Algeria to become Italy's largest gas supplier

Italy agrees deal with Algeria for extra supply of gas

Business News

Algeria is set to overtake Russia as Italy’s largest gas supplier. On Monday, Italian Prime Minister Mario Draghi agreed a deal as Rome looks for a replacement of the Russian gas.

Currently, Russia supplies around 40% of Italy’s natural gas. However, following Russia’s commencement of war against Ukraine, Italy has been scrambling to replace the supply. The Italy-Russia economic relationship, particularly regarding the provision of hydrocarbons, has seen Italy reluctant when it comes to sanctions against Putin and Russia. This despite Draghi’s commitment for Italy to maintain its position as a close US ally in NATO.

“Right after the invasion, I announced that Italy will move with speed to reduce dependence on Russian gas. This agreement is a significant response to that strategic objective. There will be others,” Draghi said after meeting Algerian President Abdelmadjid Tebboune.

The deal with Algeria

The deal between Algeria’s Sonatrach and Italy’s Eni would result in Algeria sending an additional 9 billion cubic meters (bcm) of gas to Italy by next year and in 2024.

In 2021, Italy imported approximately 29 bcm of gas from Russia, and 22.5 bcm from Algeria, according to Italy’s economic development ministry. If the deal is ratified, Algeria would become Italy’s primary gas supplier by next year.

Italy’s Foreign Minister Luigi Di Maio and Eni boss Claudio Descalzi have been visiting gas producers Azerbaijan, Mozambique, Republic of the Congo, Qatar, Angola and Algeria.

“Unfortunately we are late, we should have diversified much earlier but we have plenty of partners and friends around the world,” Di Maio said ahead of Monday’s visit.

Algeria needs further investment

In order to meet the Italian requirements, Algeria needs cash to increase its gas output. However, that will require substantial investment as there has been little invested in new production in the past three decades while domestic consumption has soared. The Transmed pipeline linking Algeria and Italy is not running at full capacity because Algeria doesn’t have the extra gas to fill it.

In addition, Algeria also supplies Spain, although that relationship hit a bump when Spain supported a Moroccan effort to grant limited autonomy to Western Sahara, a former Spanish colony. Morocco annexed the territory in 1975, while Algeria supports Western Sahara’s independence.

Last year, Algeria shut down a gas pipeline running across Morocco to Spain. However, it  insists supplies to the Iberian Peninsula will continue through the undersea Medgaz pipeline. Algeria can’t divert its gas commitments away from Spain to Italy, although Madrid could voluntarily renounce some of its share.

Last month, Eni and Sonatrach announced they had found a “significant” oil and gas field in the Algerian desert. They will work together to exploit it.

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