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Last Updated: Wednesday, 28 June 2006, 13:09 GMT 14:09 UK
Italy faces tough energy choices
By Christian Fraser
Rome correspondent, BBC News

The sudden shortfalls in gas supplies this winter highlighted Italy's over dependence on pipeline gas. Seventy per cent of the country's supply comes through the pipeline from Russia and Algeria.

Italian gas pipeline
Italy is keen to reduce its dependence on gas arriving in pipelines

So serious were the shortfalls during Russia's standoff with the Ukraine this year that the Italian government was forced to turn to its strategic reserves.

Domestic energy bills in Italy are among the highest in Europe.

It is hoped the new government's proposals to speed up liberalisation of the energy markets will increase competition and bring down those prices.

The results of that free competition can already be seen in Termoli on the south coast.

The private Italian energy group Energia have just completed construction of a new 770 megawatt gas and steam plant that will produce electricity for the open market.

But it is the cost of the gas they use, which comes from pipelines, that keeps domestic prices high.

"There is still a monopoly here on the gas supply network," says engineer Alberto Bigi, who believes prices will remain high unless there is more outside competition between suppliers.

"We have to have different suppliers, different types of energy production and more flexibility."

Liquid solution

In reality, though, Italy's reliance on gas arriving through pipelines is growing rather than increasing, with 60% of the plants in Italy expected to be gas powered by 2010, compared with an average of 25% in other European countries.

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One solution to these supply problems could be nuclear power, but with the Green party a crucial element in the ruling centre left coalition that is very unlikely.

Moreover, Italy does have big plans for renewable energy.

Yet the most likely alternative to Russian supplies is LNG - natural gas frozen into liquid.

LNG takes up 1/600 the volume of natural gas and can be sourced and transported by ship from anywhere in the world.

Pressing ahead

In the port of Brindisi on the south coast the British energy company, British Gas are building a terminal for LNG ships.

If they build this plant, that rules out any chance we have of redeveloping the port for tourism
Regional environment officer Michele Losapio

Strategically this site is important because it is close to the main shipping routes of the Mediterranean and to the gas fields of North Africa.

But British Gas, like many other outside companies in Italy, is encountering strong local opposition.

The problem is that while the people of Brindisi would like the benefits of LNG they do not want a regasification plant on their door step.

They worry about the environmental impact, given the prospect of two tankers arriving in the port every week.

"The issue of LNG is high on the agenda of the new government, given the importance for the whole country in securing flexible gas supplies," says Giorgio Batistini, an engineer with Brindisi LNG.

Mr Batistini says there is a huge emotional issue attached to the problem.

"But the planning decisions are taken locally," he says.

"Nonetheless we are pressing ahead.

"We think we will complete construction by 2008. The infrastructure comes with a new supply, gas from Egypt, as well as providing a cheap source of gas for Brindisi and this region."

Tourism hopes

The proposal has been met with tough opposition from the new local authority, which is seeking an injunction.

Last month the offices of British Gas were raided by financial police as the row escalated over planning consent.

The regional environment officer Michele Losapio says British Gas is wasting its money.

"If they build this plant, that rules out any chance we have of redeveloping the port for tourism," he says.

"We are not opposed to LNG. We have told the government we will accept a plant here in Puglia, so long as it doesn't affect the health of our people and the local environment."

Costly and uncertain

Throughout the country there are plans for 10 LNG plants.

If they were all built, Italy could become a gas hub for the rest of Europe.

But all of the plants have so far met similar opposition.

This month, the government began offering tax breaks and incentives to try and encourage regional governments to push through plans.

"I think we will be lucky if we have just one of these plants built in the next ten years," says David Taberelli, director of an Italian energy research group.

"The government has to speed up the authorisation process. It has to bring back to the central government some of the powers that it devolved to local government and it has to start talking to local communities about compensation."

Roman Prodi is advocating a European energy policy, but it is at the most local level in Italy where the debate often falls down.

The government's dilemma is that with nuclear already discounted here, LNG has become one of the few realistic alternatives.

Without it, say the experts, Italians will face increasingly higher prices and much greater uncertainty in their future gas supplies.

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