Military Ranks

Every able-bodied South Korean male between 18 and 35 must serve for 21 to 36 months in the country’s armed forces, depending upon the specific branch. For many, service is a rite of passage to manhood. But there are growing concerns that bullying and violence come along with the tradition. Reporter Jason Strother has more from Seoul.
Video

Video Comanche People Maintain Pride in Their Heritage

The Comanche (Indian nation) once were called the “Lords of the Plains,” with an empire that included half the land area of current day Texas, large parts of Oklahoma, New Mexico, Kansas and Colorado.The fierceness and battle prowess of these warriors on horseback delayed the settlement of most of West Texas for four decades. VOA’s Greg Flakus reports from Lawton, Oklahoma, that while their warrior days are over, the 15,000 members of the Comanche Nation remain a proud people.
Video

Video Turkey Campus Attacks Raise Islamic Radicalization Fears

Concerns are growing in Turkey of Islamic radicalization at some universities, after clashes between supporters of the jihadist group Islamic State (IS) or ISIS, and those opposed to the extremists. Pro-jihadist literature is on sale openly on the streets of Istanbul. Critics accuse the government of turning a blind eye to radicalism at home, while Kurds accuse the president of supporting IS - a charge strongly denied. Henry Ridgwell reports from London.
Video

Video Syrian Defector Leaks Shocking Photos of Torture Victims

Shocking photographs purporting to show Syrian torture victims are on display at the U.S. Holocaust Memorial Museum in Washington. The museum says the graphic images are among thousands of photographs recently smuggled out of Syria by a military policeman-turned-defector. As VOA reporter Julie Taboh reports, the museum says the photos provide further evidence of atrocities committed by the government of Syrian President Bashar al-Assad against its own people.
Video

Video Drought-Stricken California Considers Upgrading Water System

A three-year drought in California is causing a water shortage that is being felt on farms and cities throughout the state. As VOA's Mike O’Sullivan reports, water experts, consumers and farmers say California needs to make changes to cope with an uncertain future.
Video

Video TechShop Puts High-tech Dreams Within Reach

Square, a business app and card reader, makes it possible to do credit card transactions through cell phones. But what made Square possible? VOA’s Adrianna Zhang and Enming Liu have the answer.

All About America

AppleAndroid