Regional Report: Italian natural gas market

The Italian gas market is the third largest in Europe with a gross consumption of 84.9 billion m³ in 2008, which fell to 78.1 billion m³ in 2009 due to the economic crisis. Natural gas represents 36% of total energy demand in Italy.

Natural gas supply

Domestic production is in marked decline. Cedigaz estimates that domestic production will decline slowly to approximately 4.2 billion m³ in 2020. The majority of the country’s gas demand is met by imports mainly from Russia and Algeria. Dependence on imports was estimated to be approximately 91% in 2009 and is to increase to a minimum of 95% in 2020.

Natural gas network

Efforts have been made to develop infrastructure in order to meet the growing demand of natural gas and import capacities. The extensive gas transmission network includes more than 33 000 km of medium and high pressure pipelines.

Market orgnisation

Market liberalisation has been implemented with resistance as in many other European countries due to the historical market structure and the dominant position of the national companies. The unbundling of supply/sale from infrastructure and the introduction of transparency in the Italian market have been realised. Barriers to full competition are progressively overcome, noteworthy under the pressure of the regulating authority and the development of additional infrastructure capacities. One difficulty was due to the fact that the market is affected by long term supply contracts and long term capacity reservation. Nevertheless natural gas trading is growing, particularly at the ‘virtual trading point’, following the opening of the market.

The wholesale market

The wholesale market takes into account transactions between suppliers and a few final consumers. Among market participants, those classified as wholesalers are companies having made less than 95% of sales to consumers and also include companies with their own natural gas production, which they offer on the wholesale market. Many wholesalers are also very active on the retail market. In 2008 there were 78 wholesalers. Since the complete opening of the gas market in 2003, the number of gas wholesalers has almost doubled. According to the 2008 survey, wholesalers sold 109.6 billion m³, of which 43.2 billion m³ was to the retail market (end users) and 66.4 billion m³ was to other intermediaries in the wholesale market.

The retail market

The retail market encompasses transactions only with final consumers. Total sales to the retail market (end users) amounted to 69.9 billion m³ in 2008 according to the survey.

Free and protected market

According to the enquiry, sales realised on the free market accounted for 50.2 billion m³ in 2008 (i.e. 60% of total final consumption of 83.4 billion m³) against 19.7 billion m³ realised on the protected market.

In terms of number of clients, it is estimated that the protected market encompasses 96% of domestic users (households), 61% of commerce and services, and 48% of industrial users. It must be noted that the protected market includes clients who can choose another supplier but have not made this choice and have retained the protected tariffs. In the domestic segment, 81% of the consumption relates to unit consumption below 5000 m³/y. For commerce and services, 54% of the consumption relates to unit usage between 5000 and 200 000 m³/y. For any consumption above 200 000 m³/y, most of the supplies are contracted on the free market. In the non-domestic sector, small business and services continued to switch to the free market. Globally, there have not been any signs of switching back from the free market to the protected market in any of the consumer classes.

Medium term projects

It is hoped that the economy will recover in 2010. The recovery depends on foreign demand, as the threatening rate of unemployment has severely affected domestic demand (more than 30 000 small and medium enterprises bankrupted and more than 50 000 small retail business have disappeared in 2009). The OECD is projecting a GDP growth of 1.1% in 2010, similar to the annual rate of growth since the beginning of 2000s. It may take two or three years to recover to the consumption level of 2007 - 2008. Nevertheless, Cedigaz estimates that the gross demand can be estimated prudently to approximately 95 billion m³ in 2020 mainly due to the expected growth in the power generation sector and to a lesser extent the residential and services sector. This projection corresponds to an increase in demand of approximately 10 billion m³ between 2008 and 2020. Forecasting the domestic production at approximately 4.2 billion m³ in 2020 compared to 9.2 billion m³ in 2008, the imports of natural gas are estimated to increase by 15 billion m³ over the projected period.

Author: Didier Favreau, Cedigaz, France

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