The natural gas market in Italy: Infrastructure development in the European context
The natural gas market is undergoing a period of profound change. In a scenario marked by constant growth in consumption, a series of factors are substantially redrawing the global geopolitical map, now and in the future.
New producer countries are joining the scene, especially in the Middle East, around the Caspian Sea and in South-East Asia, while on the demand side, growing drivers include the emerging economies of South America, China and India.
At the same time, the United States, until recently a net importer of gas, is now producing massive quantities of non-conventional gas and has become substantially self-sufficient; soon the country could become a potential exporter country.
These trends are shaping new relations in various regions, with a significant impact on the equilibria of supply and demand and on pricing mechanisms.
In general, the growing distance between production fields and consumption centres is making it increasingly necessary to turn to world markets to satisfy the gas requirements of individual domestic markets. In this global context, shipping gas is the fastest way of satisfying new components of demand as they emerge, thanks to its flexibility.
This is of particular importance in certain areas of the world such as the Far East and North and South America, where the location of gas fields, on the one hand, and the relative scarcity of pipelines, on the other, risk isolating markets, preventing supply from meeting demand.
It is also important to stress how liquefied natural gas (LNG) can prospectively contribute to overcoming the regionalism that continues to shape the international gas market, with its different pricing areas and extremely inconsistent trends in supply, demand and provision.
Markets such as North America, which are becoming increasingly more liquid due to the massive availability of gas, including non-conventional gas, contrast with areas such as South-East Asia, whose total dependence on gas imports to cover demand makes the sector especially rigid.
Only greater international relations and trade flows will be able to contribute significantly to the progressive convergence of these different markets, bearing a positive impact on the diversification of supply, on the competitiveness of alternative sources and on the conditions of supply to final consumers.
Europe finds itself at a crossroads. Although in recent years EU countries have been leaders in the promotion of energy efficiency and renewable energy, gas is still a fundamental driver for economic growth, accounting for more than a quarter of final energy consumption. In the future, that figure is set to grow further due to the relatively limited environmental impact of gas and the decline of oil and nuclear energy.
Growth scenarios show that over the next two decades, despite weak growth in consumption, Europe will become increasingly more dependent on non-EU countries to cover its demand for gas as domestic production declines, with imports estimated to reach over 80 per cent by 2030.
It was precisely this concern that led the European Commission to adopt a series of measure to guarantee security of supply, the diversification of supply sources and the creation of the infrastructure needed to support the harmonious growth of the market.
The geographic location of our country puts us in a position to intercept the massive import flows that arrive from markets in North Africa, the Middle East and Central Asia. This gives Italy the potential to be not just a destination market for the gas needed to satisfy domestic demand but to become a transit market for flows destined for central and southern Europe.
Today, Italy is the EU member state that makes the most use of this source of energy, as both an input for power generation (almost 50%, compared to an EU average of 23.6%) and, more generally, in satisfying primary consumption (approx. 35% vs. 25.1% across Europe). Given the situation, gas is a key factor for energy security, also due to the fact that the country’s dependence on imports has reached over 90 per cent of overall demand.
Building new regasification terminals, new gas pipelines connecting Italy to promising supply areas in the Middle East and the Caspian Sea, new counter-current capacity towards the north and additional storage capacity would enable the country progressively to diversify supply among competing resources and to raise volumes traded on the Gas Exchange.
These two factors would make the market more liquid, helping price signals emerge that are tied to supply and demand equilibria, boosting the competitiveness of the market and triggering convergence with other EU countries.
These are particularly ambitious objectives to pursue, requiring the joint efforts of the institutional players involved as well as all the various operators present on the market.