GAS, BETWEEN ENERGY TRANSITION AND GEOPOLITICAL ASPECTS
by Jonathan García Gaitan - Director Gas Operations
The recent attack on two oil tankers in the Strait of Hormuz - the strip of land that divides the Arabian Peninsula from Iran - has alarmed the world not only for the possible political repercussions (in relations between the USA, Iran and the Gulf countries) but also for the consequences on hydrocarbon trade. Specifically, there was fear of an increase in the price of LNG (liquefied natural gas) which passes through the strait in large quantities, transported by ships coming from Qatar. In the event of political turbulence, a sharp increase in prices is likely, as the diplomatic skirmishes between the United States and Iran in recent weeks suggest. The most serious consequences will be suffered by those importing nations that are not very independent from an energy point of view, including Italy.
And Italy's energy dependence on other states does not spare - as can be imagined - even natural and liquefied gas. In 2018, in fact, 67 billion cubic meters of gas were imported, with a decrease of 2.6 billion compared to 2017.
Arriving almost entirely via pipeline (over 90%), the gas used in Italy is 44% of Russian origin (with 29.5 billion cubic metres); it is followed by the Algerian one (25%), with 17.1 billion m3 - but rather downsized after the 2016 exploit - that of Northern Europe (Norway and Holland) and that from Libya. However, if imports from Northern European countries show a positive sign (+7% in 2018), Libyan imports, also due to the internal difficulties of the African nation, continue to decrease (4.4 billion m3).
With the entry into operation of the Trans Adriatic Pipeline (TAP), scheduled for 2020, the quotas could change and help lower the cost of gas for Italian consumers. In Italy, end customers pay on average 10% more for gas than in Northern European countries.
The expected transport capacity will be approximately 10 billion m3, with the possibility of satisfying the needs of 7 million families.
LNG continues its growth, currently representing 7% of imported gas.
Graph 1. Gas import. 1997-2018 (Gm3)
Source: ARERA on MISE DGSaie data
And what about internal production? After years, 2018 showed a less significant decline compared to the past (-1.6%); within 10 years, however, Italian production halved, going from 9.3 billion cubic meters in 2008 to just over 5.4 billion last year.
Graph 2. National gas production. 1997-2018 (Gm3)
Source: ARERA on MISE DGSaie data
Regarding consumption, in 2018 they reached 72.6 billion m3, down by 3.3% compared to the previous year. Complicit in the decrease was the lower demand for thermoelectric energy, the gas used to produce electricity. A minus 7.6% essentially due to three factors such as: a greater contribution from renewables, more energy coming from hydroelectric, more nuclear power purchased in France.
In any case, we are still below the consumption levels of 2003, when over 86 billion cubic meters were consumed (source MiSE-DGSAIE)
Gross gas consumption in Italy. 1997-2018 (Gm3)
Source: ARERA on MISE DGSaie data
Without having overshadowed the role played by its big brother - oil - gas has transformed into an important strategic lever to be used in political and economic relations between states. Referred to as the fuel of the energy transition, it has become - for some time now - a sensitive thermometer of the geopolitical situation. And he is evidently conditioned by this. But not only that, elements such as climatic conditions - for example cold winters or springs that are slow to appear - can negatively impact the price.
In any case, the "macro" affects the "micro", which means repercussions on prices not only wholesale, but also on the bill. The Energy Observatory of the Facile.it portal, analyzing over 63 thousand contracts collected during 2018, estimated that if electricity accounted for 417 euros/year on the expenditure of an average Italian family, gas has come to affect for 762 euros.
From a prospective point of view, the outlooks of international organizations (such as IEA) or the study centers of large groups (such as BP) try to estimate the price trend in the coming years. Forecasts speak of a long-term increase in the cost of natural gas in Asia, thanks to the increase in demand, anti-pollution policies and the construction of new transport infrastructures. At the same time, in Europe there will be strong pressure on prices due - in addition to CO2 mitigation choices - to competition between European and Asian consumers.
In all of this, future scenarios show a global demand for natural gas increasing by 46%, at least until 2040. Also following a progressive reduction in the shares currently occupied by oil (from 32% to 29% by 2040) and coal ( from 27% to 21%).
In conclusion, a look at China alone. The Asian country represents the 37% of the global increase in natural gas consumption between 2017 and 2023: none more than Beijing. The growing need will lead it to be the largest natural gas importing nation in the world by this year and, with 171 billion cubic meters by 2023, one of the most served by LNG. The driving sector will be industry, responsible for more than 40% of the increase in natural gas consumption.
Sources:
- ARERA, Statistics
- Gas Exporting Countries Forum (GECF), 2018 Global Gas Outlook Synopsis
- International Energy Agency (IEA), GAS 2018. Analysis and Forecast to 2013 (executive summary)
- BP, Energy Outlook 2019
