Eni SpA (NYSE:E) (BIT:ENI), Total SA (NYSE:TOT) and Royal Dutch Shell plc (NYSE:RDS.A) (NYSE:RDS.B) want to develop Italy with the aim of almost doubling the current output of 101,000 barrels a day. If all estimates are met, production in Italy could reach 215,000 and the country will replace Denmark as the third largest oil producing nation in Europe.
The historical and current status of the top five producers in Europe is shown in the table below.
Table 1: Top Five Producers in Europe
Southern Italy is home to the largest onshore oil field in Europe, estimated at more than 1 billion barrels. Development of the oil-rich fields in Italy would reduce the country’s dependence on imports. Domestic production satisfied 8.37 percent of Italian demand in 2012 and this self-sufficient number has increased to 12.88 percent in the first quarter of 2013. If the target production of 215,000 barrels a day is achieved, Italy’s production could reach 16.6 percent of its demand.
Figure 1: Production versus Demand in Italy
Italy’s production in 2012 was 12 percent less than it was in 2005. But the demand in 2012 was 27 percent less. Despite the recent declines in Italy’s production, the aggressive plans of the oil giants for the South hold a different future for the country’s oil production.
Total SA (NYSE:TOT) and Royal Dutch Shell plc (NYSE:RDS.A) (NYSE:RDS.B) already have permission to develop a new project, Tempa Rossa, which could contribute as much as 50,000 barrels to the target. Eni and Shell’s jointly operated field is also set to expand production. Val d’Agri has received permission to expand production by 22% from 85,000 barrels per day to 104,000 barrels per day. Eni SpA (NYSE:E) (BIT:ENI) has plans to invest EUR 500 million in Val d’Agri alone.
Figure 2: Eni’s Monthly Production in Italy – Onshore and Offshore
Eni To Expand Its Exploration Activities In The Offshore Areas
Eni SpA (NYSE:E) (BIT:ENI)’s onshore production is 16 times its offshore production in Italy. However, in recent months, Eni has been investing much in the offshore sector and has grown its offshore production in multiples. Technological advancement has allowed Eni SpA (NYSE:E) (BIT:ENI) to expand its exploration activities in the offshore areas and has led to the increase in total production by Eni.
Other firms have also been shrinking their operations in Italy, both in the onshore and offshore areas.
Figure 3: Monthly Production of Different Firms in Italy
If this trend continues, Italy will always be at a political disadvantage as it will be reliant on imports for its most important raw material. Eni SpA (NYSE:E) (BIT:ENI) and other firms efforts should, therefore, be encouraged by the Italian government and incentives need to be provided for exploration activities in the oil-rich basins of Italy.