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C O N F I D E N T I A L SECTION 01 OF 03 ROME 000390 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
DEPARTMENT FOR EUR DAS BRYZA 
 
E.O. 12958: DECL: 03/31/2023 
TAGS: ETRD ENRG EINV EIND ETRN RU IT
SUBJECT: ITALIAN ENERGY: EXPERTS UNCONCERNED ABOUT 
DEPENDENCE ON RUSSIAN ENERGY 
 
REF: A. ROME 249 
 
     ¶B. 06 ROME 834 
 
ROME 00000390  001.2 OF 003 
 
 
Classified By: Economic Couselor William R. Meara for reasons 1.4 (b) a 
nd (d) 
 
¶1. (C)  Summary.  On February 28, Ecmin hosted a roundtable 
discussion with Italian energy experts.  The discussion 
focused on Italian energy security (especially security of 
Italian natural gas imports), and Italy's energy relationship 
with Russia.  With one exception, the Italian experts did not 
view Italian dependence on Russian as a problem, and argued 
that Russia is equally dependent on Italian payments for 
natural gas shipments.  They noted the lack of an EU energy 
policy and alleged the GOI has outsourced Italian energy 
security policy to Eni, the Italian oil and gas parastatal. 
The four experts also argued that Eni blocks diversification 
projects, including the construction of LNG re-gasification 
facilities.  On the issue of natural gas pipelines linking 
Russia and Europe, they agreed the South Stream pipeline will 
make the proposed Nabucco pipeline "obsolete."  They said the 
GOI sees Eni more as a revenue source than as an instrument 
of national energy policy.  End summary. 
 
--------------------------------------------- -------------- 
Italian dependence on Russian gas -- not the real problem 
--------------------------------------------- -------------- 
 
¶2. (C)  On February 28, Ecmin hosted a roundtable discussion 
on energy security issues with four leading Italian energy 
experts (none of whom currently work for the GOI or Italian 
energy companies).  Participants were: 
 
-- Dr. Vittorio Dermo, from the Italian Association of Energy 
Economists (also a former Eni official); 
 
-- Prof. Sergio Garribba, former Director General for Energy 
at the Economic Development Ministry, and former Italian 
Energy Authority Commissioner; 
 
-- Dr. Diego Gavagnin, Editor of on-line energy daily 
"Quotidiano Energia" and former Italian Energy Authority 
Official; 
 
-- Dr. Carlo Stagnaro, Energy Expert from Italian 
conservative think-tank Istituto Bruno Leoni 
 
¶3. (C)  Dermo, Gavagnin, and Stagnaro all expressed 
confidence regarding Italian energy security.  They view 
Italian dependence on Russian natural gas as a two-way 
street:  "While we are dependent on them for energy, they are 
dependent on us for the money that we pay them for that 
energy."  One participant stated that he "could not imagine" 
Russia cutting off natural gas exports to Italy, and that 
Italy "could turn to the IEA for help" in the event of a gas 
cut-off.  (Comment.  We have also heard this from the MFA's 
energy expert.  It is unclear what the IEA could do to force 
Russia to supply gas to Italy if it decided not to do so. 
End comment.) 
 
¶4. (C)  All of the experts agreed that even if Italy makes 
reasonable progress on some of the infrastructure projects 
currently on the drawing boards (re-gasification plants in 
particular), Italy's level of dependence on Russian natural 
gas will remain roughly the same over the next 10-15 years. 
Italy currently imports approximately 25 percent of its 
natural gas supply from Russia and uses that gas to generate 
over half its electricity. 
 
--------------------------------------------- -------------- 
Italy lacks long term energy strategy -- And so does the EU 
--------------------------------------------- -------------- 
 
¶5. (U)  Among the four experts present, only Garribba, who 
many consider to be Italy's top energy expert, expressed 
serious concern regarding Italy's mid-term energy security. 
Garribba noted that Italy does not have a long-term energy 
strategy.  Nor is there energy coordination among EU member 
states; caused by differing energy situations and priorities 
within the EU.  Garribba made a distinction between 
"environmental policy" such as the EU policies to increase 
the use of renewable energy sources and "energy policy," 
 
ROME 00000390  002.2 OF 003 
 
 
which should address energy diversification and energy 
security. 
 
¶6. (U)  All of the participants echoed Garribba's assertion 
that an EU energy policy is absolutely necessary to guarantee 
energy security in Europe.  EU energy policy is currently 
largely focused on climate change considerations and EU 
anti-trust policy.  They agreed that although approval of the 
Lisbon Treaty could lead to the development of a common 
energy policy, there is the risk that EU energy policy will 
continue to emphasize climate change concerns and Kyoto 
parameters instead of energy security and the need to 
rebalance the EU energy relationship with Russia. 
 
--------------------------------------------- -------------- 
Italy must diversify import sources, but Eni is the problem 
--------------------------------------------- -------------- 
 
¶7. (U)  Regarding diversification of sources, Garribba 
believes that Eni and Gazprom's South Stream project will 
render the EU's Nabucco pipeline obsolete and greatly reduce 
the importance of the Turkey-Greece-Italy (TGI) natural gas 
pipeline.  All of the experts noted that South Stream will 
increase Russia's control of European gas supplies by 
providing an additional Gazprom-controlled route for Central 
Asian natural gas to reach Western European markets. They 
agreed that Italy must complete or increase the capacity of 
natural gas pipelines to North Africa (Algeria, Libya, and 
Tunisia) and build a substantial number of LNG 
re-gasification terminals. 
 
