Italy Secures Gas Supplies Until 2050 as ENI SpA Inks LNG Deal with QatarEnergy

Industry Demand and Energy Transition Plans Keep Italy Reliant on Gas Despite Rising Prices.

Italy’s strategic partnership with Qatar in the liquefied natural gas (LNG) sector has reached a significant milestone, with ENI SpA’s recent deal to purchase up to 1 million tonnes of LNG annually for the next 27 years. This landmark agreement solidifies Southern Europe’s largest economy’s energy portfolio, ensuring a stable energy supply until at least 2050.

As of 2022, gas accounted for approximately 51% of Italy’s total electricity generation, setting the nation apart as the most gas-reliant among Europe’s major economies. However, Italy’s heavy dependence on imported gas, with over 95% sourced from overseas, has led the country to embark on an accelerated journey towards enhancing renewable energy capacity, particularly from solar and wind sources. In 2022, these sectors expanded by 11% and 5%, respectively, surpassing the growth rates of other energy sources.

Renewable Energy’s Ascendancy

The amplified capacity in renewable energy significantly contributed to Italy’s clean energy output, which saw an increase of over 11% in the first nine months of 2023. Clean energy sources now account for a record-breaking 45.2% of the country’s electricity production, according to data from Ember.

Despite these remarkable gains in clean energy, natural gas has remained the cornerstone of Italy’s electricity generation in 2023. It is poised to continue dominating the nation’s power infrastructure for the foreseeable future, even as Italy plans for further advancements in renewable power.

Industrial Demand for Natural Gas

Italy’s enduring commitment to natural gas in its energy mix can be attributed to its substantial industrial energy demand. The country boasts the second-largest manufacturing economy in Europe, known for producing machinery, fashion items, food products, automotive parts, and pharmaceuticals.

With diverse industries such as car manufacturing, furniture production, and stoneware, Italy maintains a wide-ranging industrial landscape with constant energy needs.

Impact of Rising Energy Costs

The backdrop of rising energy costs in Italy cannot be ignored. The country’s average wholesale power costs have surged by approximately 147% in 2023 when compared to 2019, a trend similar to that observed in Germany, Europe’s largest manufacturing hub.

Italy’s power prices have also extended their traditional premium over German power prices. On a monthly basis, they are currently approximately 50 Euros per megawatt-hour higher than the average German power prices. This surge in costs indicates that large power users in Italy may have been more severely impacted than their German counterparts by the regional power price rally of the past year.

Government Measures to Support Industry

In response to the challenges posed by rising energy costs, the Italian government initiated a package of measures in 2022 worth EUR 9 billion. These measures aimed to bolster gas output, increase gas inventories, and provide businesses with the option to settle energy bills in up to 36 installments.

ENI’s recent deal with Qatar further reduces Italy’s reliance on Russia for natural gas supplies while cementing Qatar’s position as the country’s leading LNG supplier. The United States and Algeria also contribute significantly to Italy’s LNG imports and this year, these imports are on track to surpass the record set in 2022, totalling 24.5 million meters, as per ship tracking data from Kpler.

Combined with nearly full gas storage inventories, which currently stand at 98% capacity, these increased volumes of natural gas imports ensure that Italy’s energy consumers will have sufficient power supplies during the upcoming winter season when heating demand peaks.

Over the long term, the higher volumes of natural gas will offer stability in the power supply even as renewable energy generation expands. Gas-fired power plants can compensate for drops in electricity generation from solar and wind facilities. This augmentation of natural gas supplies is expected to reduce overall power costs, thereby enhancing the competitiveness of Italy-based businesses in comparison to regional rivals.

Italy’s energy landscape is in the midst of significant change. While the nation continues to rely on natural gas as its dominant source, it’s also actively expanding its renewable energy capacity. The ENI-Qatar deal reaffirms Italy’s commitment to balancing its diverse energy needs with a focus on reliability and cost-efficiency. In an evolving energy sector, Italy’s strategic choices are poised to strengthen its position as an energy leader in Europe.