The old relationship betwen ENI and Russia and the long aversion of the US towards the European energy trade.
Sometimes, when jealously hidden secrets are made public, they often are no more than repetitions of well known past events and considerations. The Wikileaks published on the Italian –Russian affairs on oil and gas do not contain anything new: they refer to a history that starts in the first half of the past century.
If I am not wrong, not being an historian myself, the nationalisation of oil industry by the Leninist revolution created a strong reaction, , and around 1925, , the European countries and the USA decided that Russian oil was out of the world market . Everybody agreed ... but Italy. Not because of sympathy of the new Italian regime for the Russian revolution (some short-term sympathy was there).
Russian oil was the only oil available on the market. At that time, crude oil was not sold. Oil Companies sold gasoline and other products, but not crude oil, which flew only through their integration channels. So, if Italians wanted to create their own oil economy, they had to import oil from Russia. Russian crude and Russian oil products made up a big part of the Italian supply of fuel: later, the development of Rumanian oil fields reduced their importance. The interest of the Government for an oil economy lead in 1927 to the creation of AGIP.
Fast forward , land in the post Second World War years: Italy has been reconstructed , with the strong support of the USA , and needs fuels to launch what was later know as the “miracolo italiano” . The natural gas found in the Po Valley by AGIP was one of the main factors for it. AGIP was run by Enrico Mattei, a former leader of the Resistence, with high political leverage. Immediately after the war, the mechanic ability of the Po Valley workers had converted to natural gas the few cars still on the road, but the remedy was available only in gas producing areas. 50 percent of the Italian oil refineries, like Bari, Livorno or Venice, were given to American and British oil companies, and AGIP could get some supply only from Venice , run by BP, who had a surplus of Iranian crude , and no distribution in Italy . AGIP went back to his old supplier. Russian oil was banned, but 1925 was perhaps forgotten and, after all, Italy had not signed it.
Politically it was hell, but AGIP had given birth to ENI, and their boss, Mattei was too important in Italy, and he wanted to reduce gasoline prices. Of course, AGIP had no money, and the payment was partly in steel pipes, which Russian needed to develop their own oil and gas industry. Perhaps the Italia steel pipes were not enough or perhaps no; Mannesmann was in any case in the deal. The Americans who organised a process against ENI at the Oil Committee of OECD found themselves in a strange “USA versus Italy and Germany”, which did not look very good. And eventually President Kennedy asked EXXON to offer AGIP a similar contract to help the Italian to avoid falling in Russian hands. The West did not crumble, and AGIP –ENI grew into an international oil company.
However, the gas fields found in the Po Valley were not eternal, and the other fields found in the Peninsula and in Sicily were not big. Italy had tasted the advantages of a gas economy in heating the houses running the factories and the power plants, and needed a “national pipeline network”, a national infrastructure comparable with the railways built after the unity of Italy. Gas had to be imported. First from Libya, with one of the first gasification plant of ship transported gas, with gas from EXXON, built near La Spezia, in Liguria. But to reach the volumes to satisfy potential demand gas had to be imported by pipelines, first from the North Sea , and then, with higher volumes , from Russia, on one side and from Algeria, on the other. Both these operations were “first ever done”: the Russian for the distance and the number of countries to be crossed, as Russia and Europe are not separate by a natural border. The Algerian pipeline had to cross the Mediterranean Sea, something never attempted before.
Political problems were of course there, and USA Government was quite unhappy about the Russian deal, but ,again, the problem was not only Italian as Germany was there , not only with pipes, but also with gas to be imported in large quantities to substitute coal and fuel oil with a much less polluting energy source.
The Italian-Russian story in the area of energy has up to now worked out pretty well ,saving a huge , not calculated amount of CO2 and other pollutants not injected in European atmosphere.
All through these events, there was - and continues to be - a political aversion towards the Russian-European trade - a rather odd one, given the new Nato-Russia relationship. Some of the aversion is supported by economic and technical arguments, which can be related to how and where invest in new gas imports. Some maintain that gas is quite abundant , as the USA has increased its production , and Europe is involved in an energy saving trend, so that demand does not increase much , or even remains steady. Ships delivering liquefied natural gas could be enough. This argument relates to the short term. The low demand energy is also due to the economic crisis, and to the low level of industrial activity. A pick up of the economy could soon change that. Building a pipeline takes a long time, and in order to be ready when demand starts again to grow, one has to plan well ahead. Security of supply is fundamental, even more important than price.
Alternatively, some maintain that Europe should build pipelines carrying gas from sources different from Russia. The choice between two different suppliers is difficult, and the only way to solve it is to rely on the existing long term experience. Our experience of Russia is definitely not bad. Notwithstanding the huge political turmoil, we have had only problems related to the countries separating Russia from Central and Southern Europe, a problem that will be solved by completing the North Stream.
We have to remember that Russia is the largest world producer of crude oil, and has enormous reserves of gas. It needs to export in order to acquire modern industrial products, while Europe exports modern industrial products and needs the energy to produce them. The two are really a single economic area, with dovetailing needs and potentials. Up to very recently, Europe was the only real market for Russian energy, now China is coming forward, and the Chinese do not normally play the easy buyer who does not haggle on the price.
Of course, there are political differences, although less than twenty years ago, but there is no need to agree with your supplier on political matters: the experience we have had after the demise of the URSS is telling. The West gave the Russians two wrong impressions. The first, to want to teach to the Russians how to govern themselves. Second, worse than the first, created the suspicion that its companies were ready to grab the Russian natural resources, in name of a better technology, superior market ability, and more money. The reaction to these fears did not take long to become powerful, to the point of pushing Russia moving back on political freedom .Perhaps the relations between buyer and seller do not necessarily imply a similar political structure . What could be useful, in fact, would be a sort of common long term planning, to take into account the reciprocal needs and the best way to satisfy the needs.
Of course, we do not discuss here the possibility that some individual interest be connected with these large deals. This would be a matter for the judges – and we would appreciate any move aimed to clarify those possible aspects - not for the economist.