Italy has signed a preliminary agreement on boosting energy cooperation with Algeria, Italian Prime Minister Mario Draghi announced last week after meeting with Algerian President Abdelmadjid Tebboune.
Italy currently imports some of its gas from Algeria, but with the new deal, Algeria will increase its natural gas exports to Italy by 40%. The move comes as Italy, like the rest of Europe, tries to diversify its energy imports and reduce its dependency on Russian gas. Italy imports 40% of its gas from Russia. Algerian gas currently makes up approximately 11% of Europe’s gas imports.
“Immediately after the invasion of Ukraine I announced that Italy would organize 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.”
Despite adopting no less than five packages of sanctions on Russia, the 27 member states of the European Union have spent around 35 billion euros – nearly $38 billion – in energy payments to Russia since Russian President Vladimir Putin launched his invasion of Ukraine on Feb. 24, according to the EU’s foreign-policy chief, Josep Borrell. In 2021, almost half (45%) of the natural gas imports and nearly 40% of the total amount used in the EU came from Russia, according to the International Energy Agency.
Russia is expected to make almost $321 billion from its energy exports this year – more than a third more in revenues compared to last year, according to Bloomberg. That is, unless more countries, such as those in the European Union, decide to stop the flow of Russian oil and gas. So far, the EU has only managed to agree on banning Russian coal imports. The EU imports about 30% of its oil and 40% of its gas from Russia.
Algeria, however, will only be able to cover a limited part of Europe’s energy needs, several experts have pointed out.
“While Europe might be ready for more Algerian gas as it looks to diversify its suppliers, Algeria’s current production capacity limits its ability to substantially increase export volumes to Europe,” Amal Hamidallah, executive director of the Arab Gulf Foundation said. “Any meaningful increases in Algerian production will require years of exploration and development and more crucially, further energy industry reforms to attract new investments…The rise in exports and higher prices have helped Algeria weather economic hardship and defy dire forecasts about its economy and domestic stability. Still, Algeria is facing a dilemma between the need to address growing domestic gas needs and current export obligations, meeting its commitments to mainly Spain and Italy.”
Toufik Hakkar, CEO of Sonatrach, Algeria’s state-owned oil and gas producing firm, said that while Europe is the “natural market of choice” for Algerian gas, any boost to exports would depend on first satisfying Algeria’s ever-growing domestic needs. Aydin Calik, energy analyst at the Middle East Economic Survey, also pointed out that Algeria has “other commitments” than just Europe.
“That’s assuming Algeria actually has the capacity to supply more, given its other commitments,” Calik said. “There are lots of questions.”
Former Algerian energy minister Abdelmadjid Attar, also a former CEO of Sonatrach, said that in the short term, “Algeria could boost its gas exports to the EU by at most three billion cubic meters per year”, meaning “it can’t make up for a fall in Russian gas supplies on its own.” However, “within four or five years, Algeria could send bigger quantities” to Italy, he added.
In January, Sonatrach announced that it intends to invest $40 billion between 2022 and 2026 in oil exploration, production, and refining, in addition to gas exploration and extraction. Sonatrach plans to start its first offshore oil drilling in 2023, according to Reuters.