Energy: Buoyed by ENI, Italy looks to Africa to free itself from Russian supply

By Olivier Caslin
Posted on Thursday, 8 September 2022 16:13

Algerian President Abdelmadjid Tebboune (L) and Italian Prime Minister Mario Draghi (R) at El Mouradia Palace in Algiers, 18 July 2022. ©ANSA via ZUMA Press

With the Ukrainian crisis, Rome rushed to Africa to find the gas it can no longer obtain from Moscow. A trend that promises to continue, whatever the political stripe of the parliament that emerges from general elections on 25 September.

With each passing week, Europe is on the brink of an energy crisis. The invasion of Ukraine on 24 February revealed the fragility of the European Union (EU) in this area and its dependence on Russian gas. Forced to pay a high price for its fossil fuels, the EU has had to react urgently to find new supply routes that will ensure that its populations can spend the winter in warmth. And in the great energy game that has been taking place on an international scale in recent weeks, Italy has been able to demonstrate its efficiency. So much so that the second largest importer of Russian gas in the Union, behind Germany, is now confident that it will be able to do without it by the end of 2023. Rome already announced that it has succeeded in halving its supplies from Russia when, a few months earlier, they still represented more than 40% of the 75 billion cubic metres of gas consumed annually in the country.

If Italy seems today to be on the road to winning a gamble that is still far from being won by Berlin and Madrid, or even Paris, it owes it in large part to Mario Draghi, its prime minister since February 2021. Quickly aware of his country’s sudden energy precariousness, the occupant of the Chigi Palace has since March been making repeated appeals to so-called “alternative” gas-producing countries, particularly in Africa.

Only four days after the start of the Ukrainian conflict, he sent his foreign affairs minister Luigi Di Maio to Algiers to negotiate new supply agreements with the local authorities and the national operator, Sonatrach, the country’s second traditional partner behind Russia’s Gazprom. Three weeks later, accompanied this time by his colleague for ecological transition, Roberto Cingolani, the chief of Italian diplomacy flew to Cairo, which they left together on 16 April, for a short 48-hour trip to Angola and the Republic of Congo, each time with the objective of securing additional gas supplies.

Forced to resign in July, after seeing his government coalition explode, Mario Draghi had, three days earlier, finalised an agreement with Algerian President Abdelmadjid Tebboune for the supply of additional volumes of gas from Sonatrach: four billion additional cubic metres per year. From the end of this year, Algeria will thus become Italy’s main supplier, with almost 27 billion cubic metres, and thus one of the leading suppliers to the European Community market, along with Norway.

Africa could supply two-thirds of Italy’s gas by 2024

Currently estimated at nearly 11% of gas volumes consumed in the EU, Algeria’s share looks likely to increase, as European leaders have been visiting the El Mouradia Palace in recent weeks. Spanish President Pedro Sanchez followed in Draghi’s footsteps during a lightning visit to Algiers on 12 August. He was followed two weeks later by French President Emmanuel Macron, who, alongside discussions on Franco-Algerian reconciliation, did not fail to ask his counterpart for a significant gas rebate, since, according to observers, Algerian exports could quickly represent up to 12% of the volumes used in France each year, compared to a little more than 8% today.

Diversifying suppliers

However, for Italy, as for other European countries, “The question is not how to replace Russian dependence with another [dependence]”, according to Francis Perrin, director of research at the French Institute for International and Strategic Affairs (IRIS). And if Algeria has already insisted for several months that it is ready to increase its production by a third before the end of this year to meet its customers’ demand, Rome has at the same time taken care to diversify its suppliers as much as possible. Mario Draghi supported the European Commission’s efforts to find suppliers of liquefied natural gas (LNG) for the EU market in the United States, Qatar and Azerbaijan. At the same time, the caretaker Italian PM has also played the bilateral card, particularly in Africa, securing major contracts with the Republic of Congo, Mozambique and Egypt. Discussions are also underway in Angola, Mauritania and Senegal, where new hydrocarbon fields are due to come on stream soon.

“If the momentum seen over the past six months continues, Africa could supply two-thirds of Italy’s gas by 2024,” says an energy sector expert. All the more so as at the current price, “African production is very competitive on the market,” according to IRIS’ Perrin. Indeed, it has become so as the price of gas purchased in Europe has risen, by 60% in June and by a further 30% in early September with the prolonged closure of the Nord Stream gas pipeline between Russia and the EU.

