This country-specific Q&A provides an overview of the legal framework and key issues surrounding oil and gas law in Italy.
This Q&A is part of the global guide to Oil & Gas.
For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/oil-and-gas
Does your jurisdiction have an established upstream oil and gas industry? What are the current production levels and what are the oil and gas reserve levels?
There are various oil reserves in Italy however they are, in general, fragmentary and in most cases located at considerable depth. There are both onshore and offshore reserves, some already perfectly operational and others awaiting exploitation and still others already shut down because they have become exhausted.
Italy in the 49th place in the world in upstream which is a significant position considering the limited number of sites available.
Oil reserves in Italy are exploited by Eni S.p.a., the major multinational Italian oil & gas company, sometimes in joint ventures with foreign companies (Shell, Total, and others).
The most important reserves are to be found in Basilicata (in detail in Val D’Agri which has 70% of oil production in Italy), in Sicilia and also in Calabria. There are also, some wells in Molise, in Abruzzo and in Lazio.
Finally, there are some reserves in Northern Italy but to a lesser extent. Currently searches are being carried out to identify new oil reserves off Sardinia and in the area of the Islands of the National Park of the Tuscan Archipelago. The production of Italian crude oil is around 8 million tonnes per annum while the reserves available in Italy are around one billion barrels. They amount to 0,1% of world crude oil reserves.
As to natural gas, Italy extracts approximately 6,5 billion cubic metres of gas a year, approximately 10% of its internal requirements. There are approximately 20 billion square metres of natural gas reserves in Italy. It may be said that given its dependency on foreign imports Italy has set up strategic reserves for the storage of gas consisting not of storage tanks or artificial containers but old methane deposits located above all in Val Padana, now exhausted which are used as gas deposits .
A part of these deposits is intangible because it is to be used only in emergencies, such as a war or international crisis (the reserve can cover national requirements for approximately 3 months).
How are rights to explore and exploit oil and gas resources granted? Please provide a brief overview of the structure of the regulatory regime for upstream oil and gas. Is the regime the same for both onshore and offshore?
Mineral rights are made up of prospection and exploration permits, production licences and sole concessions.
Exploration permits are exclusive permits, issued at the request of the oil company, which must submit the exploration programme which it intends to develop and the geological and geophysical studies underlying the choice of the area on the basis of the possible presence of liquid/gas hydrocarbons. Applications may be submitted in competition for the same area by other operators for three months from the publication of the first request in the Official Journal of the European Union.
Exploration permits are issued following a single procedure (lasting a maximum of 180 days) governed by article 1 paragraphs 77 and 79 of Law no. 239 of 23/08/2004, and subsequent amendments.
The project is selected by the MiSE, having obtained the opinion of a consultative organ, the CIRM, which is represented by the competent State administrations (MiSE, MATTM, Ministry of Instruction of University and Research, ISPRA and Avvocatura di Stato) as well as the representatives of the Regions. For offshore permits, the Ministry of Transport and Agricultural and Forestry Policies are involved.
Projects are subject to an environmental screening and/or Environmental Impact Assessment by the MATTM or the Region concerned. Onshore permits are issued by the Ministry in accordance with the Regions concerned.
The involvement of local communities is guaranteed by the role played within the context of the procedure by the Municipal and Provincial administrations concerned, which must express their opinion on the construction of the plants and carry out a check on the compliance of the works with planning regulations.
Production licences issued by the MiSE are exclusive ones. In general, the licence-holder, after a positive finding on its part, is granted the right to produce on the basis of a programme for the development of the deposit approved at the time of the granting of the licence.
The surface area of a licence is much smaller than that of an exploration permit, but is not, in general, strictly connected to the deposit found by exploration, as in such area, the licence-holder may also carry out further exploration (geophysical and drilling) to increase the production of the deposits already found.
Onshore and off shore production licences are granted by the MiSE in accordance with the Region concerned and once the environmental procedures have been completed.
The regime for offshore facilities is more stringent in relation to environmental impact assessment and Legislative Decree no. 145 of 18/08/ expressly provides that the licence-holder is financially responsible for the prevention and repair of the environmental damage caused by sea operations through hydrocarbon activities carried out by it or on its behalf.