¶8. (SBU)  The experts also agreed the GOI has essentially 
turned over development of Italian energy strategies to Eni. 
Although the GOI maintains a 30 percent controlling interest 
in Eni, the company's main objectives are making profits and 
paying dividends.  Eni is not focused at all on increasing 
Italian energy security.  Eni's role in developing Italian 
energy policy was identified as the key problem Italy faces 
in addressing its energy security.  It is also "no secret" 
that Eni is being used by Gazprom as its spearhead in the 
European market.  (Comment.  During a subsequent conversation 
with Econoff, Garribba said that in 2006, when he was 
Director General for energy under the center-left Prodi 
government, "there was no point in discussing energy security 
with Bersani (the Minister for Economic Development) because 
he used to be a Communist" and thought the Russians would 
look out for Italian interests.  End comment.) 
 
¶9.  (U) Dr. Dermo, a former Eni official, argued that Eni's 
strategies are largely dictated by the location of oil and 
gas deposits -- if Italy had more energy resources there 
would be less reason to go Russia -- hence the decision to 
build on Eni's 40 year relationship with Russia.  Dermo also 
maintained that Eni should be viewed as an integral part of 
the European energy system.  In this view, Eni's close ties 
to Gazprom are balanced by other companies ties to 
non-Russian energy sources. 
 
--------------------------------------- 
GOI has an evident conflict of interest 
--------------------------------------- 
 
¶10. (U)  Participants agreed there is a conflict between the 
GOI's interest in receiving large dividends from Eni 
(especially at a time of large budget deficits) and the need 
to pursue energy diversification projects.  The GOI's 
practice of allowing Eni to pursue the most profitable 
strategies at the expense of energy diversity is one that 
"makes the Treasury Minister very happy, but keeps the 
Economic Development Minister awake at night."  Ref B details 
Italy's energy sources and the conflict between the 
Ministries of Finance and Economic Development.  In this 
perspective, the GOI's hands-off approach to energy security 
facilitates Eni's role in assisting Gazprom's efforts to 
dominate European energy markets.  While agreeing on the 
above, Garribba maintained that Eni is being held hostage by 
Gazprom.  According to Garribba, Gazprom allowed Eni to 
participate in the exploration and development of Kazakh oil 
and gas fields in exchange for access to the Italian retail 
market for natural gas.  (Note: Without access to the 
pipelines controlled by Gazprom, Eni's oil and gas assets in 
Kazakhstan would be marooned and impossible to sell.  End 
 
ROME 00000390  003.2 OF 003 
 
 
note.)  Our contacts did not believe that the outcome of the 
upcoming April parliamentary elections will change 
substantially current Italo-Russian relations in the energy 
sector. 
 
¶11.  (U) On a more conspiratorial note, the experts argued 
that Eni is the cause of the difficulties experienced by 
companies constructing LNG re-gasification plants in Italy. 
The consensus was that Eni opposed LNG re-gasification plants 
because it is not in Eni's interest to facilitate the 
introduction of new gas sources to the Italian market.  One 
expert argued that Eni's control of Italy's natural gas 
pipeline system through its SNAM Rete Gas pipeline subsidiary 
means that it can prevent LNG companies from moving their 
product once it has arrived in Italy.  To date, Eni has been 
able to stall privatization/separation of SNAM Rete Gas. 
 
--------------------------------------------- -------------- 
Italy must privatize and become Mediterranean gas hub 
--------------------------------------------- -------------- 
 
¶12.  (U) Participants all agreed that it is in Italy's 
long-term interest to fully privatize Eni (as well as 
electricity conglomerate ENEL).  Privatization will allow 
Italy to support and develop energy strategies in the 
national and European interest rather than focusing on Eni's 
bottom line. 
 
¶13.  (U) If Italy acts quickly, it can still play an 
important role and become a key European gas hub.  Italy has 
announced plans to increase imports from Algeria, develop 
re-gasification facilities, and build pipelines (through 
Sardinia) to supply France and possibly Spain. 
Geographically, Italy's Adriatic basin could serve as a 
southern European gas storage hub, providing competition to 
the natural gas hub Gazprom plans to build in Serbia. 
 
------- 
Comment 
------- 
 
¶14.  (C) We were surprised by the extent to which these 
energy experts are comfortable with the (im)balance of power 
in the Italy-Russia energy relationship.  The roundtable 
confirmed our assessment that Italy is not concerned about 
dependence on Russian natural gas imports.  The idea that the 
IEA will be able to compel the Kremlin/Gazprom to resume 
natural gas exports in the event of a cut-off similar to the 
one that took place is 2006 strikes us as extremely naive. 
Similarly, the Italian notion of "energy interdependence" 
between Russia and Italy ("They need our money as much as we 
need their gas.") seems foolish.  The roundtable did make 
clear to us that this idea of "interdependence" is 
well-entrenched in the GOI bureaucracy and among energy 
experts.   This roundtable and conversations with GOI 
officials (reported ref A) make clear that we are more 
concerned about Italian energy security than Italians are, 
and that, left to its own devices, the GOI will simply stay 
the course and allow Eni to continue to facilitate Gazprom's 
efforts to dominate the Western European energy market. 
SPOGLI