Energy, strategy, economy: why wrong predictions could lead Italy away from getting greener
By Giacomo Galardini
Mario Barca, a 57 years old fisherman, is sitting lonely on the dock of the bay of Livorno, an industrial sea town 160.000 inhabitants in Tuscany, in the center of Italy. He won’t work today, for the second day in a row. “Is it because of the re-gassing unit!” shouts in a mixture of rage and desperation, from his white fishing boat Boiadè.
“Since the last two years, there isn’t as much fish as before,” he adds rolling his eyes. “We’ve been told that that thing”, points at an indefinite spot in the middle of the sea, “would have helped our economy and sunk the prices of our energy bills, but so far it didn’t.”
According to him “nobody cares about climate changes and environment, because it’s too complicated. Both government and companies only think about the profit,” he admits, resigned. Slowly a number of people gathers around the boat to engage a lively exchange of views which ends without a common shared conclusion.
Addressing global climate change
The recent debate about climate change and environmental issues has constantly gained more and more attention, not only on a local level. Global events such as the UN Climate Change Conference held in Copenhagen in 2009 and the European Summit on Energy in May 2013 are just two of the many international efforts made in order to find a shared solution about the issue.
Despite the efficacy of the agreements reached during those summit still under debate, is it clear that the climate change issue plays nowadays a significant role in world agenda and media coverage. Obama’s decision in May 2014 to set a target for 2030 carbon dioxide emissions for US power plants shows clearly that addressing global warming is at the top of the agenda.
But what are the other countries doing to solve the problem? While some countries (e.g. BRICS) are often pointed out to be obstacles for reaching a global decision, on the other hand it seems the EU is trying to be the global leading example in fighting against climate change.
The 2020 European climate and energy package, approved by the EU council in 2009, goes clearly in this direction. The package is a set of binding legislation that aims to ensure EU countries meet their ambitious climate and energy targets by 2020. These, known as the ‘20-20-20’ targets, set three key objectives for 2020: firstly, a 20 percent reduction in EU greenhouse gas (GHG) emissions from 1990 levels, secondly, a 20 percent increase in the share of energy consumption produced from renewable sources, and thirdly a 20 percent improvement in the EU’s energy efficiency.
Inside the EU: the Italian energy strategy
By taking a close look at the measures adopted by the singular countries, the case of Italy needs some attention. According to the European Environment Agency, in 2012 Italy ranked fourth for emissions shares of GHG after Germany, UK and France, producing 10 percent of total GHG shares among EU-28members. In order to meet the ‘20-20-20’ targets, in March 2013 the Italian government ratified a National Energy Strategy, called SEN (from Italian, Strategia Energetica Nazionale).
The strategy, explained in this document, aims for a ‘de-coaling’ process in the Italian energy system, by turning Italy into the ‘European gas hub’. In fact, Liquefied Natural Gas (LNG) produces less GHG than other fossil fuels. In order to balance the attempt to revamp the country’s energy competitiveness with environmental sustainability, for Italy it “is essential to create a dynamic and competitive gas market, integrated with other European countries.”
How to become the continent’s gas hub
The reasons behind this decision are explained by the prediction contained in the SEN, according to which “in the next 20 years, Europe will increase significantly gas imports to 190 billion of cubic meters (bcm).” These predictions, based on an International Energy Agency (IEA) 2012 report, shows that the “demand of natural gas will increase in the EU by 100 bcm, its production will decrease by 89 bcm and imports will raise from 265 in 2010 to 454bcm by 2035.” Therefore, it’s economically important for Italy to become a crossroads for gas pipelines coming from the northern African exporting countries in order to make a profit.
The strategy aims to reach several goals: methane gas would be used to convert power plant from fossil fuels (coal and fuel oil) to gas, which has less impact on the environment, and more importantly, Italy seeks to increase the number of countries from which it imports gas “to increase diversification in supply options.” In this way, import prices will sink and Italy’s dependency on the geopolitical stability of exporting countries like Russia (with the recent conflict in Ukraine) and Libya would “not be a problem anymore,” as stressed by De Vincenzi, Deputy Minister of Economical Development.
