Italy's Enel sees North Africa as key natural gas supplier to Europe

By ANNA SHIRYAEVSKAYA and ISIS ALMEIDA
Bloomberg

North African countries including Algeria and Libya can provide Europe with half the natural gas currently supplied by Russia, according to Enel SpA, Italy’s largest utility.

Algeria can ship 60 billion cubic meters (2.1 trillion cubic feet) of gas to Europe a year, while Libya and Egypt are able to provide 10 billion each, Marco Arcelli, the executive vice president of Enel’s upstream gas division, said in London.

Russia supplied about 162 billion cubic meters of gas to Europe and Turkey last year, OAO Gazprom data show.

Enel signed contracts yesterday for two exploration blocks in Algeria on top of the Isarene and South East Illizi gas projects it’s already developing. Europe is seeking to reduce its dependence on Russian gas after the country’s conflicts with Ukraine cut transit to Europe in 2006 and 2009.

Enel wants to develop Algeria’s resources “to avoid any potential decrease in exports as there will be a significant increase in local demand,” Arcelli said in an interview. “What we are doing really is to make sure that they at least maintain their current production.”

The Rome-based company expects to sign the engineering, procurement and construction contract for Isarene next year and start production “towards the end of 2018,” Arcelli said.

The South East Illizi project is in appraisal stages and results are expected next year. Production there may follow Isarene by two to three years, he said.

Mature Geology

Algeria, Libya and Egypt accounted for 10.4% of the European Union’s total gas supply in 2012, compared with Russia’s 23%, Eurogas data show.

While Algeria’s mature geology means “huge” discoveries are unlikely, it’s easy to interpret data and reduce exploration risks, Arcelli said.

Gas output in Algeria, a key supplier to Italy, fell 3.3% to 78.6 billion cubic meters last year, according to BP’s Statistical Review of World Energy. Consumption jumped 4.3% to 32.3 billion cubic meters.

Removing subsidies in North African markets will curb domestic demand, allowing exports to be maintained, Arcelli said. Without such measures, exports may fall to 5% of production from 26%, he said at the European Autumn Gas conference in London.

North African gas supply has also been at risk due to events such as Libya’s government change and the terrorist attack on Algeria’s In Amenas gas project. Measures in place in Algeria “give us some confidence that the worst is behind us and we can control the situation there,” Arcelli said at the conference.

“In North Africa, and especially Algeria, there is a huge opportunity to reaffirm its pivotal role in the supply-demand balance in Europe,” he said.

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