Gas Q&A

What is natural gas?

Natural gas is now the third most widely used source of energy in the world and is the main raw material with which heating systems and kitchens in our homes are fueled. Natural gas is a fossil fuel formed by the fossilization (or mineralization) of organic remains of animals and plants. It is composed of a mix of hydrocarbons that varies from reservoir to reservoir: for the most part it is methane, but other hydrocarbons such as propane and butane, and other gases including nitrogen, carbon dioxide, helium, etc., may also be present.

What are the benefits of natural gas?

Availability – Gas reserves in the world are ample and ensure long availability. The spread of a pipeline network infrastructure and especially the development of LNG by ship also allow gas to be transported anywhere and have promoted its worldwide use as a resource that can reduce pollutant emissions.

Flexibility – Natural gas has versatile uses: it is an essential resource for daily life, being widely used in the domestic environment for food preparation and as a heating fuel. It is also an important source in electricity generation (50 percent of electricity in Italy), as an alternative fuel in the transport sector (cars, buses, trucks, freight, and passenger ships) and in the industrial sector, where it is the least polluting and most efficient fuel. Thanks to its flexibility, natural gas is also able to accompany and support increased use of renewable sources, ensuring continuity of supply and compensating for the variability and intermittency of wind and solar sources.

Reliability – Security of supply comes from the prevalence of infrastructure and the ability to transport natural gas along pipelines and by ship to places of distribution and consumption. Reliability also comes from the ability to accumulate gas reserves at storage sites for periods of increased use or in case of shortages.

Low environmental impact – Natural gas reconciles the need to ensure security of supply and greenhouse gas reduction by 2050. Combined with the application of innovative technologies, such as carbon capture, utilization, and storage (CCUS), it can contribute to achieving the Paris Agreement’s zero-emissions goal. The CO2 (per unit of energy produced) released from natural gas into the atmosphere is 60 percent lower than coal and 20 percent lower than oil. The advantage of natural gas over other fossil fuels is even greater when considering emissions of many air pollutants, such as particulate matter, sulfur oxides, sulfur dioxide, and nitrogen oxide.

How much gas is consumed in Italy and how does it arrive?

Out of a gross energy availability of 153 Mtoe (million tons of oil equivalent), the percentage composition of energy sources sees natural gas contributing about 41 percent.

In 2021, gas demand totaled 76.4 billion cubic meters and was met 4% through domestic production (3.2 billion cubic meters) and 96% through imports. Pipeline imports accounted for 86.5 percent of total imports (62.9 billion cubic meters), while LNG imports by ship accounted for the remaining 13.5 percent (9.8 billion cubic meters).

How much gas is extracted in Italy?

According to the latest data from the Ministry of Economic Development (MISE), Italy extracted 3.34 billion cubic meters of natural gas in 2021, compared to a total consumption of 76.4 billion cubic meters of natural gas. Thirty years ago, up to 20 billion cubic meters of natural gas per year were extracted in Italy, but for multiple reasons-bureaucratic limits for concessions and investment on new wells-this figure has been reduced by about one-sixth.

How many productive deposits are there in Italy?

There are 1,298 currently productive natural gas fields in Italy: of these, 514 are classified as “delivering” and are used for extraction. More than 750, on the other hand, are “non-dispensing,” that is, not active.

Where are the current deposits located in Italy?

According to Mise data, the region where the most gas is extracted is Basilicata (more than 1 billion cubic meters). It is followed by Sicily, Emilia-Romagna, and Molise. As for deposits in the sea, the “best” area is the Adriatic: the coasts off Emilia-Romagna and, further down, the waters in front of Marche and Abruzzo.

The region with the most productive and supplying wells overall is Emilia-Romagna, with 187 installations between onshore fields and marine areas. It is followed by Tuscany with 45, Sicily with 44, Molise with 15, Puglia and Marche with 12, Lombardy with 8, Calabria with 7, Basilicata with 6 and Abruzzo with one.

