Italy Threatens to Throw Spanner in European Alternative to Russian Gas

Yves here. An interesting potential under-the-radar consequence of regime change in Italy.

By Vanand Meliksetian, an energy and utilities consultant who has worked with several major international energy companies. Originally published at OilPrice

No fewer than Turkish President Recep Tayyip Erdogan, Azerbaijani President Ilham Aliyev, Serbian President Aleksandar Vucic, Ukrainian President Petro Poroshenko and Turkish Cypriot President Mustafa Akinci attended a gathering in Central Turkey on 12 June. The amount and variety of attendees of this meeting reveal a common interest in one field of geopolitical developments: energy and more specifically natural gas.

The opening ceremony of the 1.850 kilometers long Trans Anatolian Pipeline, TANAP, starting at the Shah Deniz gas field in Azerbaijan and ending in Turkey, is the last step before connecting to the European grid in Greece and Italy. TANAP is part of the Southern Gas Corridor, which was the dream of many European leaders and officials to create an alternative to Russian gas.

The attendance of several high-level dignitaries shows the interest in the pipeline and the geopolitical developments of the region. More specifically, Russia’s dominant position in the natural gas market of southeast Europe has set leaders scrambling to find alternatives or at least competition of producers.

The fraught relations between Russia and Ukraine brought these countries on a collision course. However, due to historical reasons the energy industries of Moscow and Kiev have been closely intertwined. Russia has set itself an ambitious goal of circumventing Ukraine as its main transit country for gas exports. The Turk Stream and Nord Stream 2 pipelines, which are either planned or under construction, will carry much of the needed gas to Europe starting in 2019 when a new transit contract has to be signed with Kiev.

Ukraine intends to diversify away from and ultimately stop buying gas from Russia. The Southern Gas Corridor, therefore, is a highly anticipated alternative. The attending of Petro Poroshenko at the opening ceremony is a testament to this goal. Already Ukraine importing gas from neighbouring European countries with plans to increase domestic production of natural gas.

The election of a new government in Italy has brought change to the strategic energy map, which for a decade seemed to be fixed. The €40 billion Southern Gas Corridor pipeline bringing Azeri gas to Europe was intended to be linked to Italy’s by a yet-to-be-built Trans Adriatic Pipeline, TAP. However, the coalition government of the Five Star Movement and the League has created much uncertainty.

Environment Minister Sergio Costa has dubbed TAP as “pointless” and has ordered the launch of a formal review. The coalition partners have made fighting corruption one of their election promises. Furthermore, decreasing gas consumption is used as another argument not to construct an additional pipeline. Although demand has risen over the years, it is nowhere near the peak of a decade ago. Italy imports 90 percent of its needs from Russia, Libya, Algeria, and Holland while there is spare capacity.

Environmental reasons are also being used as the 5-Star Movement has a green political program. The new government’s minister for southern Italy, Barbara Lezzi, has said that the government believes that the pipeline presented an unnecessary environmental danger given Italy’s excess gas capacity. Although Puglia’s governor does not object to the construction of TAP, he has proposed redirecting it away from a tourist area.

The TAP consortium, which includes British oil group BP, Italy’s Snam and Spain’s Enagas, has said re-routing the pipeline away from Italy is not an option. Also, redirecting it inside Italy could delay the project by four to five years. However, analysts have predicted that there is an alternative: existing gas transit lines through the Balkans could be repurposed, and additional interconnectors could facilitate the transport of gas to Southeastern and Eastern Europe.

However, for now, this seems not as a reasonable alternative as it could take years of planning, securing new financing, and receiving political support in a fragmented region with diverging interests. What looked like a streamlined project (Southern Gas Corridor) with political and financial support both from Brussels and local players, has the potential of becoming a crisis. The European strategic energy map has been plunged into uncertainty due to recent developments as several major pipelines are planned, under construction or face uncertain futures.

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    1. Yves Smith Post author

      Help me.

      Money has to be invested now. Returns are down the road, if ever.

      Did you miss that Italy is under serious budget constraints and has things it would rather spend money on?

      If you can’t make better comments than this, don’t. This site is not a chat board. Commenting is a privilege, not a right. I suggest you read our site Policies before commenting again.