For these reasons, the Italian government decided in the SEN to implement the ‘National Gas-Hub Strategy’, which already since 2006 aimed to construct 11 offshore ‘re-gasification terminals’ along the coast of Italy. Briefly, ‘re-gasification’ is the term of the process that converts methane gas into a liquid form in the producer countries so it can be transported by ship to the consumer countries where it is ‘re-gasified’, i.e. brought back to its gaseous state, saving money and space.Those ship facilities, also known as FSRU (Floating Storage and Re-gasification Unit) were the flexible solution provided to bypass the Liquefied Natural Gas (LNG) pipelines’ dependency and to have more convenient prices.
The importance of accurate previsions
The plan did not convince all the experts in the field. Roberto Meregalli, ICT expert for 25 years for ENEL (the Italian electric utility company) and active member of Energia Felice, an association that promotes energetic efficiency in Italy, criticizes SEN strategy.
“The construction of offshore LNG terminals is not enough to achieve these goals,” he explains. “LNG price increased significantly after 2011 and export countries prefer more remunerative markets, like the Asian one.” For this reason, the “EU import market for LNG is decreasing.”
“Moreover,” continues Meregalli, “in 2012, only 15 percent of LNG was imported via ship,” and therefore it’s vitally important to have “long term import contract with suppliers’ countries.” In 2011, 270 bcm of gas was imported with long or mid-term contracts, and “only 26 bcm through spot market, that is, LNG purchased on a daily basis.” It probably seems an illusion to build those structures as an alternative for pipelines, without solid long-term contract for gas supplies, with the result of turning them into ‘invisible’ pipelines.
Concerns were raised not only about the efficacy of the SEN strategy, but also on its energy previsions. According to the 2013 Quarterly Report on European Gas Markets (QREGM), LNG imports began falling in the second quarter of 2011 and this trend continued in 2012 with volumes going down by 31 percent in 2012. The report concludes by showing that EU natural gas consumption continues its downward trend, with 2012 reaching a new record low level in annual consumption in the last decade. This trend contradicts SEN’s previsions, at least in the short term.
The plan must go on
Despite these blurred estimations, the Italian government didn’t reconsider the strategy as a whole. In Italy, among the 10FSRU re-gasification terminal projects planned in the previous years, five were canceled, three are in stand-by and only two were actually finished: one in Rovigo in 2009, which is working half-speed, and the second one in Livorno, finished in December 2013.
The ‘FSRU Toscana LNG’, a floating re-gasification terminal anchored 22km away from the coast of Livorno, is the first and only one ever built to work in open sea. Usually these structures are floating platforms or are built on the mainland, but the ‘FSRU Toscana’ was originally a vessel-carrier called Golar Frost which was reconverted in Dubai into a floating storage and re-gas ship.
OLT-Offshore LNG Toscana was the private investor company who commissioned the FSRU as the “optimum solution for this locations in terms of environmental impact” as stated by Alberto Ton, OLT Executive sales manager. Gas resulting from vaporization is head through an offshore pipeline to the mainland, connecting to the national grid.
An expensive sleeping beauty
Despite its innovative design an its ambitious target, the project is currently experiencing some criticalities. For example on a strategic level, as of June 2014, FSRU is still unused, apparently for lack of demand. No long-term supply contract has been signed so far, and “the only LNG loads arrived at the ship are the four used during the trials, financed by the company itself,” according to IlSole24Ore.it.
“Gas demand is unexpectedly low compared to its availability,” explains OLT, “ and LNG price is expensive due to the high demand of gas from Asian and South American market.” In addition, the reduced size of the ship is “limiting the number of docking cargo ships.” It appears that erroneous evaluation of the market undermined company’s growth expectations.
A possible frightening scenario
But the most important and controversial doubts regarding the FSRU are to be spotted on an economic level. As a matter of fact, the cost of the project – initially planned to be around 300 million euros – has risen up to more than 900. But this is not the worst news.
In the SEN, LNG re-gasification terminals are considered as “activity with High National Strategic Importance” (HNSI) in terms of modernization of the Italian energy infrastructure. It is so important as to not only to be entitled to receive from the government a faster and preferential permit procedure, but also to be allowed to get an “investment cover guarantee.”