How is natural gas used annually in Italy?

For domestic use (cooking and heating), Italians consum each year about 30 billion cubic meters (meeting 52 percent of residential consumption). For electric generation, consumption of 29 billion cubic meters of natural gas metered 50% of electricity. In the industry sector, 13 billion cubic meters met 45% of industry’s final energy consumption (in Mtoe). Finally, in transportation, more than 1 mmc of natural gas fueled more than 1 million vehicles (accounting for 75% of the vehicle fleet in Europe).

Is natural gas the leading energy source in Italy?

The particularly sharp decline in fossil sources (oil and coal in particular) has led to a significant reduction in the fossil share in the energy mix, in 2020 estimated at about 72 percent, two points lower than in 2019 and a new all-time low (since 1961), lower than the 73 percent in 2014. The collapse in oil consumption has then strengthened the position of natural gas as the country’s first source, with a 40.9 percent share, a new all-time high although in absolute terms gas consumption was 14 Mtoe lower than its 2005 peak), a full six percentage points higher than oil. Oil and petroleum products accounted for 32.9% of energy sources, renewables 19.5%, solid fuels 3.6%, and electricity 2.4%.

How does natural gas extraction take place?

The extraction of natural gas is done by “drilling” the rock covering a reservoir. Being under great pressure, the gas violently escapes to the outside and is inserted into pipelines that then lead it to storage and distribution sites. In some cases, the gas must be processed such as when it is mixed with other gaseous hydrocarbons or other gases.

In the first case, methane is separated from the other hydrocarbons, such as propane or butane, which are put to specific uses (for example tanks to fuel domestic kitchens). In the second case, natural gas is purified from other gases, such as sulfur or helium.

How does supply take place?

Italy’s natural gas supply is minimally supplied by domestic production (in 2021 amounting to 3.4 billion cubic meters, which met 4 percent of national gas demand).

Much of the supply is by import (96 percent) via pipeline (86.5 percent) or by ship in the form of Liquefied Natural Gas (LNG – 13.5 percent). LNG can be regasified through chemical processes to be fed into the natural gas grid.

How does transportation take place?

Natural gas is transported through a network that includes mainly high-pressure pipelines. Gas is fed into the national transportation network (over 35 thousand kilometers) at entry points that include import lines from Russia, Northern Europe, and North Africa, extending to regasification plants, and production and storage centers located in Italy. The gas reaches redelivery points connected to local distribution networks and large industrial and thermoelectric users.

What is meant by "storage"?

Storage is the deposit in underground reservoirs of natural gas withdrawn from the national transport pipeline and then fed back into the network according to market demands. It is an important part of the supply chain as it ensures the continuity of supply, offsetting differences between supply and demand and ensuring strategic reserves to cope with extraordinary situations: such as, for example, particularly cold periods (increased need for gas for heating) or international geopolitical crises with repercussions on supplies.
Italy has a storage capacity of over 17 billion cubic meters.

What is the difference between distribution and sales?

Distribution is the activity of transporting natural gas through local distribution networks for delivery to end customers. It includes construction, development, and operation of plants (routine and extraordinary maintenance, emergency response, safety) and metering activities. The distribution network in Italy is 268 thousand kilometers long and is operated by 188 companies.

Sales, on the other hand, is the business of commercially supplying natural gas to customers. Sales enterprises can operate on the wholesale market, buying gas for the purpose of reselling it to other sellers, or on the retail market, buying gas for the purpose of allocating it for consumption by end customers. There are currently 485 companies in Italy engaged in sales activities.

Before deregulation started in 2000, the figure of the distributor and the seller were concentrated in a single entity that operated at the local level by managing the distribution network and selling gas to end customers connected to the same network.

As a result of the unbundling of activities, today distribution companies are responsible for operating the local network that brings gas to the end consumer, while the seller is a separate entity that only carries out the commercial activity of buying and selling natural gas.

