We forecast that Italy will account for 12.68% of Developed European regional oil demand by 2014, while contributing 4.04% to supply. In Developed Europe, overall oil consumption averaged an estimated 13.28mn barrels per day (b/d) in 2009. It is set to recover to around 13.61mn b/d by 2014. Developed Europe regional oil production was 6.97mn b/d in 2001, and in 2009 averaged an estimated 4.66mn b/d. It is set to fall to just 3.71mn b/d by 2014. Oil imports are growing steadily because supply is contracting and demand is rising, albeit slowly. In 2009, net crude imports were an estimated 8.62mn b/d. By 2014, they are expected to have reached 9.90mn b/d. Norway will remain the only major net exporter, with the UK becoming a net importer.

As regards natural gas, the Developed Europe region consumed an estimated 426bn cubic metres (bcm) in 2009, with demand of 473bcm targeted for 2014, representing 10.9% growth. Production of an estimated 270bcm in 2009 should rise to 273bcm in 2014, which implies net imports rising from the estimated 2009 level of 156bcm to some 200bcm by the end of the period. Italy’s share of gas consumption in 2009 was an estimated 17.83%, while it contributed around 3.15% to production. By 2014, its share of gas consumption is forecast to be 18.01%, with a 2.94% contribution to regional supply.

For 2009 as a whole, we have assumed an average OPEC basket price of US$59.00 per barrel (bbl), a 37.3% decline year-on-year (y-o-y). This represents an upgrade from the US$55.00/bbl forecast we were using in the previous quarter. For 2010, we expect to see a significant oil price recovery to US$83.00/bbl for the OPEC basket price, gaining further ground to US$85.00/bbl in 2011 and to US$90.00/bbl in 2012 and beyond.

For 2009, we have assumed a global average gasoline price of US$69.53/bbl, with the fuel having peaked in August at almost US$82.30/bbl. The overall y-o-y fall in 2009 gasoline prices is put at 31.7%. The gasoil forecast is for an average price of US$69.69/bbl, assuming a monthly high above US$92/bbl in December 2009. The full-year outturn represents a 42.5% y-o-y fall. The annual jet price level for 2009 is estimated at US$69.99/bbl. This compares with US$124.95/bbl in 2008. The 2009 average naphtha price is put at US$58.02/bbl, down 33.6% from the previous year’s level. Italian real GDP is forecast to have fallen by 4.5% in 2009, compared with a contraction of 1.0% in 2008. We are assuming 1.5% average annual growth in 2010-2014. By 2014, we expect to see the country consuming 1.73mn b/d of oil. A rise in near-term domestic oil production is expected. We are assuming oil production of 170,000b/d in 2010, but imports are set to reach 1.58mn b/d by 2014. Use of gas in power generation is the key to demand growth and consumption looks set to reach 85.1bcm by 2014. Imports are likely to have reached 77.1bcm at this stage.

Between 2009 and 2019, we are forecasting a decrease in Italian oil production of 26.67%, with output peaking at 170,000b/d in 2010 before slipping to 110,000b/d at the end of the 10-year forecast period. Given oil consumption forecast to increase by 3.05%, imports can be expected to rise from an estimated 1.49mn b/d in 2009 to 1.58mn b/d by the end of the forecast period. Gas demand should rise from the estimated 2009 level of 76bcm to 94bcm by 2019. Production of an estimated 8.5bcm in 2009 is expected to fall to 6.0bcm by 2019, requiring imports up from 67.5bcm to 88.0bcm, in the form of pipeline gas and LNG. Details of our 10-year forecasts can be found in the appendix to this report.

According to our Country Risk team, Italy’s long-term political risk score is 80.3, compared with the Developed Markets average of 85.8 and the global average of 63.2. Our long-term economic rating for the country is 66.8, below the Developed Markets average of 70.1 and above the global average of 53.5. Italy has a privatised energy sector operating under EU guidelines. There is a significant upstream oil and gas segment featuring domestic and foreign operators. Downstream oil is highly competitive and involves a mixture of international oil companies (IOCs) and domestic companies. Both the gas and power markets are privatised and open to competition.