Draghi gas tour
Italian Prime Minister Mario Draghi is in a hurry to look for ways to reduce gas dependence on Russia. To do this, the politician went to Algeria, where he was scheduled to hold a business meeting with President Abdelmajid Tebbun. According to Corriere della Sera, within the scope of negotiations, the parties will sign an energy agreement that will increase the annual supply of Algerian gas to Italy by at least 9 billion cubic meters.
The key players in this should be the Italian company Eni and the Algerian state energy company Sonatrach. Its leaders have been discussing the possibility of increasing gas flows to Southern Europe for several days. In the medium term, gas supply should almost double – from the current 60 million cubic meters to 110 million cubic meters per day.
Draghi’s next stops on his African gas tour will likely be Angola and Mozambique. The Italian prime minister wants to conclude agreements with these countries that will guarantee the gas supply of 5 billion cubic meters per year. However, not everything is so smooth with the variety of raw materials of the streams, the authors of the Italian edition recall. According to Corriere della Sera, Rome’s path from Moscow to true energy autonomy could take years.
how long will the process take
The most likely way to replace Russian pipeline gas would be to import liquefied natural fuel (LNG). However, the introduction of new LNG plants in a number of African countries will only take place in 2025-2029. Igor Yushkov, one of the leading analysts of the National Energy Security Fund (FNEB), emphasized in an interview with socialbites.ca that this means that no new gas flows to Italy will be sent until 2030.
FNEB vice-president Aleksey Grivach agrees with him. According to him, even at the beginning of the next decade it will be extremely difficult for Italy to get rid of its gas dependence on Russia. The fact is that the main long-term gas contracts of the southern European country with Moscow expire only in 2035 – unilateral breach of agreements is fraught with lawsuits.
Gazprom sells about 20 billion cubic meters of gas per year to Italy. The volumes are under long-term contracts and account for about 50% of all Italian consumption,” explained the expert.
Sergey Pikin, director of the Energy Development Fund, added that in terms of natural gas purchases from Russia, Italy has consistently ranked second among EU countries in recent years, second only to Germany. Even if Turkey were included in this list, Rome would still be among the top three importers of Russian fuel.
It will be extremely difficult for Italy to break such strong gas ties with Russia. This is the story of years, if not the next decade, ”the analyst concluded.
Mozambique and Angola
Italian Prime Minister Mario Draghi would first go to Angola and Mozambique instead of Algeria. Together, these countries could supply Rome with 50 billion cubic meters of LNG per year. In this context, Algeria’s export opportunities are severely limited, said Sergei Kondratiev, senior expert at the Energy and Finance Institute.
“A large LNG plant is currently under construction in Mozambique. Its capacity is now estimated at 12.9 million tons, with the potential to increase to 43 million (equivalent to about 60 billion cubic meters of natural gas – socialbites.ca). However, the launch of the facility is scheduled only after 2026. “Angola can add tens of millions of tons of fuel to its exports,” he said.
However, the expert noted that Italy may also face some problems in this direction, and the main of these is the unstable social situation in Mozambique. In this regard, especially the French energy giant Total “burned” recently. Italy could face similar challenges if it decides to increase its LNG exports from the African country.
For Mozambique, the problem of the rebels is permanent. In late 2021, TotalEnergies evacuated the $20 billion Area 1 Mozambique LNG LNG project after militants attacked a nearby city. As a result, the French company’s board of directors has decided to delay the launch of the facility until 2026.”
Algeria
As for Algeria, this country has long been a leader in gas exports to Italy. However, Yushkov noted that over the past decade, the African country’s position has been shaken in favor of Russia due to the low investment attractiveness of the African country.
“Algeria has created such a gas production system where foreign investors have to transfer 50% of the controlling stake in the field to the local state-owned Sonatrach company. “I don’t think Italian Eni will dare to invest billions of euros before it can even control its gas production,” he said.
Kondratiev was also skeptical of Algeria’s gas export potential. According to him, the existing capacities of the North African country make it possible to increase the annual export of raw materials to Italy by 25-30 billion cubic meters, but Rome will have to pay quite a lot for these volumes.
Algeria’s gas export trade is based on short-term spot contracts, with fuel costs per thousand cubic meters on average $200-300 higher than long-term agreements between Italy and Russia.
“Furthermore, a lot will depend on Algeria’s other trade commitments. Before Italy, the Spaniards tried to negotiate with the Algerians, who suffered from the closure of the pipeline through Morocco. Theoretically, Rome could get some of the volumes designed for Madrid. But this is fraught with a feud with Spain and Portugal, which are heavily dependent on Algeria’s LNG imports,” he said.
But most importantly, he added that even if Europeans manage to increase the volume of LNG flows from Africa, the EU’s main problem will still be a small number of gas terminals.
“It will be difficult for investors to hook into a large-scale construction project due to the general uncertainty about payback. No one can promise anymore that billions of euros will return to businessmen’s pockets after 2035. No one has canceled the “green” strategy yet. Therefore, to build a conditional LNG terminal in Finland, EU officials will likely have to pay millions of euros to potential investors.”