Thanks to independent, third-party management of the infrastructure, end customers today can purchase gas from any supplier by choosing the offer that best meets their needs.

How is LNG transported?

Liquefaction technology, which makes it possible to reduce the specific volume of gas by about 600 times compared to standard conditions, allows for cost-competitive storage and transportation of significant amounts of energy in considerably smaller spaces. LNG can be transported anywhere, even in areas that are not reached by the natural gas network (in the mountains, countryside, and islands). Transportation of LNG long distances from the production site is mainly by sea by LNG carriers, in which the LNG remains almost entirely in the liquid phase at near-atmospheric pressure (max. 0.25 bar) and cryogenic temperatures (about -160 °C).

What is the use of LNG?

Due to its density, it can be transported and stored efficiently. LNG has a high calorific value and is particularly well suited to meet the needs of business and industrial settings characterized by significant energy requirements. Due to its extremely versatile nature, it represents an opportunity not only in the industrial sphere, but also for other sectors, where its efficiency and sustainability characteristics can be a significant advantage: from vehicles (heavy road transport) to maritime transport and its use in the civil sector.

What sustainability does LNG have?

LNG is an environmentally friendly source with no impacts on people’s health. In particular, Liquefied Natural Gas generates lower carbon dioxide emissions than most fossil fuels, limited SO2 emissions, and nearly zero levels of particulate matter. LNG also poses no risk of soil, subsoil, or groundwater contamination (it has a lower density than water and therefore floats) and produces no harmful waste.

What is the most used type of regasifier?

Onshore technology is the most widespread and proven because it was the first to be developed. It consists of constructing tanks near the sea (usually in or near a large port area) designed to accommodate LNG (liquefied gas). These tanks, built with an outer concrete structure plus an inner metal cylindrically shaped one, are connected through appropriate pipelines to a dock at which the LNG carrier carrying the gas in liquid form moors.

What are floating regasifiers (or FSRUs)?

Floating Storage and Regasification Units or FSRUs are terminals capable of storing and regasifying natural gas. These are vessels placed near a port area, at the dock or offshore, which receive liquefied natural gas (LNG) at a temperature of -160°C from other LNG carriers and regasify (i.e., bring it to a gaseous state) to feed it into the national gas transportation network.

What is Offshore GBS (Gravity Based Structure) Technology?

This technology is the most innovative. The world’s first terminal regasifier of this kind is the one designed by Aker Kværner for the Adriatic LNG company off the coast of Rovigo, near Porto Viro, and put into service in 2009. The reinforced concrete structure-in which two steel tanks are housed-is transported from the construction site where it is built to the place where it is to be placed and is sunk, that is, made to lie on the bottom using appropriate ballast. The structure thus forms a real artificial island to which LNG carriers can dock and unload gas.

How many regasifiers does Italy have?

Italy has three regasifiers. The Adriatic LNG in Rovigo, off the Po Delta, processed 7.3 billion cubic meters in 2021. The one in Panigaglia (SNAM) in the province of La Spezia (1.1 billion cubic meters) and the one off the coast of Livorno (1.4 billion cubic meters). Our country is also in the process of equipping two floating regasification units (FSRUs) with a regasification capacity of 5 billion cubic meters per year each, which are expected to start operation in spring 2023 and fall 2024.

What is the role of gas in the energy transition?

The European Green Deal, the new strategy for sustainable growth presented by the European Commission, aims to make Europe the first climate-neutral continent by 2050, bringing all net greenhouse gas emissions to zero. By that date, the energy system will change dramatically, and renewable sources of energy will be affordable, sustainable, and widely available in the market.

By 2030, gas in Europe will continue to meet a large share of energy demand, still considering the phase out of coal and the need for balance with renewables. By 2050, gaseous fuels will make up at least 20 percent of European energy consumption, with two-thirds being renewable and low-carbon gas and the remaining third being natural gas guided by CCUS. It will be possible to meet environmental targets this way, while ensuring the flexibility and resilience of the energy system. The role of gas infrastructure is crucial in this scenario, which already has a comprehensive transportation, distribution, and storage network: a capillary network capable of supporting an increasingly widespread use of renewable energy in the long term.

