Italy announced on Monday a deal for more natural gas imports across a Mediterranean pipeline from energy heavyweight Algeria, in the latest push by a European Union nation to reduce dependence on Russian energy following its invasion of Ukraine.
Italian Prime Minister Mario Draghi announced the deal in the Algerian capital after meeting with President Abdelmadjid Tebboune.
Draghi told reporters that an agreement to intensify bilateral cooperation in the energy sector along with the deal to export more gas to Italy “is a significant response to the strategic goal” of quickly replacing Russian energy.
“Others will follow,” the premier said.
Russia is Italy’s biggest natural gas supplier, representing 40% of total imports, followed by Algeria, which provides some 21 billion cubic meters (bcm) of gas via the Trans-Mediterranean pipeline.
The new deal between Italian energy giant Eni and Algeria’s state hydrocarbons firm Sonatrach would add up to 9 bcm of gas from Algeria by 2023-24, just eclipsing Russia’s current 29 bcm a year. Eni said that the increased flows will start in the fall in a statement.
Europe is trying to cut its reliance on Russian natural gas imports quickly, with leaders recognizing that their payments help fund Moscow’s war. At the same time, there is concern Russia might turn off the taps in reprisal for sanctions, a threat that would have devastating effects on the European economy. Natural gas is used to generate electricity, heat and cool homes, and the power industry.
“Immediately after the invasion of Ukraine, I announced that Italy would organize quickly to reduce its dependence on Russian gas,” Draghi said.
Russian President Vladimir Putin has already sought to have gas payments be made in rubles in an apparent bid to shore up the currency. A loophole allows countries to pay a designated Russian bank in dollars and euros as set out in contracts.
The tiny Baltic state of Lithuania, a former Soviet republic, recently cut itself off entirely from Russian gas imports, the first of the European Union’s 27 nations using Russian gas to break its energy dependence on Moscow.
Lithuania has been planning that move for years, and the task is more difficult for economic powers like Germany and Italy, which have gotten most of their natural gas from Russia.
The EU plans to reduce Russian gas imports by two-thirds by the end of the year and eliminate them before 2030 through steps like conservation, wind and solar development, and alternative sources.
The 27-nation bloc has reached a deal with the United States to receive more boatloads of liquefied natural gas, or LNG.
Germany, which gets about 40% of its gas from Russia, has announced plans to quickly build two LNG terminals and reached an agreement with Qatar for LNG supplies.
Poland is expanding an LNG terminal to receive deliveries from Qatar, the U.S., Norway and others. It has reduced dependence on Russian oil through contracts with Saudi Arabia, the U.S. and Norway.
Germany and Italy also are pushing for more renewable energy.
The deal between Italy and Algeria is the first concrete result of missions by Italy’s foreign minister to energy-producing nations to secure alternate sources, also including Azerbaijan, Qatar, Congo, Angola and Mozambique.
Draghi was traveling with Foreign Minister Luigi Di Maio, Energy Transition Minister, Roberto Cingolani, and the CEO of Italian energy company Eni, Claudio Descalzi.
Eni announced a significant oil and gas discovery in Algeria last month and said it would work with Algerian partner Sonatrach to fast-track its development for the third quarter of this year. Eni has operated in Algeria for more than 40 years.
Draghi arrived in Algeria weeks after Di Maio made the same trip, during which he confirmed that Italy was “committed to increasing energy supplies, notably in gas,” including from Algeria, which he said had “always been a reliable supplier.”
Algeria’s Sonatrach said at the time that it was prepared to increase deliveries, notably via the Trans-Mediterranean pipeline linking Algeria to Italy.
Its CEO Toufik Hakkar said Europe is the “natural market of choice” for Algerian gas, which accounts for about 11% of Europe’s gas imports.
But he said any boost to exports would depend on first satisfying Algeria’s ever-growing domestic needs.
Sonatrach and Eni jointly operate the Trans-Mediterranean pipeline, which has a capacity of some 32 bcm per year.
Aydın Çalık, an energy analyst at the Middle East Economic Survey (MEES), said Monday’s deal implied additional exports that would push the limits of the Trans-Mediterranean pipeline.
“That’s assuming Algeria actually has the capacity to supply more, given its other commitments,” he told Agence France-Presse (AFP). “There are lots of questions.”
Former Algerian energy minister Abdelmajid Attar previously told AFP that “Algeria exports a maximum of 22 bcm (per year) via the Trans-Mediterranean pipeline,” leaving some 10 billion in spare capacity.
Attar, also a former CEO of Sonatrach, said that Algeria’s liquefaction facilities, which allow gas to be exported by ship, are “only being used at 50%-60%of capacity.”
He noted that in the short term, Algeria could boost its gas exports to the EU by at most 3 bcm per year, meaning “it can’t make up for a fall in Russian gas supplies on its own.”
However, “within four of five years, Algeria could send bigger quantities” to Italy, he added.
Algeria expects to invest some $40 billion in gas and oil exploration, production and refining between 2022 and 2026.
Draghi said last week that Italy would “follow the decisions of the European Union” on new sanctions against Russia, including a possible gas embargo.
His visit also follows a spike in tensions between Algeria and Spain, another major gas importer, after Madrid dropped a decades-long policy of neutrality over Western Sahara and backed an autonomy plan put forward by Algeria’s arch-rival Morocco.
Sonatrach warned earlier this month it could increase the price of its gas sales to Spain, which make up more than 40% of the country’s imports.