This might ensure a cover for investments costs, in case the structure will remain unused.
Which may occur with “FSRU Livorno”. The probability is so high that OLT, according to the Italian newspaper Il Fatto Quotidiano.it that it has directly asked the Ministry of Economical Development to include it through a dedicated decree law within HNSI list, in order to bypass the Italian Energy Authority (IEA) verdict. The ministry is considering this possibility in the light of SEN main targets.
If this occurs, the economical damage created mainly by private managers will be paid by all Italian (public and private) taxpayers. An energy investment project that could have been useful to diminish environmental impact and energy costs will probably end up backfiring, endangering Italian efforts for energy efficiency upgrading.
The down side of energy efficiency?
But there’s even more. Doubts could also be raised at an environmental level. “FSRU” is – as stated in the SEN – “essential for developing a LNG market, which means cleaner fuel for maritime and road transportation, in order to solve environmental problems related to traditional fuels,”- but some don’t agree on its supposed benefits.
Although “FSRU” has been approved through both government and regional EIA authorization, the local committee Offshorenograzie raised some concerns about its environmental impact. The committee that aims to shed light on some unclear points not evaluated in the Environmental Impact Assessment authorization explains these in the document, ‘Technical Report on Security’.
“First of all,” explain Riccardo Saller, active member of Offshorenograzie, “this was the first structure of this kind in the world. Thus, there aren’t studies on its impact.” Moreover, “the site chosen for FSRU is really close both to the Cetacean Sanctuary and the marine protected area Secche della Meloria, a reproductive habitat for marine mammals.”
The usage of chlorine is the core risk. Re-gasification processes occur by introducing the gas into a ‘heat exchanger’ where it is combined with seawater in order to heat the LNG and bring it back to the gaseous state. “This process involves the usage of sodium hypochlorite (NaClO) in order to sterilize the water.”
“What will be the consequences for zooplankton, fish, eggs and larvae? This issue is completely neglected in the synthesis of the OLT safety report,” concludes a worried Riccardo.
OLT denies, through its website, any risk for the environment. “It was determined that the concentration of free active NaClO will be significantly lower than those prescribed by national regulations.”
The risks at stakes
At the end of the day, SEN strategy doesn’t seem to be the right path to walk to reach the ‘20-20-20’ European energy targets. If Italy decides to import NGL to substitute fossil fuel for power plants and transportation, it has to be sure to have constant, valid and long supply contracts. Otherwise, there is a high risk that not only the whole strategy could be completely useless on an energy level, but it could also be counter-productive on the environmental one.
The ‘de-coaling’ target indicated in SEN could remain an illusion that moves even further away from being achieved. Coal consumption in the EU, according again to QREGM, continues to rise by 9 percent over 2012. Italy imported 19 million tons of coal in 2012, a 12 percent increase over 2011, according to Andrea Clavarino, chairman of the Italian Coal Association.
The EU commission on energetic efficiency will evaluate all the progress made towards the ‘20-20-20’ goals and will consider by July 2014 the eventuality of introducing new binding objectives. If Italy doesn’t keep its promises, EU could consider to apply a fine, adding insult to injury and money on money to be paid by Italian taxpayers.
What to do?
In order to avoid this, the government should implement the effort made so far toward production from renewable sources, increasing benefits for green energy oriented companies. A revision of the SEN strategy and Energy Authority legislation could be also appreciated to better control private investors in this crucial branch.
Climate, safety and environment need to be key factors in the design of a new energy system, not the market. We make this choice or our economy –rather than being a tool to live (better) – will become an instrument of slavery for most of us.
Our global prosperity will depend in large part on the answers we can give to adapt the energy system to the challenges of climate change. The new European Parliament should accept this exciting challenge for the well-being of the future and present generations. Fishermen included.
Giacomo Galardini is freelancing around Europe. His main interests are investigative journalism, politics, and corruption scandals. He has contributed to several local Italian newspapers and online magazines, such as Wired and Vice Italy.
