ENEL's increasing reliance on very light, sweet grades of crude oil has made this dependence even more pronounced. These low sulphur fuel oils (LSFOs) enable its power plants to meet stricter European Union regulations on air emissions. Given ENEL's plans to boost capacity significantly, it could soon become the biggest importer of LFSO if it does not diversify its energy mix or place desulfurizers on its fuel oil power plants. This could leave Italy with an even more precarious dependence on foreign oil, as LSFO demand would more than double and quickly outstrip Italian refineries' capacity.

Agip's oil and gas exploration subsidiary, Agip Spa, operates in over 20 countries to supply Italy's domestic oil demand. Significant hydrocarbon concessions exist in Libya, Tunisia, Egypt, Congo, Angola, Nigeria, United Kingdom, Norway, the United States, and China. ENI is also expected soon to open up offices in Vietnam and to begin a major move into offshore oil exploration opportunities there.

Foreign exploration and production form the core of ENI's ambitious capital spending plans. Nearly half of the proposed $18 billion the company plans to spend for the 1994-1997 period will be devoted to this activity. Agip is focusing on Libya, where it is fighting against the UN import embargo to increase recovery from the major Bu Attifel and Bouri fields. The company is also looking at future development of West Siberian oil fields and possibly Iraq's Nasariyah field.

Though Italy's domestic oil production is relatively small, exploration within the country has picked up over the last two years. The promotion of indigenous oil and gas production as a way to reduce import dependence remains an important policy objective. In March 1995, Agip's Italian exploration division announced that it was planning to spend $3.1 billion on Italian exploration and development in the next four years, a large part of which will be sunk into onshore oil fields of the Val d'Agri in the southern region of Basilicata, and the offshore Aquila oil field in the lower Adriatic Sea off Brindisi.

ENI has maintained exclusive drilling rights in two other important areas of domestic exploration, Sicily (15,000 b/d) and the Po Valley in Northwest Italy (60,000 b/d, 60% of domestic production). However, a European Union hydrocarbons licensing directive forbidding the granting of exclusive drilling rights to one company in a single geographic area will end ENI's sole concession in Sicily by January 1997. Meanwhile, the Italian government is also considering a measure that would end the group's monopoly on hydrocarbon extraction in the Po Valley.

Refineries

NATURAL GAS

Natural gas consumption in Italy stands at about 1.7 trillion cubic feet per year. Agip Spa officials have projected that this level could increase by over 50% in less than five years, to approximately 2.6 tcf per year by 2000. This would result in natural gas meeting about one third of Italy's total primary energy demand. In the electrical power sector alone, gas consumption is expected to jump to 40% of the national total from its current level of 20%. Of the 1.8 tcf of gas delivered to Italian markets in 1993 by Snam, 35% was produced in Italy by Agip and other companies, while 28% was imported from Algeria, 26% from Russia, and 11% from Netherlands. To boost imports, Snam is doubling throughput capacity of the trans-Mediterranean gas pipeline system and constructing a new Maghreb line (due to start by the end of 1995) for its North Africa supplies, while also increasing throughput capacity of the Trans-Austria Gasleitung (TAG) pipeline for its imports from Russia.

Agip Spa, along with British Gas plc and Russia's Gazprom, is working on gas development in Kazakhstan's Karachaganak gas/condensate field. Additionally, Agip has sought to develop the gas sector of Saudi Arabia, with estimated reserves of 186.5 tcf. The company has held discussions on assisting in natural gas exploration with Saudi officials, who have so far resisted opening upstream operations to foreign companies. Also, after some delay the Italian government is moving ahead with plans to import gas from Nigeria. The project had been held up pending approval for construction of an LNG terminal at Montalto di Castro, on the west coast of Italy.

Approximately 80% of electric power in Italy is from thermal (primarily oil-fired) plants. Since nuclear power has been abandoned, hydroelectric and geothermal power account for the remainder. The government is highly supportive of renewables, and provides a program of grants and tax exemptions to support their further development. In 1993 and 1994, 729 megawatts (MW) of renewables capacity was authorized, of which over 400 MW was accounted for by hydropower. In October 1994, Italy brought into service the world's largest solar power station at Serre, in the south of the country. It is expected to generate up to 5 million kwh per year (enough to supply about 3,000 homes), and will serve as ENEL's primary research facility for photovoltaic cells.

ENEL has the state monopoly for the import and distribution of electricity, and accounts for about 80% of production. Because electricity demand has grown faster than new generation capacity, ENEL has had to rely increasingly on imports. In 1993, electricity imports accounted for a little over 10% of total consumption. In 1994, this share increased to 14%. Switzerland and France were the top two exporters to the Italian electricity market, followed by Germany.

ENEL has drawn up ambitious plans to meet the need for new capacity, which has been neglected due to the nuclear moratorium and the difficulty involved in getting permission for new construction. The utility hopes to build an additional 13.8 MW of net available capacity by 2002. This will largely come in the form of small plants constructed on or near existing sites.

Nuclear

COAL

Despite the decline in coal consumption, Italy is undertaking a significant oil-to-coal conversion program as part of a growing effort to cut annual fuel oil consumption. ENEL hopes to triple coal consumption by 1998 from 1994 levels, mainly by resurrecting mothballed plants with the help of expensive flue gas desulphurization units and electrostatic filters to cut increases in carbon emissions.

ECONOMIC OVERVIEW

ENERGY OVERVIEW

OIL AND GAS INDUSTRIES