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ENERGY

Italy signs gas deal with Algeria to reduce reliance on Russia

Italian Prime Minister Mario Draghi announced a deal on Monday to boost gas deliveries from energy heavyweight Algeria, as he steps up efforts to reduce heavy reliance on Russian imports.

Italy signs gas deal with Algeria to reduce reliance on Russia
Italy's Prime Minister, Mario Draghi has announced a deal to import gas from Algeria. (Photo by Tiziana FABI / AFP)

Addressing journalists after meeting President Abdelmadjid Tebboune, Draghi told journalists the two governments had signed a preliminary deal on energy cooperation.

“There is also a deal between ENI and Sonatrach to boost gas exports to Italy,” he said, referring to the Italian energy giant and Algeria’s state hydrocarbons firm.

READ ALSO: ‘Peace or air conditioning?’ Italy vows to follow EU on Russian gas embargo

The firms agreed to boost gas exports through the Transmed undersea pipeline starting this autumn, gradually “increasing volumes of gas… up to 9 billion cubic meters per year in 2023-24”, ENI said in a statement.

The Ukraine war has sparked a Western push for sanctions against Moscow, including moves to drastically cut purchases of Russian gas.

Italy buys the vast majority of its natural gas from overseas, and is one of the most Russia-reliant gas importers in Europe, with over 40 percent of its imports coming from the country.

READ ALSO: Are Italy’s energy prices really falling from April?

But Italy also imports significant amounts from Algeria, including some 6.4 billion cubic metres of Algerian gas during the first quarter of 2021, a 109 percent uptick from the previous year.

The war in Ukraine and the subsequent campaign of Western sanctions have prompted Rome to step up the search for alternative sources, with gas giant Algeria an obvious option.

“Immediately after the invasion of Ukraine I announced that Italy would organise quickly to reduce its dependence on Russian gas,” Draghi said.

“The deals today are a significant response to reach this strategic goal, and others will follow.”   

Spare capacity

Draghi arrived in Algeria weeks after Foreign Minister Luigi 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 Transmed pipeline linking Algeria to Italy.

READ ALSO: Italy rejects Russian demand for gas payment in rubles

Photo by Niklas HALLE’N / AFP

Its CEO Toufik Hakkar said Europe is the “natural market of choice” for Algerian gas, which accounts for about 11 percent 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 Italy’s ENI jointly operate the Transmed pipeline, which has a capacity of some 32 billion cubic metres per year.

Aydin Calik, an energy analyst at the Middle East Economic Survey, said Monday’s deal implied additional exports that would push the limits of the Transmed pipeline.

“That’s assuming Algeria actually has the capacity to supply more, given its other commitments,” he told AFP. “There are lots of questions.”

Former Algerian energy minister Abdelmajid Attar previously told AFP that “Algeria exports a maximum of 22 billion cubic metres (per year) via the Transmed 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 percent of capacity”.

He noted that in the short term, Algeria could boost its gas exports to the EU by at most three billion cubic metres per year, meaning “it can’t make up for a fall in Russian gas supplies on its own”.

READ ALSO: Energy prices: How to save money on your bills in Italy

However, “within four of five years, Algeria could send bigger quantities” to Italy, he added.

Algeria expects to invest some $40 billion on gas and oil exploration, production and refining between 2022 and 2026.

Draghi did not say how much exports were to be boosted under Monday’s deal.

The two countries have a contract for gas deliveries up until 2027.

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 the 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 percent of the country’s imports.

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ENERGY

Drought hits Italy’s hydroelectric plants amid energy crisis

Hydroelectric power production in Italy has plunged this year thanks to a severe drought that has also sparked water restrictions and fears for agriculture, industry sources said on Friday.

Drought hits Italy's hydroelectric plants amid energy crisis

Hydropower facilities, mostly located in the mountains in the country’s north, usually cover almost one fifth of Italy’s energy demands.

But the ongoing lack of rain is causing problems at a time when Rome is desperately trying to wean itself off its dependence on Russian gas due to the war in Ukraine.

READ ALSO: Italy’s heatwave to last another week and get even hotter, say forecasts

“From January to May 2022, hydro production fell by about 40 percent compared to the corresponding period in 2021,” a spokesman for Utilitalia, a federation of water companies, told AFP.

“Hydro production has been steadily decreasing since July 2021,” he said, blaming “the severe shortage of water even at high levels”.

An industry source told AFP that while the situation was constantly changing, estimates for the first six months of 2022 suggest nationwide hydroelectric generation will be almost half the equivalent period of 2021.

One small plant near Piacenza, southeast of Milan, was shut indefinitely on June 21st due to low levels on the River Po that feeds it, the Enel energy company said.

READ ALSO: How long will it take Italy to wean itself off Russian gas?

“Considering the current drought situation, other hydro plants are not operating at full capacity,” a spokesman added, without giving further details.

The Po River, which stretches across the north of the country, is Italy’s largest reservoir of fresh water. Much of it used by farmers, but the area is suffering its worst drought for 70 years.

Italy’s largest agricultural association, Coldiretti, said the drought is putting over 30 percent of national agricultural production and half of livestock farming in the Po Valley at risk.

Local authorities say the situation in the area has been “extremely delicate” since last week, with four regions asking the national government to declare a state of emergency and hundreds of towns now rationing water.

In the northwest region of Piedmont, water is being rationed in more than 200 municipalities according to the ANSA news agency.

Drought in Italy: What water use restrictions are in place and where?

The Maggiore and Garda lakes are both far lower than usual for this time of year, while further south, the level of the Arno, Aniene and Tiber rivers have also dropped.

Arid conditions are set to worsen as the heatwave currently gripping Italy is expected to last until the end of June, with temperatures around the country of “up to 40°C in the shade” forecast early next week.

In Milan and Turin, a massive increase in electricity usage for cooling day and night has pushed the electricity grid beyond its limits over the past week, leading to blackouts.

With many parts of Europe experiencing unusually high temperatures for this time of year, experts have repeatedly warned that longer, earlier heatwaves are a consequence of global heating.

“As a result of climate change, heatwaves are starting earlier,” said Clare Nullis, a spokeswoman for the World Meteorological Organization in Geneva.

“What we’re witnessing today is unfortunately a foretaste of the future” if concentrations of greenhouse gases in the atmosphere continue to rise and push temperatures towards 2 degrees C above pre-industrial levels, she added.

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