Regional Report: The Italian downstream sector

Italy is blessed with a favourable climate, but conditions in its downstream sector may not be quite as sunny. Markets have stabilised and become somewhat more predictable versus the unsettled conditions that developed in Q4 2008 and lasted through 2009, but even now, for most refinery products and petrochemicals, the ongoing economic malaise has resulted in a substantial, structural drop in demand from OECD countries. Also there has been a temporary slowdown, or at least a softening, of demand in fast growing economies such as China and India for other products derived from oil and gas.

Existing older facilities in Italy (and elsewhere in Europe) cannot compete against newer, more efficient facilities in the Middle East and Asia. The Italian downstream sector is also challenged by the European Union’s energy strategy, which aims to cut approximately € 60 billion of oil and gas imports over the next 10 years. The strategy is designed to bring the European economy out of recession, to achieve energy security, to increase energy efficiency by 20% and to rely more heavily on domestic renewable sources. It also affirms the EU’s commitment to curbing carbon emissions.

Refining: an ‘absolute disaster’

With substantial industry overcapacity hurting everyone’s margins, the tone for refining in 2010 was set early in the year, when Eni SpA, Italy’s largest oil company, halted efforts to sell its 84 000 bpd Livorno refinery in Tuscany because there were no buyers. Eni previously had announced plans to cut spending on refining by 6% in the investment period that finishes at the end of 2011.

Some observers see the Italian, as well as the bulk of the European, petrochemical industry moving East on a wholesale basis, much as the US steel industry withered in the years after World War 2 while new steel production developed in Japan, Korea and elsewhere in Asia.

Financial manoeuvring

Some Italian companies are adapting to difficult industry conditions by strengthening ties with foreign counterparts, both for financial reasons and to expand their markets.

Technology offers a solution

To survive in the current environment, producers urgently need to reduce production costs, to improve productivity and quality, to comply with environmental rules, and to do so without major disruption to existing operations and at the lowest overall cost possible. Expert technology and service providers help make that happen.

Challenges and opportunities

There is no doubt that the downstream sector in Italy, as in all of Europe, faces extreme challenges. But in challenge lies opportunity.

In its ability to capitalise on opportunity, Italy is well served by its bountiful store of expert technical and project management expertise, by its experienced business leaders with the foresight, flexibility and courage to deal with the industry’s complexities, and by the advanced technologies that are available to address the critical issues of cost, quality and emissions performance.

Author: Giorgio Greco, GE Oil & Gas, Italy

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