What role does gas have in electric generation?

Since the second half of the 1990s – with an acceleration from 2000 onward – a large number of natural gas-fired Combined Cycle Gas Turbine (CCGT) power generation plants have been built in Italy. This kind of plant, which can achieve a power yield efficiency level of 60 percent, is the most capable to produce electricity and is characterized by low unit investment cost, small dimensions, short construction time and low pollutant emissions. For the same amount of energy produced, natural gas produces less CO2 than other fuels from fossil sources. Compared with coal, natural gas emits nearly 60 percent less CO2. It is particulate-free and is the source that, along with renewables including biomethane, can ensure an efficient decarbonization pathway in line with global climate agreements, using existing plants and infrastructure.

What are the benefits of gas for transportation?

In addition to the environmental benefits-natural gas is by far the least polluting of fuels (blended with biomethane it achieves the goal of zero emissions)-the use of natural gas brings significant economic benefits: a kilogram of methane allows you to travel more miles than a liter of gasoline. That is why it is the cheapest fossil fuel at the pump compared with other fuels. An increase of up to 3 million in the circulating fleet of natural gas vehicles would save Italian households and businesses up to 800 million euros over 5 years.

Specifically, Liquefied Natural Gas (LNG) – used from heavy road transport to maritime transport to its use in civilian settings – offers a cost savings of more than 40 percent compared to diesel fuel. LNG also reduces CO2 emissions by 15 percent compared to conventional fuels, nitrogen oxides by 50 percent, and achieves ‘zero emissions’ for particulate matter and sulfur oxides.

What is biomethane?

Biomethane, which is a renewable energy source such as solar and wind, is obtained from the purification of biogas, following appropriate chemical and physical treatments (purification or upgrading), also carried out in a different place from the place of production.

It is obtained by anaerobic digestion of agricultural and agroindustrial byproducts and organic waste. An upgrading that occurs through removal of water, CO2, contaminants such as siloxanes, sulfur dioxide and ammonia. Biomethane is defined as “advanced” if it is obtained from the materials listed in Part A of Annex 3 of the DM (Ministerial Decree) of Oct. 10, 2014, as amended.

Thanks to this treatment, biomethane can be used on site or transported into the natural gas network without the need to make changes to the plants. In fact, it represents a circular economy model to revitalize agriculture and more generally the Italian industrial system. In fact, its use complies with decarbonization goals, promotes an increase in domestic natural gas production and allows positive consequences for the agribusiness sector.

How and where are biogas and biomethane used?

While biogas is generally used on-site, mainly to produce electricity or heat, biomethane (which has a methane content of more than 95 percent) has the potential to be used, along with fossil sources, both in automotive and to satisfy domestic and industrial uses. In its liquefied form known as bioLNG, it can also be used as a biofuel for trucks and ships.

Just over 2/3 of the raw material used to produce biogas comes from agriculture, while the remainder comes from sewage and organic waste. As for the final destination, 57 percent of biogas is used for electricity production, 12 percent for heat production, 29 percent for direct uses (agriculture, industry and residential), and 2 percent for transportation after upgrading to biomethane.

In Europe between 2009 and the end of 2019, the number of biogas plants tripled from 6,300 to nearly 19,000, distributed mainly among Germany, Italy, France, and the United Kingdom. Italy – the second-largest biogas producer in Europe and fourth in the world – can now count on about 2,000 plants (up from 150 in 2007) and a production of about 2.5 billion cubic meters.

With respect to biomethane, domestic production has increased from 9m m3 in 2017 to 159m m3 in 2021. Looking forward, it is possible to estimate production potential to reach 2.5 billion in 2026 and more than 5.5 billion in 2030.

