To the gas barrel

(To Gino Lanzara)

The Russian-Ukrainian crisis, reawakening dormant memories of the 30s, has whetted the desire for further banks; abdicated to the Libyan one, Italian politics turned towards French-speaking Algeria.

Just a wish? No, a necessity from gas barrel. And that's not a joke. Also why approach Algeria, rentier state1 immense oil and gas tanker, a centralizing and authoritarian political subject characterized by sporadic autonomist pushes and jihadist goads, is anything but easy to classify; exposure to fluctuations in the hydrocarbon markets highlighted a structural economic deficiency which highlighted the lack of social protection due to internal repercussions.

The economic crisis triggered by the pandemic was accompanied by a reduction in oil production with suspension and cutting of both non-essential projects and production costs. The promises of consolidation of democracy made his own by President Abdelmadjid Tebboune, who was personally affected by Covid and therefore transferred to Germany for the (disputed) necessary treatments, are still far from being realized. The Algerian executive, which has been accused of lack of attention to the vaccination campaign, is a technical government shaped to reduce the influence of the parties and allow the containment of protest movements.

It is only since 56 that the discovery of oil in the south of the country has allowed a redistribution of the income that should have facilitated the pacification of an increasingly agitated north and which has drawn heavily without allowing adequate socio-economic compensation in the southern; not least the shale gas controversy2 it constituted an element of popular mobilization in the southern areas moved by the fear of the pollution of the aquifers induced by extraction practices.

Foreign policy is also affected by the moment of crisis, so much so that the friction with Morocco has to be noted, which has been alive since 57 due to the unresolved controversy concerning the Saharawi people whose government, in exile due to the Moroccan occupation of Western Sahara, is still hosted today in the refugee camp of Tindouf; a friction that Tebboune materialized by putting an end to the agreement that linked Algiers and Rabat through the MEG gas pipeline3 which, through the Moroccan territories, supplied gas to Spain and Portugal. This event led Algeria on the one hand to provide the Iberian partners with the widest reassurance regarding the continuity of the service and, on the other hand, directly from the Algerian president himself, to accuse Morocco and its ally, the Zionist entity4, to have accomplished hostile acts against Algeria, given the support offered to a self-styled terrorist organization held responsible for the fires that devastated the Algerian hinterland.

Understanding who really commands in Algeria is not easy, given the type of power apparatus in which the Army, despite having played a decisive role, is only one and not the only one of the founding elements, finding the others in the colonial past, in the history of the war of independence, in the mix of politics and economics, which were first countered by the rise of the FIS5, and then the recent constitutional amendments.

A state that has not failed to unilaterally mark the area of ​​influence as regards its EEZ in an area characterized by considerable maritime importance for our economy; a state in any case so present in the Palestinian problem that it ranks among the main financiers with several million dollars.

Also relations with Russia they should not be underestimated; among the abstentions in the vote of the General Assembly of the United Nations, the Algerian one had to be recorded, which marked a contrasting ambiguity in the positions expressed by the other countries in the area that condemned the attack on Moscow. There is no doubt that military cooperation is central to Russian-Algerian relations, given the relations maintained and the armaments supplied, all elements that testify to common priorities and interests both in the oil sector6 both in the regional political sphere.

On the gas front, the situation appears considerably more complex, given that it is Algeria that many countries count to fill the gap created by the interruption of Russian supplies, also in relation to the insurance provided by Sonatrach.7, the Algerian hydrocarbon agency, an integrated group controlled by the state that operates in Africa, Europe, South America, with over 115 employees; after all, could he ever say the opposite? Yet it does not appear so easy, given that Algiers does not seem capable of fully compensating for the supply cut-off, due to the lack of restructuring and diversification policies of the sector's management system.

Despite this, Sonatrach CEO Toufik Hakkar confirmed the routing of gas required from Europe through the Transmed pipeline.8 (or Mattei), which connects Algeria to Italy through Tunisia but on one condition, namely that further supplies of natural gas or liquefied natural gas remain dependent on the residual availability after the satisfaction of both internal demand and contractual commitments towards other contractors, taking into account that the pipeline leaves a capacity of 10 billion m3 for export, with liquefaction units operating at 50% of the possibilities.

The only thing missing now would be needed: the time, 4 or 5 years, to technically allow the preparation to send larger quantities of gas, taking due account of investments and revenues, and the return of Sonatrach to Libya as long as it is safe.

The problem is that, as regards crude oil, Sonatrach will bring prices to exceed $ 100 per barrel in the medium term due to the low level of investments in R&D, a scenario that requires consideration of the stability of the Algerian system in the near future; in 2019 the hydrocarbon reserves were gradually decreasing, and an attempt was made to contain the decrease in revenues by resorting to the entry of foreign capital. The recurrence of the criticality of reserves, in particular of natural gas, therefore poses a concrete problem of energy security for all EU countries.

Regarding the geopolitical aspects, between the Gulf monarchies and Turkey and Iran, Russia and Algeria share the same lines of action, with Moscow having been able to maintain good relations with a large part of the MENA area which, however, cannot fail to suffer. the worst effects of the Russian invasion, relating to severe food insecurity9.

