"Natural Gas Supply Restrictions to Last at Least 4 More Years"

Italian energy company Eni CEO expects "supply shortage until completion of Qatar LNG project in 2026"
Investment declined since 2015 due to eco-friendly policies... Italian government announces energy support measures worth 11 trillion won

Claudio Descalzi, CEO of ENI
Photo by AFP Yonhap News

[Asia Economy Reporter Park Byung-hee] Claudio Descalzi, CEO of Italy's major energy company Eni, said on the 18th (local time) at the announcement of Eni's quarterly earnings that natural gas supply restrictions will continue for at least the next four years. As concerns grew that soaring energy prices could slow down the economy, the Italian government announced a support package worth 8 billion euros (10.8647 trillion KRW) on the same day.

According to major foreign media, CEO Descalzi predicted that the oil market will experience a structural supply shortage for at least two years, and the gas market for 4 to 5 years. He explained that in the gas market, structural supply issues will persist until Qatar completes its LNG (liquefied natural gas) production expansion targeted for 2026. Qatar is the world's largest LNG exporter.

CEO Descalzi noted that the gas market supply-demand imbalance existed even before the COVID-19 pandemic, attributing it to decreased investment in the oil and gas sectors since 2015. He said, "I do not think the situation will change drastically," adding, "because major energy companies are seeking changes in response to climate change."

Natural gas prices surged in the second half of last year amid rising tensions between the West and Russia. The Dutch TTF exchange, the benchmark for European natural gas prices, recorded a natural gas futures price of 73.8 euros per megawatt-hour (MWh) on the 18th. Although this is significantly lower than the over 160 euros recorded in December last year, it is more than four times higher compared to 17 euros traded a year ago. Oil prices reached their highest level since 2014, nearing 100 dollars per barrel.

Eni posted a loss in 2020 but recorded a net profit of 4.7 billion euros last year, the highest since 2012, thanks to soaring energy prices. As natural gas prices surged in the second half of the year, net profits were also concentrated in the latter half, with 1.4 billion euros in the third quarter and 2.1 billion euros in the fourth quarter. CEO Descalzi announced that revised plans for dividends and share buybacks will be announced in March.

Mario Draghi, Prime Minister of Italy [Photo by Reuters Yonhap News]

As concerns grew that soaring energy prices could burden the economy, the Italian government announced on the same day that it would spend 8 billion euros to protect households, businesses, and local governments, and to support the automotive industry.

Prime Minister Mario Draghi said, "The government will prevent the weakening of household purchasing power due to rising energy prices and help businesses maintain competitiveness."

Antonio Fatulli, president of the Italian Banking Association, warned at a recent forum, "We are facing an energy crisis not seen since 1973," and cautioned, "If the government does not intervene more actively, there is a risk of a new recession." The Italian Employers' Federation (Confindustria) forecasted that energy costs, which were 8 billion euros in 2019, will increase to 37 billion euros this year.

The recent surge in natural gas prices is due to Russia, which supplies 40% of Europe's gas consumption, clashing with Europe over the Ukraine issue. Concerns that Russia might reduce gas supplies to Europe or that Europe might impose sanctions on Russia have led to price increases.

Prime Minister Draghi stated that sanctions targeting Russian energy companies would particularly impact Italy. He said, "All sanctions affecting energy will hit Italy especially hard compared to other countries," adding, "This is because Italy has a higher dependence on gas than Germany or France." Italy relies on imports for about three-quarters of its energy demand. He added, "Sanctions against Russia must be effective and sustainable." This is interpreted as a possible opposition to sanctions on the energy sector.

Since July last year, the Italian government has spent 10 billion euros to stimulate the economy. However, as energy prices continue to soar, Italy's energy regulator raised electricity prices by 55% and gas prices by 42% this year. Some analyses suggest that without government support, electricity prices would have increased by 65%.

Prime Minister Draghi expects increased fiscal revenues this year and stated that the current 8 billion euro support package will not increase public debt nor affect the fiscal deficit target of 5.6% of GDP. The Italian government plans to support the automotive industry with 800 million euros this year and 1 billion euros next year.

This content was produced with the assistance of AI translation services.