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ENERGY

Italy’s prime minister visits Algeria to finalise gas deal

Italian Prime Minister Mario Draghi sealed 15 agreements with Algeria's president on Monday as part of plans to increase gas imports and reduce Italy's reliance on Russian supplies.

Algerian President Abdelmadjid Tebboune shakes hands with Italian PM Mario Draghi (R) prior to their meeting at Chigi Palace, in Rome, on May 26, 2022.
Algerian President Abdelmadjid Tebboune shakes hands with Italian PM Mario Draghi prior to their meeting at Chigi Palace, in Rome, on May 26, 2022. Photo by Andreas SOLARO / AFP.

Draghi was received by President Abdelmadjid Tebboune, and the two went on to sign agreements and memorandums of understanding in areas ranging from
energy to sustainable development, justice and micro-enterprises.

The energy agreement signed on Monday is “a testament to our determination to achieve even more in this domain,” Draghi said, ahead of the expected
signing of an oil and gas supply deal between Algeria and a clutch of companies including Italian energy giant Eni.

READ ALSO: Italy signs gas deal with Algeria to reduce reliance on Russia

“Tomorrow, an important agreement between (US energy firm) Occidental (Petroleum), (Italian energy giant) Eni and (French oil company) Total providing significant volumes of natural gas” to Italy will be signed, Tebboune told reporters at a joint news conference with Draghi.

He was referring to a deal reported on Friday by Algeria’s APS news agency to raise gas deliveries to Italy by an extra four billion cubic metres this year.

Italy buys the majority of its natural gas from abroad, with some 45 percent of its imports historically coming from Russia.

But Rome has increasingly looked to Algeria, historically its second biggest supplier, to reduce that dependence after the war in Ukraine sparked sanctions against Moscow and sent energy prices soaring.

Algeria has therefore supplanted Russia to “become in recent months the biggest supplier of gas” to Italy, Draghi told reporters on Monday.

The two countries also expect to sign accords to bolster judicial, industrial and cultural cooperation, according to Draghi’s office.

According to APS, Algeria was set to furnish Italy with a total of around 20 billion cubic metres of gas in 2022 as a whole, before the latest deal.

Draghi previously visited Algeria in April, when he concluded a deal increasing Algerian deliveries to Italy through the Transmed pipeline by up to nine billion cubic metres per year in 2023-24.

In May, Eni signed a memorandum of understanding with Algeria’s Sonatrach to boost gas exploration in the North African country.

READ ALSO: What does Italy’s Algerian gas deal mean for energy supplies?

The MoU “will allow Sonatrach and Eni to evaluate the gas potential and opportunities for accelerated development at specific fields already discovered by Sonatrach in Algeria”, Eni said at the time.

Algeria is Africa’s biggest gas exporter and supplies around 11 percent of the natural gas consumed in Europe.

The trip could be Draghi’s last state visit: the prime minister attempted to resign on Thursday after the largest party in his coalition government boycotted a key vote.

At the request of President Sergio Mattarella, Draghi agreed to temporarily remain in post. He will address parliament on Wednesday to see whether a resolution can be reached.

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ENERGY

What does the shut-off of Russian gas supplies mean for Italy?

After Russian energy giant Gazprom suspended gas deliveries to Italy on Saturday, many are wondering what consequences the stoppage will have on the country’s energy supplies.

What does the shut-off of Russian gas supplies mean for Italy?

What’s going on?

Over the past three days, Italy has received none of the gas supplies it expected from Russian energy giant Gazprom. 

The impasse officially started last Saturday, when Gazprom announced it would not be able to deliver gas to Italy due to “the impossibility of gas transport through Austria” – Russian gas supplies are delivered to Italy through the Trans Austria Gas pipeline (TAG), which reaches into Italian territory near Tarvisio, Friuli Venezia-Giulia. 

READ ALSO: Russia suspends gas to Italy after ‘problem’ in Austria

Though Gazprom originally attributed the problem to Austrian gas grid operators refusing to confirm “transport nominations”, Austria’s energy regulator E-Control said that the Russian energy mammoth had failed to comply with new contractual agreements whose introduction had been “known to all market actors for months”. 

Additional information about the incident only emerged on Monday, when Claudio Descalzi, the CEO of Italy’s national energy provider ENI, said that supplies had been suspended after Gazprom failed to pay a 20-million-euro guarantee to Austrian gas carrier Gas Connect. 

Descalzi also added that ENI was ready to step in and deposit the guarantee itself in order to unblock deliveries to Italy.

Logo of Italian energy regulator ENI.

