Italy's foreign minister visits Algeria on gas hunt

2/28/2022

Italy's foreign minister visited Algeria seeking an increase in gas supplies from the country as Europe steps up its efforts to tap alternative flows following Russia's invasion of Ukraine. The move comes as sweeping Western sanctions threaten to disrupt commodity flows from Russia, raising the spectre of gas shortages, blackouts and price increases.

The European Union depends on Russia for more than a third of its gas, and any interruption of flows would worsen a squeeze that has already sent consumer bills sky high.

"(Italy is) concretely committed to negotiate and receive in fast time additional supplies," Luigi Di Maio said after a meeting with his Algerian counterpart and energy minister. "Algeria has a fundamental role."

Di Maio was accompanied by the head of Italian energy group Eni which has several long-term gas contracts with Algerian gas monopolist Sonatrach. Eni also has strategic take-or-pay gas contracts with Russia's Gazprom.

Italy, which last week introduced measures to boost domestic gas production and storage, is looking to diversify its supplies. But with global gas supplies tight and LNG producers already churning out as much as they can, there is little around to make up for the large volumes from Russia.

Algeria, which has pipelines to Spain and Italy and a large LNG terminal in Skikda, boosted oil and gas output last year by 5% though rising domestic consumption and political instability have capped exports.

"This is a good move and the fastest way for Italy to increase gas flows," said Davide Tabarelli, head of energy think-tank Nomisma Energia.

The Transmed pipeline, which now transports around 60 million cubic metres (mcm) of Algerian gas to Italy per day, has a potential daily capacity of more than 110 mcm. On Sunday the CEO of Sonatrach said that spare capacity could serve to increase supply to Europe. But Tabarelli said Algeria needed more investment to boost output and ramp up exports. Gas accounts for around 40% for Italy's electricity generation, and it imports more than 90% of its gas, mostly from Russia and Algeria.

On Monday it introduced measures to curb the use of gas in power stations in case of an emergency and replenish gas reserves for the next winter season. The steps include using coal- and oil-fired power plants alongside renewable energy for the period of any emergency.

Italy, which aims to phase out coal by 2025, can count on six coal plants to supply the grid, four of which belong to Europe's biggest utility Enel.

(Reporting by: Stephen Jewkes and Angelo Amante Editing by Keith Weir and Tomasz Janowski)