June 3, 2014 / 3:27 PM / in 3 years

Italian government steps up home energy drive after European poll boost

* Italy looking to double oil, gas output by 2020

* Minister to meet energy project stakeholders Wednesday

* Domestic output could help supply security

By Stephen Jewkes

MILAN, May 22 (Reuters) - Italy’s government, buoyed by a strong showing in European elections, is stepping up efforts to boost domestic oil and gas output as mounting tension in Russia and North Africa raises the spectre of disruption to energy imports.

Prime minister Matteo Renzi’s triumph in European elections in May gave the government a mandate to push ahead with ambitious reforms as it seeks to shake up the way business is done in Italy’s sluggish economy.

The economic reforms include pledges, inherited from a previous government, to double oil and gas output by 2020 and generate investments worth 15 billion euros ($20 billion) over that period.

Italy, which spent 56 billion euros last year on its energy bill or some 3.6 percent of gross domestic product, imports around 90 percent of its overall energy needs. Some 70 percent of its gas comes from Russia, Algeria and Libya.

Now with Russian flows threatened by the Ukraine crisis, Libyan supplies vulnerable to conflict and Algeria volumes reduced, Rome is keener than ever to diversify supply sources.

Plans by France’s Total and Germany’s E.ON to withdraw from a pipeline scheme to bring Azerbaijan’s gas to Italy has also heightened concern.

“The electoral win has certainly stiffened resolve and we can expect a series of energy measures to be taken fast,” an Industry ministry source said.

Industry Minister Federica Guidi is due to meet stakeholders on Wednesday in the resource-rich region of Basilicata, home to around 70 percent of Italy’s current oil production, to try and overcome strong local opposition to exploration and production (E&P) activity.

“The idea is to build a consensus and it could be a blueprint for other regions where drilling has been held up by red tape and environmental resistance,” the source said.

Italy, which has the biggest hydrocarbon reserves in Europe outside the Nordic area, currently produces just 12 MTEP (million-ton equivalent of petroleum) per year. That compares to oil and gas reserves estimated at 700 MTEP.

The new government has signed up to an energy white paper drawn up two years ago by the administration of Mario Monti which, among other things, aims to raise gas output by 24 million barrels of oil equivalent per year (mboe/y) and oil by 57 mboe/y.

RED TAPE

But it won’t be easy. After BP’s Maconda spill in 2010, Italy extended the ban on offshore drilling to 12 miles in a move to protect its coasts and tourism industry. Last year offshore E&P acreage was cut to 139,000 from 255,000 square kilometres.

Italy’s complicated and arbitrary regulatory environment means several different permits are often required from central and regional governments before clearance of a project is given.

In recent years local authorities have halted a number of energy projects, prompting the likes of BG and Royal Dutch Shell to rethink Italy investments. Hydrocarbon exploration risks not just spills and subsidence but could trigger earthquakes, some authorities say.

Since 1995 more than half of the oil majors have left Italy as production falters and today almost all activity is developing existing fields rather than exploring new areas.

Italian oil major Eni and Edison, owned by French utility EDF, are Italy’s leading offshore players while Shell and France’s Total are also active.

But critics also say that domestic potential oil and gas reserves are so slim that Italy would be better off focusing on renewable energy development.

“If we just used domestically produced oil, the reserves in Italy would finish in 50 days ... even less for gas,” Stefano Ciafani, vice president of environment group Legambiente, said.

A recent industry ministry report acknowledged domestic oil and gas production and employment would fall this year because of weak E&P activity and ongoing local resistance.

Compare that to neighbour Croatia, which recently tendered 29 blocks in the Adriatic to attract $2.5 billion of investments from oil majors, and to Malta where there are hopes of an extension of Libya and Tunisia’s geology without political risk.

“Croatia is going to milk this to its advantage while we’re just looking on,” said lawmaker Vincenzo Piso, a member of Italy’s New Centre Right party which is part of the ruling coalition and wants to help business. ($1 = 0.7349 euros) (Editing by Susan Fenton)

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