To achieve such a result in such a short time, the Italian government was able to count on a powerful partner, both at home and across the continent: the operator Ente Nazionale Idrocarburi (ENI), which is 30% owned by the state. The travel diary of Italian ministers in Africa also maps the operational developments of the energy giant on the continent. The Egyptian operator announced in April that it had discovered three new fields, the future volumes of which will be added to the 360,000 barrels of oil equivalent already produced daily by ENI in the country. In the Republic of Congo, the liquefaction terminal, expected to open in 2023 in Pointe-Noire, will produce 4.5 billion cubic metres annually.

The success of Italian diplomacy in Africa is the fruit of the excellent relationships forged by ENI over 70 years

In Mozambique, the Coral South project went into production in June to begin placing over 7.5 million tonnes of LNG per year on the international market. In Angola, in late July ENI confirmed its participation in the New Gas Consortium (NGC), to operate the Quiluma and Maboqueiro fields, which together are expected to produce 4 billion cubic metres of gas per year by 2025. Speaking in August from Brazzaville, ENI’s inescapable CEO Claudio Descalzi predicted, “By that date, we should be able to deliver 20 billion cubic metres of gas a year.” This is from the man who has been present at every Italian official’s trip to the continent in recent months.

Africa, the keystone of its energy architecture

“It is obvious that the success of this intense Italian diplomacy in Africa is the fruit of the excellent relations forged by the company over the past seventy years across the continent,” says Davide Tabarelli, a specialist and consultant in the Italian energy sector. In particular with ENI’s long-standing partners such as Egypt and the Republic of Congo, where Marie Magdalena Ingoba, Claudio Descalzi’s wife, is originally from. Received on the continent “like a real head of state”, according to Tabarelli, the all-powerful ENI boss has not hesitated to exploit his full network and make use of his incomparable address book – President Abdel Fattah al-Sissi in Cairo, Congolese Minister of Hydrocarbons Bruno Itoua, Toufik Hakkar, the CEO of Sonatrach – in the service of his country.

Seen from the Glass Palace (ENI’s headquarters in Rome), the current African tropism developed in recent months by the Italian government even validates the long-term policy of North Africa’s leading foreign operator, which now wants to capitalise on Africa to ensure its own energy transition. To achieve its objectives of carbon neutrality in 2050, ENI is planning to focus on the development of LNG, which has all the ecological virtues of oil, which it is gradually replacing, and which is intended to represent 60% of its fossil fuel production volumes in 2030, then 90% ten years later.

Italy is at the centre of a North-South axis that offers it the prospect of abundant and cheap gas volumes

Africa is part of ENI’s genetic heritage and is therefore naturally destined to become a leading energy partner for Italy. And the operator’s increase in power – impressive for many observers – across the continent also validates the turn towards the south initiated by Mario Draghi’s Italy, but which, in order to work, “must still be adopted in the long term”, says IRIS’ Perrin.

Except that the caretaker PM is no longer really in charge since his return from Algeria at the end of July, and must now content himself with managing the day-to-day affairs of the country until the appointment of his successor following early legislative elections on 25 September. Leading the first polls of a campaign that has just begun, Giorgia Meloni, the leader of the far-right Fratelli d’Italia party, quickly seized on the energy issue to denounce a price hike “that is bringing Italy to its knees” and to criticise a government “that prefers to buy gas from Algeria than to exploit the gas it has in the Adriatic”.

However, the same choice is likely to be made quickly by the woman who is expected to become the country’s first woman prime minister in a few weeks. Not only because limited reserves and high production costs do not allow Italian gas to be anything more than a vague campaign promise, but also because the peninsula seems to be called upon, with the war in Ukraine, to play a much more central role than Giorgia Meloni might wish in the energy architecture set up in the western Mediterranean. The current upward movement of prices reinforces the competitiveness of the gas pipelines which come to Italy from northern Africa. In addition to the Greenstream and Transmed networks, through which Saharan gas has been transiting for decades, the Trans Adriatic Pipeline (TAP), the last link in the southern European gas corridor from the Caucasus fields, was added in 2021.

Through existing and future interconnections, “Italy is no longer at the end of an East-West oriented system, but rather at the centre of a North-South axis that offers it the prospect of seeing abundant and cheap gas volumes passing through its territory,” says Tabarelli. The announced arrival of a fourth re-gasification unit will reinforce such development while emancipating Italy a little more quickly from Russian gas. Having resigned, Mario Draghi has nonetheless fulfilled the mission he gave himself in February to “guarantee the energy sovereignty” of his country.

Understand Africa's tomorrow... today

We believe that Africa is poorly represented, and badly under-estimated. Beyond the vast opportunity manifest in African markets, we highlight people who make a difference; leaders turning the tide, youth driving change, and an indefatigable business community. That is what we believe will change the continent, and that is what we report on. With hard-hitting investigations, innovative analysis and deep dives into countries and sectors, The Africa Report delivers the insight you need.

View subscription options