Economic Framework
The global economic expansion that got under way in 2003 continued in 2005, but the pace of growth differed in the various geographic regions. The pace of economic expansion was driven primarily by growth in the United States and Asia, coupled with fresh momentum in global trade.
In the United states, the economy continued to expand at a healthy rate despite a steady rise in oil prices. The same was true in China, where the rate of growth is hovering around 9% thanks to a surge in net exports and an increase in capital investments. Fearing the possibility of triggering a deflationary process, the Chinese government is being exceedingly cautious in its efforts to put the local economy on a path to more balanced growth.
In the euro-zone countries, the rates of economic growth remained modest (1.4%, compared with a projected 3.6% for the United states, 9.3% for China and 4.6% for the Pacific basin). However, the pace of GDP expansion picked up unexpectedly in the third quarter of 2005, with positive contributions coming from all components of domestic demand and especially strong growth in capital investments. Nevertheless, there is still uncertainty about the direction of internal demand, which makes it difficult to predict the start of a virtuous cycle inside the euro zone.
In Japan, the rate of GDP growth slowed during the closing months of the year due to weakness in the main components of domestic demand, as may be expected in a country that has emerged only recently from a period of deep recession. However, the positive elements that are underpinning the recovery - a positive trend in the labor market, which fuels consumption, coupled with stronger balance sheets and increased profitability, which stimulate investments - remain in place. GDP growth in Japan is projected to be 2.5% for all of 2005.
In the foreign exchange markets, the U.S. dollar continued to strengthen in 2005, achieving an overall gain of 12.5%, rising as high as US$1.35 for one euro and settling at US$1.18 for one euro at December 31, 2005. The steady strengthening of the U.S. dollar is due to several factors, including a differential of 175 basis points between EU and U.S. benchmark interest rates (4% set by the FED compared with 2.25% set by the ECB), different expectations of economic growth and incentives for U.S. companies to repatriate capital that were available until the end of 2005.
On the inflation front, even though the price of oil stayed above US$60 per barrel, there was no increased price pressure in the terminal markets. Nevertheless, the European Central Bank raised its benchmark rate by a modest 25 basis points to counter any inflation fears. The United States is the country with the highest risk of inflation: at year's end, the overall rate was 3.5%, significantly higher than the 2.2% rate recorded for the entire euro zone and the 2% rate reported in Italy.
Key Economic Data
  2005 2004 % change
Oil price US$/bbl 54.4 38.2 42.3%  
US$/euro exchange rate 1.24 1.24   -
Oil price euro/bbl 43.7 30.7 42.1%  
The oil market went through a turbulent period in 2005, with the price of Brent crude averaging US$54.40/bbl, or 42.3% more than the average for 2004 (US$38.20/bbl). In 2005, the price of crude oil rose to the highest level since 1979, with monthly averages reaching almost US$64/bbl in August and almost US$63/bbl in September. Given the relative change in the euro/US dollar exchange rate, the increase
The Italian Energy Market
in the price of Brent crude in euros was 42.1%, about the same as for the price in US dollars.
As for refined products, the trend that characterized the industry in recent years continued in 2005, with the crack spread on diesel fuel increasing by more than US$4/bbl over 2004, but decreasing for less valuable distilled products. Among the latter, the increase in the crack spread was smaller for low-sulfur fuel oil than for high-sulfur fuel oil, the use of which is restricted by increasingly stringent environmental laws.
Demand for Electric Power in Italy
TWh 2005 2004 % change
Net production 289.7 290.1 (0.1%)
Imports 49.1 45.6 7.7%
Surges (9.4) (10.3) 9.0%
Total demand 329.4 325.4 1.3%
Source: GRTN data.
In 2005, demand for electric power from the Italian grid totaled 329.4 TWh (TWh = one billion kWh), up 1.3% from 2004 (325.4 TWh). On a seasonally adjusted basis, the increase is more pronounced (+1.8%), due mainly to colder weather in 2005 and a difference in the number of days in the year (2004 was a leap year).
Domestic production was sufficient to meet 85.5% of demand, compared with 86.4% in 2004. As a result, imports increased from 13.6% to 14.5%, reflecting the contribution of the San Fiorano-Robbia power line (on the Italy-Switzerland border), which was put into service in 2005. Hydroelectric output decreased by 14.9% compared with 2004, falling below the level of the last 10 years due to a reduction in the availability of water resources.
The chart below shows the trend of the average single national price weighted on demand (average PUN DWA in Italian) through June 30, 2005, compared with that of the old benchmark, the National Power Generation Price (abbreviated PGN in Italian):
At December 31, 2005, the moving average for the PUN was euro 63.2/MWh, or 2.6% higher than the PGN (the wholesale benchmark price used before the start of the Electric Power Exchange). The largest differentials occurred earlier in the year, with the spread flattening out in the later months.
The Elecric Power Exchange began operations on April 1, 2004
comparison of average pun and average pgn
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Euro/Mwh
2005 progressive DWA PUN 2005 DWA progressive PGn (AEEG)   2004 progressive DWA PUN
05/01 05/02 05/03 05/04 05/05 05/06 05/07 05/08 05/09 05/10 05/11 05/12
DWA = Demanded Weighted Average