  1. The Rev Kev

    Sounds like that the pipeline is not being built for economic needs but for geopolitical wants. Notice that I used the word wants and not needs. If the thing was built then Italy would have to cough up a bucket load of the hard stuff to build all the facilities but if they have their energy needs already being met, then they obviously cannot afford it. And I am not sure how the Ukraine would tap into it. Maybe a pipeline going through Bulgaria and Romania. If I was those countries, I would get the money up front for any construction work or any gas with the Ukraine. They have a long history of stiffing their suppliers and then suing them in court claiming that they were owned that gas anyway.
    Finding it hard to visualize the route of this pipeline, I pulled up a map of it at and found something interesting. That pipeline is going through four different countries before it is supposed to hit Italy but would that mean that that gas would have to factor in paying transit fees for those four countries? That might make it more expensive. Also, while going through Turkey, it actually goes through Kurdish Turkey so does that mean that the Kurds would have to be paid off not to blow it up or would the Turks clear a security zone on either side of that pipeline? Good luck trying to defend that against a drone carrying incendiary explosives. Whichever route taken, for all those countries I would recommend that they choose wisely-

  2. PlutoniumKun

    To give some context to this, Italy has consistently had some of the most expensive electricity in Europe over the years, mostly due to its very high dependance on natural gas. Gas prices are relatively low now, but there is no guarantee this will be the situation over the years (gas prices on fixed supply networks are generally not connected to supply and demand, but are linked to oil prices). Italy is also unusual in Europe in having a bigger choice in supply, due to its proximity to north African and eastern Mediterranean sources, not least the prospective very large fields off Israel and Egypt. So there seems little real incentive for the Italians to be part of this project, their priority should be diversifying away from dependence on gas. They are already investing in hybrid solar-gas power plants, which makes a lot of sense in the Italian climate.

    Incidentally, there is another wild card in this in that the main contractor for TANAP is Bechtel, a company with (allegedly) very close links to Washington. One wonders what sort of conversations might be taking place in backrooms about this.

    1. JTMcPhee

      Are those “very large fields” of subterranean gas the “property of Israel,” or do others (humph, Palestinians) have a claim to them?

      Wait, wait, I know the answer to this one…

    1. Yves Smith Post author

      See my reply to KK above. Applies to your comment as well. Frankly, you don’t come off particularly well in light of PlutoniumKun’s comment just above.

  3. Michael C

    Isn’t the whole attempt to reshape the Mideast and to isolate and bend Russia to its will all a part of the geopolitical strategy of the West? The narratives thrown about via the corporate media always gives the storylines written by the major players, while beneath it all geopolitical energy maneuvering somewhat quietly runs our world. This new world order is only new in that their is a shifting of ponds but the same strategy dictates the game–who controls economic power in the world, the earth and its people be damned. Necessary to this sham is the sham of democracy, a god not unlike the god of any religion.

  4. TheHoarseWhiperer

    The Russians scrapped the Bulgarian route after Bulgaria opened the Graf Ignatievo airbase to American planes. Given the current state of NATO – Russian relationship, it is unlikely that they would reconsider. There are certain things which trump economic considerations.

    1. nervos belli

      No, Bulgaria scrapped the pipeline after massive pressure from EU.
      Nothing to do with an airbase, and while Russia terminated the project, it was only after Bulgaria stopped their construction after aforementioned pressure.
      The reasons the EU stopped it was certainly political, since economically it was an abysmally stupid move. Why would anyone build a pipeline to european markets from Russia through Turkey if they can avoid it? It was however 2014, the year of the ukrainian nazi putsch, the crimea secession and a general war in Donbass

  5. Alex Cox

    In 1971, the great Italian director Francesco Rosi made a film called THE MATTEI AFFAIR, about Enrico Mattei, who built up the Italian natural gas industry after WW2, and died in mysterious circumstances. It is a great film – Rosi’s best – with an extraordinary performance by Gian Maria Volonte. It’s the most political of all Rosi’s films (and with the exception of CARMEN they are all intensely political). Perhaps for that reason – the rights are owned by the US studio Paramount – it is unavailable, unless you’re lucky enough to find a bootleg copy online.

    Which makes me wonder… what become of the Italian natural gas reserves? The film suggests that the Mafia may have killed Rosi to prevent development of Sicilian reserves, and keep Sicily poor (and hence Mafia-dominated). CIA and French Intelligence are also suggested as possible suspects. Are the Italian gas reserves exhausted now? Or are they not being developed?

    1. PlutoniumKun

      Italy has gas reserves, but the geology is very fragmented – originally most gas was extracted in the north, in the Po Valley, but most known reserves are off-shore in a variety of places, including off of Sicily. So far as I know these are not particularly large reserves – certainly not big enough to significantly reduce imports.

      I’ve not seen the film, but I suspect its confusing local gas reserves with pipelines from Algeria and Libya. It was Italian policy from the 1970’s on to import gas from north Africa to Sicily and the south as a means of developing energy intensive industries in the poorer cities of the south. I vaguely remember years ago reading of some notorious scandals involving the pipelines, a mix of incompetence and corruption – I think one to Algeria was left unused for many years because nobody had thought to agree the pricing before the gas line was built. Perhaps thats what the film was referring to.

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