The Repower EU plan approved at the European level calls for doubling biomethane production capacity by 2030 from 17 to 35 billion cubic meters.

What is the role of hydrogen?

Hydrogen in free form does not occur in nature. However, it can be produced through a wide range of chemical and physical processes. It is currently obtained mainly for industrial uses from natural gas through a thermochemical conversion process with CO2 production (known as “gray hydrogen”). CO2 capture and storage (CCS) technology can be added to this procedure to obtain decarbonized hydrogen (“blue hydrogen”).

Another avenue for hydrogen production is through water electrolysis, in which electricity is used to “separate” water into hydrogen and oxygen, without CO2 production, and obtain “green hydrogen”. To date about 4/5% of global hydrogen is produced this way. In light of the gradual reduction in the cost of solar and wind power and electrolyzers, this mode of production may prove to be a key element in the energy transition. It will be possible to decarbonize even those sectors of the economy that are not easily or directly electrified, such as heavy industry, aviation, and long-distance road or sea transport.

In summary, hydrogen does not emit CO2 or other pollutants. It can be produced from renewables and has a lower transportation cost than electricity. It can be stored reliably, safely, and cost-effectively for a long time. It can effectively decarbonize the so-called “hard-to-abate sectors” (steel and refinery) or be employed in sustainable mobility using fuel cells.

Hydrogen can be fed into the natural gas grid mixed with natural gas, either in a pure state or blended. To date in Italy, the DM (Ministerial Decree) of June 3, 2022, provides for a mixture equal to 2 percent hydrogen, which is an initial precautionary value compared to the augmentation the Ministry of Ecological Transition already envisions as a result of ongoing studies and experiments.

What is the difference between a free and regulated market?

The deregulating of the gas sector is a process – started at the impetus of the European Union in 2000 – that has led to the introduction of a new competitive model in the Italian energy market, allowing each consumer to choose his or her provider from a multitude of offers. Currently in the Italian energy sector a free market coexists with a so-called regulated market, where the price of gas is defined and updated by ARERA. The end customer is free to choose whether to remain in the protected market or switch to the free market, choosing an offer that is even cheaper or that better meets his or her needs by presenting additional ancillary services.

The outlook is for a complete liberalization of the energy market, with a move beyond the regulated price defined by ARERA.  Currently this deadline for natural gas is set for January 1, 2023.

How is the price of natural gas calculated?

The gas price includes a component determined by the governing authorities and respective to regulated activities. In the regulated market, ARERA defines and updates the cost of the raw material as well, while in the free market it is freely determined by the vendor. Thus, the final price displayed on the gas bill consists of several elements, some of which are related to the contractual conditions stipulated with the chosen supplier, while others are related to the tariffs defined by ARERA.

The total price consists of:

  • Natural gas material expenses: it includes the amounts billed in relation to the different activities carried out by the seller to supply natural gas to the end customer and is in turn made up of the natural gas procurement components in the wholesale markets (Cmem and CCR), the retail marketing component (QVD) and the component related to the renegotiation of contracts (Cpr). It represents the variable part of the gas price and depends on the cost of the raw material and the conditions applied by the selected operator. In the regulated market these cost items are updated by the Energy Networks and Environment Regulatory Authority (ARERA), while in the free market it is the seller who offers a given price and any discounts and promotions.
  • Costs for transportation and meter management: includes the amounts billed for the various activities that enable vendors to deliver natural gas to end customers, the tariff components related to gas distribution and metering service and transportation, defined by ARERA.
  • Cost of system charges: includes processing fees intended to cover costs related to activities of general interest for the gas system that are paid by all end customers of the gas service (e.g., energy saving, gas bonus).
  • Taxes set by the state: these include excise duty, a tax on gas consumed with a rate that varies according to consumption thresholds, regional surtax, and VAT, which is applied to the total amount of the bill at a rate of 10% for consumption up to 480 cubic meters/year and 22% on consumption thereafter and on fixed rates.