Algeria tightens its grip on Italian gas imports set at 18.8 billion cubic meters

Italy’s Eni energy company will continue to buy Algerian natural gas in 2017 with the same vein as its purchases for 2016.

This was confirmed by Eni’s CEO, Claudio Descalzi, who said that the company discussed its expected volume purchases with Algeria’s hydrocarbons Group Sonatrach every year. 

Accordingly, the Italian company has increased its gas imports from Algeria significantly in 2016, volumes averaged 46mcm/d in the first ten months of the year, with an average of 19mcm/d compared with the same period in 2015.

Mr. Descalzi added that the Eni will continue buying the Algerian gas, yet its purchases are also related to the prevailing price conditions. Eni had a long-term gas contract with Sonatrach until 2019.

Furthermore, Eni and Algeria have signed a number of bilateral deals in 2016 including in the fields of upstream and renewable energy.

There have been signs of the steady return of Algerian gas exports towards Italy to normal expiry of the first quarter of this year, rising by about 87 percent compared with the same period in 2015, to reach 6.13 billion cubic meters.

The rise in Algerian gas exports to Italy since the start of the second quarter has seen a slump in supplies from Italy’s other core gas suppliers.

Italy is Europe’s third biggest gas market with consumption of some 66 Bcm in 2015, and it is reliant on imports for as much as 90% of its demand.

In late September, local media outlets reported that Sonatrach had also signed a deal with Eni for a solar power plant, the 10MW photovoltaic facility would be launched before the end of 2016 in Ouargla in southern Algeria. It would supply the company’s Bir Rebaa field with electricity, allowing the gas to be used for other purposes.

On the other hand, Russian exports to Italy in the first quarter averaged 77 million cu m/d, so the drop to less than 50 million cu m/d at the weekend is significant.

A theoretical continued rate of 50 million cu m/d for the rest of the year would see Russia supply just 21 Bcm to Italy in 2016.

The slowdown in Russian supplies to Italy is surprising in some ways after Eni agreed with Russia’s Gazprom in January this year to “maximize” the sale of Russian gas under the partners’ long-term contract supply agreements.

However, Eni CEO Claudio Descalzi also said that Eni had re-negotiated in 2015 its long-term gas import contract with Algeria’s Sonatrach to include increased gas volumes.

The sudden hike in Algeria exports could be attributed to a number of factors, including lower LNG production and customers nominating higher volumes because of favorable prices under long-term, oil-indexed contracts.