What are the key features of the licence/production sharing contract/concession/other pursuant to which oil and gas companies undertake oil and gas exploration and exploitation?
An exploration permit may last for up to 12 years (six years + possible extensions (maximum extensions of three years each).
Production licences have a duration of 20 years, which may be extended by up to a further 10 years.
The sole concession grants the exclusive right to carry out both exploration and production activities and has a duration of 30 years, which may be extended by up to a further 10 years.
Are there any unconventional hydrocarbon resources (such as shale gas) being exploited and is there a separate regulatory regime for unconventionals?
In Italy there is no law that specifically disciplines exploration and production of unconventional oil and gas resources, but under article 144, paragraph 4- bis, introduced by law 164/2014, the search for and the extraction of shale gas and shale oil and the issue of the relative mining rights are prohibited. For this purpose any technique of pressure injection in the subsoil of liquid or gaseous fluids, including any additives, aimed at producing or favoring the fracturing of rock formations in which shale gas and shale oil are trapped, is forbidden.
Who are the key regulators for the upstream oil and gas industry?
The main key regulators are the Ministry of Economy and Finance (MEF); the Ministry for Economic Development (MISE); the Ministry for the Environment and the Protection of Land and the Sea (MATTM); the Italian Regulatory Authority for Energy, Networks and Environment (ARERA) which carries out regulatory and supervisory activities in the sectors of electricity, natural gas, water services, waste cycle and district heating.
Furthermore, the Italian Institute for Environmental Protection and Research (ISPRA) is part of a network known as National System for Environmental Protection, made up of 21 Territorial Environmental Protection Agencies (ARPA).
The Regions too (i.e. the main Italian administrative districts) are increasingly using their role and involvement in regulatory and in particular procedural rules.
Is the government directly involved in the upstream oil and gas industry? Is there a government-owned oil and gas company?
During the last decade, the liberalisation and privatisation process in the energy sector also impacted the oil sector by Law no. 239 of 23 August 2004. Currently, the government is not involved in the upstream oil and gas industry. Nevertheless, the major shareholder of Eni S.p.a. is the company Cassa Depositi e Prestiti S.p.a. (of which the Ministry of Economy and Finance holds 80,1% of the shares).
Are there any special requirements for or restrictions on participation in the upstream oil and gas industry by foreign oil and gas companies?
There are no specific limitations on the entry to the Italian market of foreign companies and capital.
Certain limits may apply in mergers and acquisitions and in participation in tender procedures, if adequate reciprocity guarantees do not exist between Italy and the foreign company’s country of origin.
What are the key features of the environmental and health and safety regime that applies to upstream oil and gas activities?
Exploration permits and production licences must be preceded by Environmental Impact Assessments for which the MATTM and the competent Region are responsible.
For production licences, the extraction activities must be carried out and the plants must be operated in compliance with the technical regulations laid down by the competent bodies in the document approving the Environmental Impact Assessment.
The main bodies responsible for checking the environmental area are the ARPA (Agenzia Regionale per la Protezione dell’Ambiente – Regional Agency for the Protection of the Environment), which are technical bodies present in every Region of Italy which specifically deal with checking that the chemical and physical parameters of the plants comply with the limit values laid down by environmental legislation (the most important one being Legislative Decree no. 152/2006 and subsequent amendments) and the limits laid down by the licences authorising each specific facility.
The MiSE has a chemical laboratory which carries out checks connected to the workers’ health, and on the emissions arising from the treatment of the gas and oil. Should the above parameters be exceeded, in relation, for example, to water discharges or emissions into the air, on the basis of specific provisions of law, the plant operator will incur criminal and administrative sanctions and the closure of the production facility may also be ordered until functioning conditions are returned to below the parameters.
How does the government derive value from oil and gas resources (royalties/production sharing/taxes)? Are there any special tax deductions or incentives offered?
Licence-holders must comply with works programmes and pay fees in proportion to the surface area covered by mineral rights and royalties, in proportion to the quantity of hydrocarbons produced.
