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Italy Taps Oil For Fix to Economic Woes

Italy Taps Oil For Fix to Economic Woes
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Δευ, 13 Ιανουαρίου 2014 - 18:14
The impoverished region of Basilicata, in the instep of the Italian boot, has long been called the Texas of Italy for oil reserves so abundant that crude bubbles out of natural springs.
The impoverished region of Basilicata , in the instep of the Italian boot, has long been called the Texas of Italy for oil reserves so abundant that crude bubbles out of natural springs.

For years, though, local governments have hindered production amid complaints that the region wasn't getting its fair share of the rewards and worries about potential harm to its tourism industry and the environment.

Now, the Italian government--hungry for revenue and desperate to create jobs and jump start the recession-weary economy--is trying to clear the path for the country's own Eni SpA and other major oil companies to step up drilling.

By taking steps to give regional and local governments a greater share of the spoils, it hopes to temper the opposition that has stymied more drilling until now. The goal is to double the country's annual oil production and slash its energy import bill by roughly a quarter by 2020.

"This is the right time" for oil exploration in Italy , said Marco Brun, head of Italian operations for Royal Dutch Shell PLC, which is looking to triple its investment and spend "many hundreds of millions of euros" in the country.

With an estimated 1.4 billion barrels, Italy has the third-largest proved reserves of crude oil in Europe , trailing only the offshore fields of Norway and the U.K. , according to the BP Statistical Review.

Much of Italy 's oil is in Basilicata , a mountainous, agricultural region dotted with picturesque olive groves and medieval villages. It also is one of Italy 's poorest, with 14.5% unemployment among a population of 600,000 and little infrastructure or industry.

Local governments long hobbled efforts to expand oil production. It took Eni most of the 1990s, for instance, to reach an agreement with local politicians on how to divvy up proceeds from Val d'Agri, which is now Europe's biggest onshore oil field.

To help speed negotiations, the Italian government made changes last year to allow more oil royalties to go to local coffers, with a bigger share earmarked for regional infrastructure. It also simplified application procedures and opened offshore areas to exploration, although the industry minister halved the available areas in September. Whereas oil companies once had to navigate a thicket of regional and central agencies for drilling rights, they now pass through one permitting process coordinated by the central government.

The ministry said it expected the remaining offshore sites would be of more interest to companies as they are mainly far away from the shoreline and so would face less local opposition. They also are concentrated where neighboring countries have allowed offshore drilling.

As a result, Italy 's daily oil production has climbed to 112,000 barrels after slipping in recent years. The government has forecast that doubling that will create 25,000 jobs and generate nearly EUR3 billion ($4 billion) in additional tax revenue a year.

It also would help Italy meet its target of cutting EUR14 billion from its EUR62 billion annual bill for energy imports by 2020.

"When I was hired, the mission was: go out [in the world] and find hydrocarbons for the good of the country," said Giuseppe Tannoia, senior vice president responsible for Southern and Eastern European exploration at Eni, who started with the Italian oil company in 1985. Now, "I'm finding them in Italy ."

Development and production activities under way at two huge fields in the Basilicata region could allow Rome to reach most of its target by 2016--in part because the oil is close to the surface. In some areas oil turns local spring water brown and tar-like while releasing gas bubbles that pop continuously on the surface.

Current output at Val d'Agri, nestled along a legendary natural spring, stands at 85,000 barrels a day. Eni and Shell already have permits to boost that to 104,000 barrels and are pushing for permission to lift it to 129,000.

Total SA, Shell and the Japanese trading firm Mitsui & Co. are investing EUR1.6 billion in efforts to tap a nearby field called Tempa Rossa. It contains an estimated 440 million barrels of recoverable reserves, which oil executives say make it the largest undeveloped onshore field in Western Europe .

Resistance from environmentalists and regional lawmakers hasn't gone away, however.

In 2012 the Basilicata region introduced a ban on new hydrocarbon permits as it feared excessive exploration activities in its territory, but Italy 's constitutional court struck it down last June.

In August, some 7,000 bathers formed a human chain on a beach in neighboring Calabria to protest new proposals to drill offshore there.

Industry Minister Flavio Zanonato last fall described the move to spend more locally as having a "dual objective:" to reduce unemployment in the regions and build consensus in favor of increased production.

The Val d'Agri field has already created a mini boom for Basilicata . Between 2008 and 2012, Eni and Shell paid the region almost EUR500 million in royalties.

The small town of Viggiano, which hosts the Val d'Agri oil command center and received almost EUR20 million last year, has used the money to build new soccer, tennis and swimming facilities.

Guardia Perticara, a quaint town in the hills near the Tempa Rossa field, is hoping for a similar payday. Royalties could double the town's annual budget of EUR1 million, Mayor Massimo Caporeale said.

"Our main benefits will be jobs and projects to promote tourism and encourage young people to stay," he said.

Yet environmental groups and other critics argue that even a doubling of Italy 's oil production would represent just 16% of total energy consumption--an amount they say isn't worth marring the countryside or coastline for.

"We want governments to change the way they think about energy, and the opportunities are in renewables," said Mariagrazia Midulla, head of energy and climate at WWF Italy. "Hydrocarbons are the past, not the way of the future."

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