Tuesday, April 26, 2022

Gas: Italy shifts to Algeria for gas procurement

Eager to divest itself von Russian dependance on natural gas, Italy has switched in a precipitous move to Algeria as a supplier just days after the russian invasion into Ukraine. Italy and especially its energy giant ENI have deep and decade-old ties to Algeria. Even major investements by ENI and acquisitions of BP shares on oil fields are under discussion, Le Monde

Algeria is showing a diplomatic upturn with Italy which takes on a particular meaning as Europe is prospecting for alternatives to Russian gas, war in Ukraine obliges. The recent ballets of visits by Italian officials to Algiers, where the red carpet is rolled out at the energy giant Ente Nazionale Idrocarburi (ENI) – already historically well treated – testify to a most cordial atmosphere. Italy had become, in recent years, increasingly dependent on Russian energy supplies (40% of its gas imports, or about 30 billion cubic meters [m3]). It is now more than ever eyeing Algerian gas, while it is imperative for it to diversify its purchases abroad, particularly in the Mediterranean.

The overall economic relationship between the two countries has certainly always been healthy. Italy is Algeria's third supplier (behind China and France) and its first customer (ahead of France and Spain). It is also the first foreign investor, a status due to the weight that ENI represents on Algerian soil. History is a big part of it. The tutelary figure of the historic leader of the company, Enrico Mattei (1906-1962), a Christian Democrat politician who was a great promoter of independent Algeria (who died in 1962 after a mysterious plane crash), has always acted bridge between the two countries.

“ENI is a company considered to be a friend of Algeria, a friend of the Algerian revolution at the time, notes Akram Kharief, Algerian security expert and founder of the Menadefense site. It is very difficult to compete with her. In recent weeks, the glorification in the Algerian press of this memory has reached unprecedented levels. "The esteem for Italy is felt among the people of the people", could we read, on March 30, in an editorial of the official daily El Moudjahid.

The staging, in Algiers, of friendship with Italy does not date from the war in Ukraine. The distinguished welcome reserved in the Algerian capital for the Italian President of the Republic, Sergio Mattarella, during a visit in November 2021, had already sent a first message in the midst of the crisis between Algiers and Paris. The recent Algerian-Spanish turbulence on the Western Sahara issue – following concessions made by Madrid to Rabat – has added to the ambient Italophilia in Algeria. The remarks of the boss of the Algerian public company Sonatrach, Toufik Hakkar, on April 1, evoking the possibility of "recalculating" the price of gas sold to the Spaniards, announce a probable changeover in the long term of part of the supplies from Spain to Italy.

This is fitting, at a time of Rome's strategic shift vis-à-vis Russian gas dictated by urgency. As usual, Italian diplomacy negotiated it in a few hours, with a mixture of agility and pragmatism. Monday, February 28, barely four days after the start of the Russian offensive in Ukraine, the Italian Foreign Minister, Luigi Di Maio, was in Algiers, accompanied in particular by the managing director of the energy giant ENI, Claudio Descalzi, to to assess the possibility of increasing gas imports. In energy matters, Italian diplomacy and ENI are used to moving forward together.

Exploitation of new deposits

In the Algerian case, the calculation is simple. Algeria is the country's second largest supplier (21 billion m³), ​​and the Transmed gas pipeline transporting gas to Sicily – also called the Enrico Mattei gas pipeline – is not operating at full capacity (its capacity is 30 billion m³ per year) . What hope, in the short and medium term, additional deliveries.

The Italian minister's trip to Algiers was only the start of a tour centered on energy issues, which took the head of Italian diplomacy, in March, to Africa, the Arabo-Persian Gulf and Azerbaijan. But Algeria is considered, within Italian diplomacy, with particular attention.

So Claudio Descalzi was back in Algeria on April 3 to meet once again the CEO of the Algerian public energy giant, Sonatrach, ENI's historic partner, to discuss the increases in deliveries in the short term and, at a further afield, the exploitation of new deposits. In particular, it is a question of “accelerating” the implementation of joint projects in the region of Berkine Sud, on the border with Tunisia. According to the Algerian press, ENI is also negotiating the acquisition of assets from British Petroleum (BP) in two major gas projects in In Saleh (Centre) and In Amenas (East). According to unconfirmed information, Sonatrach is also discussing the acquisition of ENI assets in Russia.

Be that as it may, the prospect for Algeria to deliver significant quantities of gas to Italy is long term. In the immediate term, its production and transport potential is limited. "Algeria's ability to offset Russian gas for Europeans is questionable," says Olivier Appert, energy and climate center adviser at the French Institute for International Relations (IFRI). Faced with the aging of its infrastructure and the flight of its domestic consumption, Algeria has in fact suffered from a continuous decline in its gas exports, which have fallen from 64 billion m3 in 2005 to 41 billion in 2020. substantial investments to reverse the curve. ENI and the Italians are in the running.

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