With respect to hydrocarbon exploration and production, the royalties are applied on the basis of the value of production. The royalties for onshore production are currently 10% (7% royalty and 3% to the oil prices reduction fund) if 20,000 tonnes per year are exceeded, while for offshore production they are 7% (4% royalty and 3% safety and environmental share) if they exceed 50,000 tonnes per year for oil, and are applied to the sale value of the quantities produced. Royalties for the production of onshore hydrocarbons are split, as follows: 55% to the Regions; 30% to the State; and 15% to the Municipalities.
However, for the Regions included in Objective 1 (the Regions of southern Italy including Basilicata, the main Italian oil producer), the State’s share of 30% is also assigned directly to the Regions. The rate of 3% for offshore permits is paid in full to the State and is 50% allocated to the MATTM to ensure the full performance of the monitoring and fight against sea pollution activities. The remaining 50% is allocated to the MiSE to ensure the full performance of the monitoring activities and safety checks, including environmental ones for offshore exploration and production plants.
Moreover, under Italian law, upstream oil and gas operators are subject to the following tax regime: (i) general corporate income tax (IRES); (ii) regional tax on productive activities (IRAP); and (iii) value-added tax (VAT).
Are there any restrictions on export, local content obligations or domestic supply obligations?
There are no restrictions on export. However, economic operators who decided to enter the domestic market must keep a “minimum internal stock” the volume of which is calculated on the basis of the volumes input the previous year in the period 1 April – 31 March, and may be reached even adding together the quantity of crude oil with that of other finished products (it is an overall volume). This rule is intended to increase the guaranteed reserves to assure a minimum energy self-sufficiency.
Does the regulatory regime include any specific decommissioning obligations?
Should a licence-holder wish to decommission physical structures because it intends to shut down a sterile or exhausted deposit or one which can no longer, in any event, be used, or is not capable of further assuring production in commercial quantities, it must ask for authorisation from the UNMIG Section of the MiSE providing details of the shutdown. The licence-holder must draw up a technical report on the shutdown of the deposit, providing details of the actions carried out, and must send it to the competent UNMIG Section. Notice must be given of the shutting down of an onshore deposit to the Region concerned. The competent UNMIG Section must draw up a report on the shutting down of the deposit. In the programmes for exploration, drilling and production activities, the licence-holder must provide details of the necessary actions for the characterisation and possible clean-up of the site for the purposes of its release without any restrictions arising from previous drilling activities. The competent UNMIG Section will certify completion of the shutdown and removal of the physical structures, and will send such certification to the Ministry for the cancellation of the mineral rights. For onshore activities, the programme for the clean-up of the area will be authorised by the UNMIG Section in accordance with the competent Region. At the end of the works, the UNMIG Section will draw up the report that the area has been cleaned up according to the authorised programme and will send a copy of it to the Ministry and to the Region.
What is the regulatory regime that applies to the construction and operation of offshore and onshore oil and gas pipelines?
The construction and operation of oil and gas pipelines are subject to certain Ministerial Decrees issued by the MISE (such as the Ministerial Decree of 17 April 2008) containing technical specifications for design, pressure levels, safety of the transportation system, environmental protection et cetera.
With respect to offshore pipelines mention should also be made of the recent Directive (EU) 2019/692 of 17 April 2019 which amended Directive 2009/73 of 13 July 2009 on common rules for the internal natural gas market.
What is the regulatory regime that applies to LNG liquefaction and LNG receiving terminals? Are there any such terminals in your jurisdiction?
The construction of regasification terminals is subject to a very complex authorisation procedure, the main steps of which are:
(i) an assessment of the environmental impact of the infrastructure project;
(ii) carrying out Conference of Services – responsible, inter alia, for establishing with the local authorities any financial and environmental compensation for the territory on which the facility is to be constructed; and
(iii) Sole Authorisation from the MiSE for the construction and operation of the facility.
Regasification terminals receive liquid gas transported by ship and transform it into gaseous form. In this way, natural gas can be entered directly into the transportation network.
This is regulated by article 24 of the Letta Decree which: provides for an obligation on undertakings controlling infrastructure essential to the functioning of the gas system, including regasification facilities, to allow access to other undertakings; and governs in an absolute way cases of legitimate refusal to access (refusal of access must be set forth in a reasoned declaration and must be immediately communicated to the ARERA, to the Italian Anti-Trust Authority (AGCM), as well as to the MiSE. The ARERA shall decide by a reasoned measure in relation to the refusal within three months of such communication.
