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Italian dash for oil sounds rural alarm

November 17, 2008

Published on the Financial Times on November 17 2008

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Empty deserts conceal the oil wealth of the Middle East, and frozen wastelands cover Russia’s. Unfortunately for the inhabitants of Basilicata in southern Italy, Europe’s largest onshore oilfield lies beneath forests, farmland and ancient communities.

Wolves, deer and the occasional bear wander through mountain ranges designated as a national park, where clattering oil rigs rise incongruously through tree-tops.

Trenches carved through oak and beech take pipelines down to a complex in Viggiano where gas is separated and the oil piped a further 130km to a refinery. A sulphurous stench writhes up to medieval hilltop villages where shuttered windows and crumbling masonry testify to a population in flight. Not surprisingly, environmentalists and residents are alarmed by the plans of oil companies – Eni, Total, Shell and Exxon Mobil – to double production from this highly profitable field and supply some 10 per cent of Italy’s total oil needs within several years.

Activists campaigned for 15 hard years to establish the Val D’Agri area as a national park. The legislation finally came into effect last March, forbidding mineral extraction. In the meantime Eni, Italy’s part state-owned energy giant, had already built half a dozen wellheads inside the park and more outside.

Concerns were heightened this month when Stefania Prestigiacomo, environment minister and industrialist, rejected the regional government’s choice for park guardian and appointed her own commissioner.

Silvio Berlusconi’s centre-right government is also preparing legislation that would strip regions like Basilicata of their veto power over infrastructure plans. The goal is to fix Italy’s “nimby” – not in my backyard – reputation among foreign investors.

“We can’t stay stuck for years, waiting for approval that might not come,” says Claudio Descalzi, president of Assomineraria, an association of oil and mining companies. Industry wants authorisation processes to be clear and brief, says Mr Descalzi, who is also Eni’s head of exploration and development.

The turning of the tide in favour of big industrial projects began when the Green party, whose members were key figures in the previous centre-left government and blamed for blocking many plans, was routed in parliamentary elections last April.

Local politicians mostly support the expansion plans. Critics say their sensitivities are dulled by a flow of royalties from Eni. While bringing income to a poor region, the money also fosters “clientelismo” – political patronage – and is not always well spent.

Despite promises of jobs and investment, the village of Grumento Nova has lost a quarter of its inhabitants. Locals blame the exodus on pollution from the nearby Viggiano complex and a shortage of work.

Pino Enrico Laveglia, the local doctor, is suing Eni because of what he believes is a significant increase in respiratory infections and tumours caused by pollution. “The arrival of these gentlemen brought an environmental disaster,” he says. “There used to be no fog here. Now there is a blue smog and it is not fairies from the woods.”

But he has no hope his lawsuit will succeed and says people are too submissive and divided by ancient hatreds to protest.

Local people tend to tell the same story – the young leave to find work; “rotten” mayors waste the royalties; and pollution erodes the mainstays of agriculture and tourism. Great expectations were raised when significant oil production began a decade ago, but not met. Few trust the pollution monitoring systems. Smiling grimly they say Basilicata has “sacrificed” itself for the rest of Italy, but their compatriots don’t even know it.

As a cash cow for the oil companies and governments, development seems inevitable.

Eni’s operating costs are less than $3 per barrel, and about $8 including development. Royalties are paid at a rate of seven per cent of market prices to the regional government, of which 15 per cent goes to the localities. Eni said by the end of 2007 it had paid $466m (€368m, £311m), indicating gross production worth $6.65bn.

Eni, working with Shell Italia, is producing about 75,000 barrels per day in Basilicata. This is set to increase to 104,000 b/d by 2010. A second phase, awaiting official approval, could add 30,000 b/d.

All new wells will be outside the national park and pollution is within European Union limits, Eni says. Wellheads are located underground, once exploratory drilling is complete.

Total, Shell and Exxon also have approval to drill for oil and build an oil centre, targeting production of 50,000 b/d by 2011.

Italy’s national oil consumption is slowly declining and reached 1.75m b/d in 2007. Academics suggest that by raising false expectations and failing to spell out the full impact, business and politicians fuelled a long-standing suspicion of authority among locals. The ensuing sense of regret and distrust is resistant to reason.

For example, epidemiologists say cancers could not have developed over just 10 years because of the oil industry. Sociologists point out that much of southern Italy is witnessing emigration.

Giovanni Figliuolo, a Basilicata university professor, says an intensive biodiversity study of Eni’s operations broadly concluded that there was a slight impact on immediate surroundings. He argues it is even possible that, with the right approach, the energy industry could have a net positive impact on Basilicata’s biodiversity.

Asked if the oil riches are a blessing or, as many say, a curse, Vito De Filippo, centre-left governor of Basilicata who has backed the oil expansion plans, replies: “To call it a curse is too much. Basilicata had to do it for the good of the country but the returns and economic development fell short of expectations.”

Meanwhile, a new threat to this rural idyll is emerging in the shape of a proposed nuclear waste dump needed to relaunch Italy’s nuclear industry. Rome’s intention to strip the regions of their political veto would facilitate that process.

“It would be an act of war,” Mr De Filippo says. “They would have to do it with arms.”

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