Not condemning the Russian attack is in fact functional to the regional menage that suggests alignment with the US while avoiding clashes with China or Russia.

Let's go back to Europe, where the absence of a common energy policy has gone to the detriment of the continental vision, with the choice of favoring exposure to imports according to an economic logic that does not consider geopolitics, and from which all the errors due to the lack of structural diversification transpire which puts the EU into a corner, reduced to an instrument of parallel bargaining.

As happened with the political-military crisis, the energy crisis also has its roots in irrationalities that have become concrete. Is it possible to do without energy that may no longer be supplied? Very difficult, expensive and certainly not in a short time. The less plausible hypothesis contemplates the unlikely and complete compliance with long-term contracts with the utopian implementation of the Green Deal.

Now the Taxonomy. Despite the formal opposition, the need to provide for a combined gas-nuclear energy system is obvious, if only to defend the investments already launched; to reject one or the other solution uncritically would be a nonsense, if we look at the 2030 and 2050 objectives. In Italy, never more than now, it is therefore essential to exploit the TAP gas pipeline, diversifying the sources of supply. The problem is to have clear objectives and consequent investments, related to the defense of the production system, which is no small feat.

What can our country put on the plate? La Mattei's Legacy launches its national energy security plan: ENI diplomacy in support of the Presidency of the Council and the Farnesina with targeted contacts in Algeria, Qatar, Congo, Angola, where relations are consolidated thanks to CEO Descalzi, one of the few Italians able to sit down with knowledge of the facts at such complicated negotiation tables. Let's quickly review the problems faced; in the meantime it will take time. In Algeria, Egypt and Qatar, ENI production will be implemented with new investments and licenses. In Angola and Congo, ENI envisages two liquefaction plants with a production of up to 2 million tons per year, ready for Italy, however, after 2023.

Two sore points remain, a lot: Libya, to which the civil war has cut off the production of the Green Stream, and the local production, which dropped to 3,3, billion m3 and absolutely to double, with all due respect to the rioters.

According to Snam's latest estimates10, Algeria has become the first supplier of our country, with Russia in second place followed by Azerbaijan, thanks to the TAP, opposed in Italy and which Europe wants to implement.

Rumors. According to an opinion not to be underestimated by Platts Analytics, in 2022 Algeria will be able to supply Europe with another 7 billion cubic meters of gas through TransMed, but with several elements to consider: internal political instability, which could affect supplies according to the stylistic features ex Libyan syndrome; the growing national demand for gas, which reduces availability for export; the need for additional time for exploration, development, investments capable of increasing production; close diplomatic ties with Moscow.

Taking into account that Algeria has not invested in renewable energy, it is difficult to understand where it can find a residual share of the product to be destined for export and, above all, where and how it can acquire capital for investments for diversification, given the incisiveness of internal expenditure and consumption which absorb no less than 68 billion m3 per year, not counting the other 20 billion m3 of re-injecting gas into hydrocarbon wells to keep the fields active.

At the moment, the drop in Algerian natural gas production is leading to the negotiation of 10-year rather than 20-year contracts, but with variable conditions given the size of the foreseeable (and indispensable) revenues determined by the increase in prices; unavoidable having to resort to the complex art of compromise, whereby on the one hand ENI will guarantee the strengthening of extraction capacity, and on the other hand it will resort to spot contracts at (high) current prices.

Excluding the difficulties of a resurgent and hypothetical East Med capable of carrying Israeli gas through the turbulent eastern Mediterranean waters, there remain aspects to be carefully considered: technical capabilities, effective product availability, financial coverage, persistent regional political instability.

With the most disarming sincerity, given the evolutions underway, we believe it is more concrete and wise to rely, as always, on the pragmatic capabilities of the ENI establishment, and on a difficult but indispensable diversification of sources.

1 The Algerian economy is mainly based on the oil and gas sector, with a share between 95% and 98% of export revenues, 75% of the state budget and over a third of the country's GDP.

2 An interest in shale gas was expressed in partnerships with American companies

3 Maghreb-Europe Gas Pipeline

4 Reference to Israel

5 Islamic Salvation Front

6 Bilateral cooperation was deepened with a Memorandum of Understanding between Gazprom, Lukoil and Sonatrach, plus civil nuclear agreements with Rosatom

7 In 2018 Sonatrach acquired the ownership of the Augusta (SR) refinery from Exxon Mobil, with an operation that aroused surprise for the symbolic value in relations between Algeria and the USA.

8 The main natural gas imports come from Russia through four routes to northern, central and southern Europe. The northern passage would have consisted of the Nord Stream gas pipeline, which was to reach Germany through the Baltic Sea to be divided into two branches to the south and west. The other northern Russia-Europe pipeline is Jamal. It forks in Belarus: west towards Poland and Germany, south through Ukraine to reach Slovakia and Austria. The southern network should have been divided into the South Stream project supported by Gazprom, Eni, Edf and Wintershall, with a gas pipeline across the Black Sea and a Balkan branch towards Italy and Austria. The central line of Russian gas is centered on the Ukrainian transmission grid.

9 Ukraine and Russia supply about a quarter of the world's grain exports

10 Publicly controlled company that manages the distribution of methane

Photo: Ministry of Foreign Affairs and International Cooperation