In capacity terms, Italy’s downstream sector comprises the second largest refining network after Germany and the EU’s fourth largest inland refined oil products market after Germany, France and the UK. The sector faces pressures for structural changes.
At the hub of the Mediterranean oil market, with Genoa* the location for daily price & market reporting by Platts, Argus, etc. the country’s refineries are geared primarily towards the export market with little inland market integration. Consequently, total capacity is well in excess (circa 55%) of local requirements which have been in steady decline since 2007. (*plus Lavera in southern France).
Italy’s refining sector faces increased competition from new Middle Eastern facilities, whilst its retail sector suffers from over-capacity in outlet numbers and increasing competition from the growing ‘white pump’ independents.
Five refineries have closed since 2010, Shell and Total have withdrawn whilst Esso has partially disengaged. The resultant consolidation has left Italian oil companies – API and ENI – as the dominant force supplying half the market’s requirements.
Italy imports just over 92% of crude oil requirements (65 mln mt in 2017) with the balance of circa 4.5 mln mt/95,000 bpd sourced principally from Italy’s Basilicata region in the far south.
In 2017 two-thirds of imports came from Azerbaijan, Iran, Iraq, Russia, Saudi Arabia and Libya with respective quantities being 19%, 14% 13%, 10%, 9% and 8%. For many years, Libya accounted for over 20% but this fell back in the civil war.
Crude oil and products pipelines feed from Port Marghera near Venice (north east) and Genoa (north west) to service refineries and markets in the country’s industrialised north.
With 10 plants, Italy’s refinery network has a total capacity of around 90 mln mt/year; the largest operator being former state-owned ENI with 4 refineries. The last decade has also seen ERG’s withdrawal from fossil fuels activities. Having sold its Novara refinery shares to API and the Impianti complex in Sicily to Lukoil, the jointly-owned Rome refinery (Total) has closed. ENI has converted its former refineries at Port Maghera and Gela (Sicily) to biofuels production. Earlier this year, Esso agreed to sell its Augusta refinery (Sicily) plus terminals in Augusta, Naples and Palermo to Algerian Sonatrach.
Just over half of refinery production of gasolines and fuel oil is exported and around 30% of diesel/gasoil output
The geographic mismatch between refinery capacity and inland market requirements can be deduced from the fact that 45% of capacity was located on Sicily which accounts for less than 10% of total demand!! Driven by government policy over many years, this encouraged and incentivised employment generating activities in an otherwise under-developed region.
Italy has 704 distribution terminals/depots with a total capacity of over 26 million M3 with over 50% located in four regions in the north. Capacity is split approximately one third crude oil and two thirds refined products. In addition to these facilities there are estimated to be up to 14,500 smaller distributor depots of less than 3,000M3 capacity.
Organismo Centrale di Stoccaggio Italiano (OCSIT), a government entity which is part of the Ministry of Finance, manages the country’s mandatory oil stocking compliance.
Behind natural gas at 39%, oil now accounts for a third of Italy’s total energy consumption; at its peak in the early 1970s it was 76%.
- Motor spirit demand has fallen sharply with diesel remaining relatively stable following the 2008 financial crisis.
- Diesel accounts for 72% of transport fuel use – vs. 62% (UK); a decline in diesel car sales has not been evident in Italy; in 2017 two thirds were diesel.
- Pump prices for motor spirit are the highest in the EU with diesel the third highest, making the total tax equal highest with the UK.
- The biofuels mandate is 6.5% which rises to 9%/10% in 2019/20 with rising minimums of 1.2% /1.6% advanced biofuel content.
- With LPG Italy is way ahead; 50% of LPG used in transport with 2.25m LPG fuelled vehicles (5% ) Germany has 0.5 million.
- Heating oil volumes have fallen by 70% since 2000 with around 7% used for space heating; natural gas being dominant.
- Shell – 830 filling stations, aviation fuels business and logistics sold to Q8.
- Total – 4th in the market in 2017 – wound up partnership with ERG, selling 2,600 filling stations, Rome logistics hub and 26% stake in Esso’s Novara refinery to API.
- Esso – sold 1,176 filling stations + 100 dealer fuel supply contracts to EuroGarages with fuel supply & brand licensing agreement established.
The rapid unbranded white pump expansion has seen disposed of/discarded sites acquired by larger player with 3,800 outlets having a low cost base and the ability to offer discounts.
Italy has the largest network of retail sites in the EU; numbers declining by around 1,000 sites over the past 7 years (20,750 – 2017 with average site volumes at 2.07m litres being well below that of Germany’s 14,510 sites (4m ltrs), France 11,200 (3.5m) and the UK 8,476 (4.5m). Between 4,000 and 5,000 sites need to close to make the retail network efficient and viable.
Ownership split is 50% integrated oil companies, 32% independents with a recognised brand and 18% ‘white pump’ with own or no recognisable brand. API, ENI*, Q8, ESSO (includes sites acquired by EuroGarages) and TAMOIL account for around 85% of the market. *ENI’s AGIP brand replaced with ENI. Non-fuel revenue convenience offerings are growing; EuroGarages entry will add impetus!