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UKRAINE

How will the Russian invasion affect Italy’s gas supplies and prices?

As Russia launches a full-scale attack on Ukraine, western powers are preparing a raft of sanctions that are likely to go much further than the previous ones. What does this mean for ordinary people in Italy?

How will energy supplies be impacted by the Russia-Ukraine war? Photo by Ina FASSBENDER / AFP
The City of Vienna has launched a new financial package to help with energy costs. Photo by Ina FASSBENDER / AFP

After President Putin launched a full-scale invasion of Ukraine on Thursday, the EU responded by announcing an initial raft of sanctions against Russia, with more expected to follow.

German Chancellor Olaf Scholz meanwhile confirmed that he will suspend the Nord Stream 2 pipeline project, which was set to deliver natural gas to Europe directly from Russia. 

Announcing the EU’s initial response to the national parliament on Thursday, Italian Prime Minister Mario Draghi acknowledged that “the sanctions we have approved, and those we may pass in future, require us to carefully consider the impact on our economy.”

“The greatest concern is around the energy sector, which has already been hit by the price rises in recent months,” he said.

EXPLAINED: How Italy could be impacted by Russia’s invasion of Ukraine

“The events of these days demonstrate the imprudence of not having diversified more our energy sources and our suppliers in recent decades.”

As in many other countries, Italian households and businesses are already struggling with the rising cost of living, particularly after a series of sharp price hikes over the past year, fuelled by the surging cost of gas imports.

The price rises have been particularly problematic in Italy, which is more dependent on natural gas for energy than most of its European neighbours and produces very little of it within the country.

Italy is the second-largest natural gas importer in Europe after Germany, importing 90 percent of its gas supply with 45 percent of that coming from Russia – up from 27 percent ten years ago.

Italy is a key export market for Russian energy giant Gazprom. Photo by Kirill KUDRYAVTSEV / AFP

Meanwhile, unlike neighbouring Germany and France, Italy has no nuclear power capability. The country has also begun to phase out coal power, closing three plants in 2020 and 2021.

It has also reduced domestic production of gas – a move which is now set to be reversed, Draghi said on Friday.

“In Italy, we have reduced gas production from 17 billion cubic metres per year in 2000 to around 3 billion cubic metres in 2020,” Draghi said, adding that national consumption ”has remained constant, between approximately 70 and 90 billion cubic metres”.

Though the long-term plan is to boost domestic production of energy from sustainable sources, this is a long way from becoming reality and Draghi stressed that for now gas “remains essential as a transition fuel”.

This means that Russia stopping gas exports to Italy and Europe would have major consequences for energy security – at least in the long term.

For now, European politicians are confident that short-term supplies are secure.

Draghi said Italy’s gas reserves in February “had already reached the level they generally have at the end of March.”

“This situation, which would have been more serious in the absence of adequate infrastructures and policies, is similar to that experienced by other European countries including Germany,” he said.

Another concern is that Russia could try to create a scarcity of supply in order to drive up prices on European energy markets.

Former Russian President Dmitry Medvedev responded to Germany’s Nord Stream 2 decision on Tuesday by saying on Twitter: “Welcome to the brave new world where Europeans are very soon going to pay €2,000 for 1,000 cubic metres of natural gas!”

Analysts point out that the cost of energy will be less of a concern in Europe as it heads into the summer months. If conflict continues into the winter, the scenario would be different.

However, concerns remain that higher energy prices will further heat up inflation, which is already at its highest rate since the 1990s.

What is the Italian government planning to do?

The government is ”ready to intervene to further calm the price of energy”, Draghi said on Friday, 

He added that Italy may need to reopen coal plants “to fill any shortcomings in the immediate future”.

Italy must also “increase domestic production at the expense of imports”, Draghi said, “because gas produced in your own country is more manageable and can be cheaper”.

Italian Prime Minister Mario Draghi gives a speech in Rome on February 24th after Russian forces invaded Ukraine. Photo by Remo Casilli / POOL / AFP

Draghi also said Italy and its allies intend to increase natural gas imports from “other routes” including the United States.

“The American President, Joe Biden, has offered his willingness to support the Allies with more supplies, and I want to thank him for that,” Draghi said.

Italy is also looking at increasing the supply from pipelines including TAP from Azerbaijan, TransMed from Algeria and Tunisia, and GreenStream from Libya, he said.

In the longer term, Draghi stressed the need to improve Italy’s energy infrastructure and move towards increased use of renewable sources.

“We must move quickly on the diversification front, to overcome our vulnerability as soon as possible and avoid the risk of future crises,” he said.