Italian energy regulator ENI said it was ready to pay Austrian gas carriers a 20-million-euro guarantee to unblock deliveries. Photo by Marco BERTORELLO / AFP

READ ALSO: Italy’s ENI ready to pay guarantee to unblock Russian gas

At the time of writing, however, no agreement between ENI, Gas Connect and Gazprom has yet been reached, with the stoppage expected to continue until Wednesday at the very least.

What would an indefinite stoppage mean for Italy’s upcoming winter season?

Though energy giant ENI appears to be confident that a compromise between all the involved parties will be reached shortly, the “indefinite shutdown” of the Nord Stream 1 pipeline in early September is somewhat of a menacing precedent. 

After fears of a long-term supply suspension cropped up over the weekend, outgoing Ecological Transition Minister Roberto Cingolani publicly reassured Italians that “barring any catastrophic events, Italy will have the whole of winter covered”.

It isn’t yet clear what exactly Cingolani meant by “catastrophic”, but the latest available data seem to suggest that Italy wouldn’t have to resort to emergency measures, chiefly gas rationing, should Gazprom halt deliveries indefinitely. 

Italian Minister for Ecological Transition Roberto Cingolani.

Outgoing Minister for Ecological Transition Roberto Cingolani said that, “barring any catastrophic events”, Italy will have enough gas supplies for the winter. Photo by Andreas SOLARO / AFP

In 2021, prior to Russia’s invasion of Ukraine, Italy received around 20 billion cubic metres of Russian gas per year, which accounted for about 40 percent of the country’s annual gas imports. 

But, thanks to the supply diversification strategy carried out by outgoing PM Mario Draghi and his cabinet over the past few months, Russian gas currently accounts for, in the words of ENI’s CEO Claudio Descalzi, only “about nine to 10 percent” of Italian gas imports.

READ ALSO: Italy’s Draghi criticises Germany over latest energy plan

Granted, Italy still receives (or, given the current diplomatic deadlock, expects to receive) a non-negligible total of 20 million cubic metres of Russian gas per day. But, should supply lines between Rome and Moscow be shut off until further notice, Italy could fall back on existing gas stocks to meet winter consumption demands. 

Last Wednesday, Cingolani announced that the country had already filled up 90 percent of its national gas stocks – Italy has nine storage plants for an overall storage capacity of 17 billion cubic metres of gas – and the government was now working to bring that number up by an additional two or three percentage points.

These supplies, Cingolani said, are set to give Italy “greater flexibility” with respect to potential “spikes in winter consumption”.

Gas storage station in Loenhout, Belgium.

Italy has nine storage plants for an overall storage capacity of 17 billion cubic metres of gas. Photo by Kenzo TRIBOUILLARD / AFP

Finally, Italy is expected to receive an additional four billion cubic metres of gas from North Europe over the winter months – deliveries which will be complemented by the first shipments of LNG (Liquefied Natural Gas) from Egypt.

Both of these developments are expected to further reinforce Italy’s position in the energy market for the cold season.

What about the long-term consequences of an indefinite stoppage?

An indefinite shut-off of Russian gas supplies would effectively anticipate Italy’s independence from Moscow by nearly two years – Draghi’s plan has always been to wean the country off Russian gas by autumn 2024.

However, the Italian government’s strategy is (or, perhaps, was, as a new government is about to be formed) centred around a gradual phasing out of Russian supplies. As such, although not immediately problematic, a ‘cold-turkey’ scenario might create supply issues for Italy at some point during 2023.

READ ALSO: EXPLAINED: How much are energy prices rising in Italy this autumn?

Granted, Algeria, whose supplies currently make up 36 percent of Italy’s national demand, is expected to ramp up gas exports and provide Rome with nine billion cubic metres of gas in 2023.

But, even when combined with LNG supplies from several African partners – these should add up to a total of four billion cubic metres of gas in 2023 – there’s a risk that Algerian gas might not be able to replace Russian gas on its own.

An employee works at the Tunisian Sergaz company, that controls the Tunisian segment of the Trans-Mediterranean (Transmed) pipeline, through which natural gas flows from Algeria to Italy.

Algerian gas supplies, which reach Italy through the Trans-Med pipeline (pictured above), might not be enough to replace Russian gas in 2023. Photo by Fethi BELAID / AFP

Therefore, should an indefinite shut-off be the ultimate outcome of the current diplomatic incident between ENI, Austria’s Gas Connect and Russia’s Gazprom, Italy, this time in the person of new PM Giorgia Meloni, might have to close deals with other suppliers or ask existing suppliers to ramp up production. 

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