The terminal operating in Italy are:
- the regasification plant of the company GNL Italia al Panigalia (La Spezia);
- the Adriatic LNG terminal, which is a regasification terminal off the coast of Rovigo; and
- the OLT Offshore LNG Toscana, which is a floating regasification terminal off the coast of Livorno in Tuscany.
The following entry point is currently being built:
- the TAP (Trans Adriatic Pipeline) pipeline, which will be an interconnector pipeline between Greece and Italy through Albania, with an entry point in Italy at the Municipality of Melendugno, in Puglia.
The following projects have been authorised:
- the regasification terminal offshore (Company: Api Nova Energia) of Falconara Marittima in the Marche Region; and
- the regasification terminal (Company: LNG Medgas Terminal) of Gioia Tauro in the Calabria Region.
What is the regulatory regime that applies to gas storage (not LNG)? Are there any gas storage facilities in your jurisdiction?
Gas storage is subject to concession. The ways in which the concession is granted are established in Legislative Decree no. 93/2011.
Storage concessions are granted by decree of the MiSE, together with the Region concerned, after an environmental compatibility clearance has been obtained from the administration concerned.
The single procedure for the granting of the concession is structured in various phases which give points to the project on the basis of the following criteria:
a) completeness and rationality of the storage project and the relevant works programme proposed on the basis of geological studies and application of simulation models;
b) planned times for the performance of the works and for full operation in relation to the storage performances provided for in terms of working gas and performance of the delivery and injection point;
c) manner of the performance of the works, with particular regard to safety and environmental protection, and environmental or safety at work certifications;
d) envisaged efficiency of the storage;
e) minimum duration of inflow/outflow;
f) use of original potential of the deposit (ratio between working gas and the original deposit); and
g) ratio between operating costs/working gas.
Points from 0 to 10 are assigned to the project for each of the criteria from a) to c), points from 0 to 5 are assigned for each of the criteria from d) to g), with points for the project equal to the sum from a) to g) for a maximum total of 50 points.
Should the project not reach sufficient quality levels, equal at least to a total of 26 points, it will be rejected, and if there is competition, excluded from the ranking.
If there is a favourable outcome, the decree provides for the limits to be allocated to storage with the relevant shares and guarantee clauses on the attaining of minimum targets as specified in the application; in particular, for working gas.
The decree granting the concession is served on the licence-holder, the MATTM, the Regions and the Municipality are all involved in the process, and is published in the Official Bulletin as well as on the website of the MISE, setting forth the works programme approved and the relevant performance times and, if there is competition, the reasons adopted for the selection. The same decree approves any additional appurtenant actions. The decree shall also be published, by the applicant, in the Official Journal and in a national daily newspaper.
The procedure has an overall maximum duration of 180 days, subject to the times necessary for the compulsory sub-procedures for which other administrations are responsible.
Concessions for the storage of natural gas shall remain in force for 30 years, which may be extended, no more than once, by another 10 years.
Stogit- Snam and Edison Stoccaggio are the most significant gas storage companies in the Italian market. The storage sites are more frequently present in Northern Italy, where the demand for gas is concentrated.
Is there a gas transmission and distribution system in your jurisdiction? How is gas distribution and transmission infrastructure owned and regulated? Is there a third party access regime?
The natural gas distribution system consists of three different “levels”: the legislative level; the regulations level; and the regulatory level.
The legislative level is essentially composed of articles 14, 15 and 16 of the Letta Decree, which identify the general provisions for the gas distribution service. Mention must also be made to article 46-bis of Law Decree no. 159/2007, converted into Law no. 222/2007, which required of subsequent ministerial decrees the establishing of uniform tender criteria for the awarding of the service and identification of the minimum territory for the tenders according to optimum territorial catchment areas (Bacini Ottimali di Utenza – ATEM), thus superseding the “old” community ambits. With respect to the awarding of the gas distribution system, article 24 of Legislative Decree no. 93/2011 definitively provided that it must take place exclusively through ATEM tenders.