“The end of winter and the arrival of milder temperatures allow us to look forward to the next few months with greater confidence, but we must take action to further improve our storage capacity for the next few years.”

“For the future, the crisis forces us to pay more attention to the geopolitical risks that weigh on our energy policy,” he continued.

“I talked about gas, but the most valid answer in the long term lies in proceeding quickly, as we are doing, towards greater development of renewable sources.”

Member comments

  1. I am renovating a house in a centro storico and was hoping to install a heating system based on solar and renewables but the sindaco refuses to allow solar panels. Centro storici will die if they are not allowed to evolve.

  2. The higher energy costs are definately going to hurt, but I’m definately OK with cutting off the money supply to the Russian mad man.

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MONEY

EXPLAINED: What is Italy doing to cut the rising cost of living?

Amid soaring inflation and price rises, the Italian government has announced new measures to help families and businesses keep costs down. Here's what you need to know.

EXPLAINED: What is Italy doing to cut the rising cost of living?

Italy approved a much-anticipated aid decree on Thursday, August 4th, bringing a new round of state funding intended to tackle the country’s most critical issues: from the rising cost of living and sky-high inflation to the energy and supply crisis. 

READ ALSO: Fuel tax cut and help with energy bills: Italy approves inflation aid package

The ‘aiuti bis’ aid package, worth around 17 billion euros ($17.4 billion), likely marks the last major act by outgoing prime minister Mario Draghi before an early general election next month.

The funding is seen as badly needed after inflation hit 8 percent in Italy in June – the most severe spike the country has experienced since 1976.

After weeks of speculation about exactly which measures may or may not be included in the decree, we now know it contains everything from an extension to the fuel duty cut to more help with energy bills for those on lower incomes.

Here’s what you need to know about the latest measures intended to keep the cost of living under control.

Extension to fuel duty cut 

The current discount on fuel duties is to be extended again to September 20th, though the value of the discount will drop from 30 to 25 cents. 

The discount was recently extended to August 21st but the government decided to further prolong the incentive in a bid to ease the blow that record fuel prices have dealt to consumers and businesses.

The cut was initially introduced as far back as March when the average prices at the pump for petrol and diesel both exceeded the two-euro mark.

Help with energy bills

Measures introduced in the first half of the year to help lower-income households and vulnerable people pay rising energy bills will be extended under the new decree.

It extends an existing government discount on gas and electricity bills for a further three months, until the end of 2022, as well as reducing system charges.

READ ALSO:

Italy’s tax on the ‘excess profits’ of energy companies has meanwhile been extended to June 2023 after the government reportedly received fewer payments than expected.

Tax cut for employees

Workers earning a gross income of under €35,000 are eligible for a two percent tax saving, amounting to a small monthly ‘pay rise’ until the end of this year.

“Already in the budget law we reduced social contributions by 0.8 percent; for the second half of the year this reduction goes up to 2 percent, as we’re now adding 1.2 percent”, said Economy Minister Daniele Franco at a press conference on Thursday.

As the tax relief lasts until the end of the calendar year for a six-month period, the July deduction will be retroactive.

New aid measures announced on Thursday are hoped to boost Italy’s consumer spending power as the cost of everyday goods rises. Photo by ANDREAS SOLARO / AFP

Those earning €35,000 can expect to save around a further €30 per month (1.2 percent of a monthly salary of €2,692 – most Italian salaries are paid out over 13 rather than 12 months to give employees a tredicesima Christmas bonus).

To find out how this may apply to you, it’s advisable to speak to an accountant or your local Italian tax agency (Agenzie delle entrate) office.

More funding for mental health treatment

The new decree will also enhance the existing ‘psychologist bonus’ (bonus psicologo) by allocating an additional 15 million euros to the measure. This will bring the total amount of funds available for the bonus to 25 million euros. 

The bonus was officially introduced at the end of July to help make mental health services more affordable, amid a pandemic-induced crisis in Italy.

All individuals with an Isee (a calculation of relative household income and wealth) lower than 50,000 euros will be eligible to receive a 600-euro voucher, which they’ll be able to use when seeing professionals listed on Italy’s official register of psychologists.

See more information about claiming the bonus in a separate article here.

Discount on public transport tickets

The government will allocate a total of 101 million euros to funding its ‘transport bonus’ (bonus trasporti); 22 million more than the original amount.

The bonus takes the form of a one-time 60-euro discount to be used on the purchase of monthly or yearly tickets for local transport services.

It will be available from September 2022 to all pensioners, students, and employees with an Isee of up to 35,000 euros.

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