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Italy's government, buoyed by a
strong showing in European elections, is stepping up efforts to
boost domestic oil and gas output as mounting tension in Russia
and North Africa raises the spectre of disruption to energy
imports.

Prime minister Matteo Renzi's triumph in European elections
in May gave the government a mandate to push ahead with
ambitious reforms as it seeks to shake up the way business is
done in Italy's sluggish economy.

The economic reforms include pledges, inherited from a
previous government, to double oil and gas output by 2020 and
generate investments worth 15 billion euros ($20 billion) over
that period.

Italy, which spent 56 billion euros last year on its energy
bill or some 3.6 percent of gross domestic product, imports
around 90 percent of its overall energy needs. Some 70 percent
of its gas comes from Russia, Algeria and Libya.

Now with Russian flows threatened by the Ukraine crisis,
Libyan supplies vulnerable to conflict and Algeria volumes
reduced, Rome is keener than ever to diversify supply sources.

Plans by France's Total and Germany's E.ON to
withdraw from a pipeline scheme to bring Azerbaijan's gas to
Italy has also heightened concern.

"The electoral win has certainly stiffened resolve and we
can expect a series of energy measures to be taken fast," an
Industry ministry source said.

Industry Minister Federica Guidi is due to meet stakeholders
on Wednesday in the resource-rich region of Basilicata, home to
around 70 percent of Italy's current oil production, to try and
overcome strong local opposition to exploration and production
(E&P) activity.

"The idea is to build a consensus and it could be a
blueprint for other regions where drilling has been held up by
red tape and environmental resistance," the source said.

Italy, which has the biggest hydrocarbon reserves in Europe
outside the Nordic area, currently produces just 12 MTEP
(million-ton equivalent of petroleum) per year. That compares to
oil and gas reserves estimated at 700 MTEP.

The new government has signed up to an energy white paper
drawn up two years ago by the administration of Mario Monti
which, among other things, aims to raise gas output by 24
million barrels of oil equivalent per year (mboe/y) and oil by
57 mboe/y.

RED TAPE

But it won't be easy. After BP's Maconda spill in
2010, Italy extended the ban on offshore drilling to 12 miles in
a move to protect its coasts and tourism industry. Last year
offshore E&P acreage was cut to 139,000 from 255,000 square
kilometres.

Italy's complicated and arbitrary regulatory environment
means several different permits are often required from central
and regional governments before clearance of a project is given.

In recent years local authorities have halted a number of
energy projects, prompting the likes of BG and Royal
Dutch Shell to rethink Italy investments. Hydrocarbon
exploration risks not just spills and subsidence but could
trigger earthquakes, some authorities say.

Since 1995 more than half of the oil majors have left Italy
as production falters and today almost all activity is
developing existing fields rather than exploring new areas.

Italian oil major Eni and Edison, owned by French
utility EDF, are Italy's leading offshore players while
Shell and France's Total are also active.

But critics also say that domestic potential oil and gas
reserves are so slim that Italy would be better off focusing on
renewable energy development.

"If we just used domestically produced oil, the reserves in
Italy would finish in 50 days ... even less for gas," Stefano
Ciafani, vice president of environment group Legambiente, said.

A recent industry ministry report acknowledged domestic oil
and gas production and employment would fall this year because
of weak E&P activity and ongoing local resistance.

Compare that to neighbour Croatia, which recently tendered 29
blocks in the Adriatic to attract $2.5 billion of investments
from oil majors, and to Malta where there are hopes of an
extension of Libya and Tunisia's geology without political risk.

"Croatia is going to milk this to its advantage while we're
just looking on," said lawmaker Vincenzo Piso, a member of
Italy's New Centre Right party which is part of the ruling
coalition and wants to help business.
($1 = 0.7349 euros)

(Editing by Susan Fenton)