With regard to the regulations level, the following are significant: (a) the Ministerial Decrees of 19/01/2011 and 18/10/2011, which respectively split Italy into 177 ATEMs and identified the individual Municipalities pertaining to each ATEM; (b) the Ministerial Decree of 12/11/2011 (amended recently by the Ministerial Decree of 20/05/2015), which, among other things, laid down the criteria for the assessment of tenders and bids for the awarding of the gas distribution service; (c) the Ministerial Decree of 05/02/2013, which approved the format of the service contract; and (d) the Ministerial Decree of 22/05/2014, which approved the guidelines for the calculation of the reimbursement value for gas distribution systems.
Finally, of no less importance is the regulatory level, made up of a myriad of measures issued by the ARERA, of which mention must be made to Resolution no. 113/2013/R/gas (which governs the procedural process for any observations of the authority to be made to the contracting authorities on tender regulations) and Resolution no. 367/2014/R/gas, containing “Tariff Regulations for Gas Distribution and Measurement Services for the Regulatory Period 2014–2019.
Gas distribution is a “public service activity”. The party authorised to grant the distribution service is the local authority, and the service must be awarded exclusively through a tender procedure for periods of not more than 12 years. The dealings between the grantor and the concessionaire are governed by service contracts, on the basis of a contract format drawn up by the ARERA and approved by the MiSE (see the Ministerial Decree of 05/02/2013).
Is there a competitive and privatised downstream gas market or is gas supplied to end-customers by one or more incumbent/government-owned suppliers? Can customers choose their supplier?
The sale of natural gas is governed by articles 17 and 18 of the Letta Decree, as amended by article 30 of Legislative Decree no. 93 of 01/06/2011, as well as by the Ministerial Decree of 29/12/2011, which provides for the criteria on the basis of which undertakings are registered in the list of undertakings authorised to sell natural gas to end-customers throughout Italy, consisting of: a) the availability of natural gas and of the modulation service for customers having an annual consumption of not more than 50,000 cubic metres; b) a demonstration of the provenance of the gas and of the reliability of the transportation system; and c) the adequacy of the technical and financial capacities of the undertaking.
There is therefore an accreditation system at the MiSE for the performance of these activities.
From 01/01/2003, sales have been completely liberalised, the classification of “suitability” is extended to all customers, including domestic ones (article 22 paragraph 2 of the Letta Decree) who may freely choose their supplier.
How is the downstream gas market regulated?
The wholesale market is managed by the Energy Market Operator (Gestore dei Mercati Energetici) and exchanges take place on a virtual platform.
Shippers active on the market can purchase natural gas from: private counterparties through exchange platforms; PB-GAS (spot market); or the platform for the balancing out of natural gas.
In order to limit dominant positions, there are maximum market shares. The wholesale market share is limited to a maximum cap of 40% of domestic consumption. If this cap is exceeded, gas release mechanisms are provided for at regulated prices. It is also possible to raise the threshold to 55% if there are undertakings to develop and increase storage capacity by four billion cubic metres over five years.
With regard specifically to retail sales, the ARERA supervises the transparency of contractual conditions and service quality, maintaining also the power to fix the tariffs which retailers must offer on the so-called “protected market”, together with their offers on the “free market” to end-customers defined as vulnerable.
Have there been any significant recent changes in government policy and regulation in relation to the oil and gas industry?
The main changes refer to environmental regulation and safety regulation.
The so-called Environmental Code (Legislative Decree no. 152/2006) implemented the EU Directive 2010/75 (the Industrial Emissions Directive or IED) which is the main EU instrument regulating pollutant emissions from industrial installations.
The relevant provisions aim to achieve a high level of protection of human health and the environment taken as a whole by reducing harmful industrial emissions, in particular through better application of the so called Best Available Techniques (BAT). The oil and gas industries are thus required to operate in accordance with the AIA permits (Autorizzazione Integrata Ambientale) granted by the Ministry of Environment, after verification of compliance with the BAT.
