Algerian President Abdelmadjid Tebboune, right, talks with Italian Prime Minister Mario Draghi in Algiers, Monday, April 11, 2022. Italian Prime Minister Mario Draghi reached an agreement on Monday for more natural gas imports through a Mediterranean gas pipeline from Algeria, marking the latest push by a European Union nation to reduce its dependence on Russian energy following its invasion of Ukraine. PA
Can Algeria respect its last commitments?
Algeria has nearly 2.4 trillion cubic meters of proven natural gas reserves and is Africa’s largest gas exporter.
It is responsible for almost 12% of the European Union’s gas imports, compared to almost 47% for Russia, according to early 2021 figures provided by Eurostat.
Few details have been released on the agreement between the Algerian state energy company Sonatrach and the Italian major ENI, announced Monday by Italian Prime Minister Mario Draghi in Algiers.
ENI said in a statement that the companies had agreed to increase deliveries to Italy via the Transmed undersea pipeline by “up to nine billion cubic meters per year” by 2023-24.
He did not specify a benchmark figure or the volume of total deliveries.
Aydin Calik, an analyst at the Middle East Economic Survey (MEES), said the precise impact of the deal on the quantities of gas to be pumped through the pipeline was unclear.
According to figures from the MEES, in 2021, Transmed only had an unused pipeline capacity of 7.8 billion cubic meters per year, less than the nine billion additional deliveries quoted by ENI.
Experts also say the lack of foreign investment in new infrastructure and the need to cover growing domestic consumption will limit the gas available for export.
“Rising domestic demand and maturing natural gas fields continue to weigh heavily on volumes available for export,” Calik said.
“And while plans are underway to maintain export levels, big additions aren’t expected until 2024.”
How will the deal affect gas prices?
Futures on the price of gas are currently trading around 100 euros per megawatt hour, five times more than at the same time last year.
According to a statement from Sonatrach, Monday’s agreement allows it and ENI “to determine the selling price levels of natural gas in line with market data for the year 2022-2023”.
Calik said this could mean Sonatrach also got a price hike for the gas it sells to Italy.
“But the thing is, we don’t know exactly the details of the deal,” he added.
Anthony Dworkin, senior policy researcher at the European Council on Foreign Relations, said Algeria wanted to make the most of opportunities to increase gas shipments to Europe and raise funds to invest in the country.
But “it also wants to make it clear that it is a reliable energy partner for Europe,” he said.
Despite Sonatrach’s warning earlier this month it could raise the price of its gas sales to Spain, after Madrid abandoned decades of neutrality and backed Algeria’s arch-rival Morocco on the sensitive issue of Western Sahara.
“Prices may increase, but everything indicates that Algeria will honor its commitments – and there is a price review built into the contracts,” Dworkin said.
“Gas prices have gone up anyway, so it’s no surprise that Algeria wants to raise them.”
Will the deal affect Algeria’s ties with Russia?
While Monday’s deal helps Italy reduce its reliance on Russian gas, Algeria has a longstanding relationship with the Kremlin that experts say is unlikely to burn.
Dworkin said the North African country was “likely to continue to pursue a balanced policy based on maintaining relations with Russia and Europe”.
“He will probably try to avoid rhetoric that obviously suggests he is helping Europe in light of the war in Ukraine, but the deal with Italy has shown that Algeria will remain a pragmatic player,” he said. he told AFP.
He noted that the country buys most of its weapons from Russia but also from Italy and Germany, and that it has voted against or abstained from United Nations resolutions against Russia since the invasion of Ukraine.
“These are ways in which it preserves its ties with Russia,” he said, noting that the relationship does not require Algiers to forego “commercial opportunities for lucrative exports.”