With respect to safety regulation, Legislative Decree no. 105 of 26 June 2015 implemented EU Directive 2012/18/EU (or Seveso III Directive) on the control of major-accident hazards involving dangerous substances. This regulation aims at controlling major chemical accident hazards and establishes minimum quantity thresholds for reporting and safety permits. There are two lists: one names individual substances, and another designates hazard categories for those substances. The oil and gas industry is required to operate having documents based on hazard and quantity; these documents are Notification, Major Accident Prevention Policy (MAPP), and Seveso Safety Report.
What key challenges have been identified by the government and/or industry in relation to your jurisdiction’s oil and gas industry?
Certainly, over the last few years interest has grown in the exploration of new possible oil or natural gas reserves, both initially and abroad.
Most of the explorations have been carried out by Eni S.p.a., the Italian multinational company leader in the production of hydrocarbons.
Recent explorations carried out by certain ENI S.p.a. expert geologists have led to the discovery of enormous methane reserves under the waters of the Adriatic Sea. More specifically under the "table" of sand forming the seabed.
As concerns the upstream sector, furthermore, in the three-year period 2018-2020 there is in course a significant increase in domestic oil production thanks to extractions in Eni’s Lucania oilfield (in joint venture with Shell) which returned to normal production after two years ( 2016 and 2017) in which, due to legal and environmental problems, the production site was stopped for months with no production of crude oil and consequently causing the collapse of the domestic one.
As to exploration abroad, ENI S.p.a. has recently discovered also the enormous reserves in Noor, Egypt: the largest in the Mediterranean area. Eni S.p.a. has the concession for the area of the enormous Egyptian reserve and, therefore, the rights to exploit it on an exclusive basis.
Instead, with respect to the downstream sector, it is not clear whether the government considers refining as a strategic business.
Generally speaking, it may be said that in the downstream sector there is a problem consisting in the reduction of the margins of the plants and this is true in general for all refineries in Europe.
More specifically, over the last ten years, the consequences have been felt of the "change in approach" to refining: Italian refineries (and European ones) constructed tens of years ago and still operational today, are in fact based upon an obsolete concept (i.e. their average sized refineries, equipped to be able to carry out all types of processing) while today large latest generation refineries are being developed, constructing directly close to the RN extraction locations and above all specialised in the production of one type only of finished product with decidedly higher returns.
In this scenario, it does not appear advantageous for operators to make investments to replace existing Italian refineries with latest generation ones, given the very considerable costs that this would involve.
Are there any policies or regulatory requirements relating to the oil and gas industry which reflect/implement the global trend towards the low-carbon energy transition?
The main requirements are certainly those laid down by the ETS EU system which operates according to the principle of limitation and exchange of CO2 emissions.
In this system, a cap is fixed on the total quantity of certain greenhouse gases which can be emitted by plants. The cap goes down over time so that total emissions reduced progressively.
Within this limit, undertakings operating in the Member States, receive or acquire credits which, if necessary, they can exchange. At the end of every year the companies must return a number of credits sufficient to cover their emissions otherwise they will suffer heavy fines. If a company reduces its emissions it can keep the unused credits to cover future requirements, or sell them to another company which does not have enough of them.
The exchange creates flexibility and guarantees that reductions in emissions will take place when they are most advantageous. A solid price of CO2 also favours investments in clean technologies and with low CO2 emissions. According to estimates, in 2020 emissions in the sector is governed by the system will be 21% lower than in 2005.
Other requirements are those laid down by Legislative Decree no.81 of 30 May 2018 containing Implementation of Directive (EU) 2016/2284, of 14 December 2016 (National Emission Ceiling Directive: NEC) which sets national emission reduction commitments for Member States and the EU for five important air pollutants: nitrogen oxides (NOx), non-methane volatile organic compounds (NMVOCs), sulphur dioxide (SO2), ammonia (NH3) and fine particulate matter (PM2.5). These pollutants contribute to poor air quality, leading to significant negative impacts on human health and the environment.
Finally, account must be taken of the obligations relative to the use of bio fuel, and of the sanctions provided for in the case of non-putting onto the market of the quantity of advanced bio fuels laid down by law (the relevant regulation is contained in Legislative Decree no. 28 of 3 March 2011, implementing EU Directive 2009/28 on the promotion of the use of energy from renewable sources, and by the MISE implementing ministerial decrees (M.D. 20 January 2015, M.D. 10 October 2014)