Lord Palmerston, House of Commons, 1st March 1848
The war in Ukraine in reshaping international relations, in some sectors faster than in others. Nowhere is this more obvious than in the field of energy, notably where gas and green energy are concerned. The European Union has, for two decades, underestimated the role natural gas would play in the energy transition, irrespective of any given energy transition scenario. Hence the scramble to find more gas internationally once the EU had decided to cut gas supplies from its major foreign supplier, Russia. The scramble was made all the worst as non-Russian producers of gas do not, over the next two - three years, have much extra supply capacity. Gas in liquid form, LNG, is even scarcer than piped gas.
Italy Moves to Diversify Its Gas Suppliers
In the context of the looming gas crisis last autumn, Italy, which is very dependent on Russian gas imports, was quick off the mark. It engaged with different gas producers from Qatar to Mozambique. It will continue to import gas in LNG form from Egypt and will shortly add Israel to its list of suppliers. In November 2021 it started negotiating its first contract to buy more gas from Algeria which ensures that, by the end of 2023, its north African neighbour will increase its throughput of gas via the TransMed pipeline from 21bn cubic metres per annum to 30bn/cm.
Earlier this year, Ente Nazionale dei Idrocarburi (ENI) secured a broad range $1.5bn contract with its Algerian counterpart, Sonatrach, to explore and develop new sources of gas, hydrogen, ammonia and electricity from renewable sources.
ENI has three strong cards to play in Algeria which include: long standing relations going back 60 years between Sonatrach and ENI; the first ever underwater gas pipeline from Algeria to Sicily through Tunisia and under the Mediterranean, an Italian engineering feat which is a tribute to the country’s sophisticated oil and gas industry which spans every aspect of the hydrocarbons sector; and last but not least, the role ENI’s founder Enrico Mattei played in advising the Provisional Government of the Republic of Algeria in its difficult negotiations to gain independence from France, at a time when the latter attempted to prevent the recently discovered Saharan oil fields from belonging to the nascent country. Mattei died in 1963, a year after Algerian independence, in an unexplained plane crash.
Since the first world war the history of the oil and gas industry is littered with coups, assassinations and wars, not just in the Middle East. Think of Hitler’s failed dash for the Caucasus oil fields in 1942-3. The conflictual relations between France, the United Kingdom, the US and leading Middle Eastern countries, from Iraq to Saudi Arabia and Algeria offer the key to understanding many aspects of international politics over the past century. That history has often been written in blood and murder as major Western oil companies sought to retain control of the vast oil and gas resources of the region, only to be met by fierce reactions from Middle East producers. Seasoned observers of history are not surprised that the West’s increasingly fraught relations with Russia in recent years have ended in a brutal confrontation on oil and gas. It is too early to say which of the two sides will be the most damaged, economically. But higher energy and food prices and the inflation they entail point to fraught international relations in the years ahead.
Italy's Role as Gas Hub Increases
Italy is fast becoming the new gas hub of the Mediterranean. Three pipelines, from Azerbaijan, Libya and Algeria bring gas to its southern shores. Floating storage and regasification units will allow more gas to be brought in from Egypt and Israel. If Germany decides to import more gas from Mediterranean producers, part of it could travel through Italy which can stock the stuff easily in the disused Po valley gas fields.
Italy is looking beyond gas. In his recent discussions with Algerian president Abdelmajid Tebboune, Prime Minister Mario Draghi made clear he was very interested in the well- armed north African country helping to stabilise Mali and other countries to the south of Libya. The Algerian head of state noted that both men were keen to help Tunisia at this point, although any financial support is likely to remain beneath the radar.
Underwater Gas Pipelines
Source: Entsog-GIE System Development Map
As Italy increases its imports of Algerian gas from 21 billion cubic metres a year in 2021 to 30 bn/cm in 2023, the TransMed gas pipeline gains in importance. Four fibre optic lines from Kelibia ** and Bizerta connect the Tunisian mainland to Italy and the SEA-ME-W4 cable which connects Asia to the EU. It could, in the future carry solar produced electricity from North Africa to Europe. A cable carrying solar-produced electricity could, one day soon, run alongside the TransMed gas line from El Haouaria in Tunisia to Mazara del Vallo in Sicily. Talk of a hydrogen pipeline between Algeria and Italy is premature (1).
**Fibre Optic links (in blue)
It is worth noting that Rome, Ankara and Algiers see eye to eye on Libya, whose UN backed government they support against the eastern self-proclaimed marshal Haftar in Benghazi. He enjoys the support of Egypt, the Emirates and, to a lesser degree, France and Russia. France’s policy has left Italy very unhappy and torpedoed all attempts to forge a united EU policy on Libya. The recent appointment of Sabri Boukadoum as UN envoy to Libya strengthens Algeria’s hand. Two years ago, Ramtane Lamamra, an Algerian diplomat, who has since become his country’s foreign minister was vetoed for the job by the US despite the very high respect he is held in internationally – from Moscow to Washington, not to mention African and European capitals.
Rebuilding Libya will eventually bring much work to Italian - but also Tunisian - companies which had invested a lot in Libya before 2011. Remittances from Tunisian workers in Libya helped stabilise southern Tunisia for decades. The stability of North Africa’s smallest country is essential for Italy as it helps allow the EU to control illegal immigration flows from Africa. Algeria has played a major role in stabilising a country whose president, Kais Saied, is reverting to a presidential constitution, after years of a hybrid presidential-parliamentary system which has made the country virtually ungovernable - and much poorer. But Saied’s suspension of parliament and the government on 25 July 2021 and the role Egypt played in advising him has brought the army into domestic politics for the first time since 1956. It has weakened what had been its role as neutral guarantor of the perennity of the state and infuriated Algeria which has played a key role, through military and financial means, in ensuring stability in Tunisia since the fall of Ben Ali in 2011.
European capitals, not least Berlin, are openly supportive of him and appreciate that blaming Kais Saied for being an “authoritarian” while remaining silent about the fierce repression in Egypt smacks of hypocrisy. Tunisians have suffered a sharp fall in living standards since 2011, bewildered at the sight of a newly minted political class fiddling while Carthage burned. Popular support for Saied one year after he suspended the government and national assembly will be tested when the draft of the new constitution is submitted to referendum on 25 July. That said, Tunisia confronts an increasingly dire economic situation which Saied ignores at his political peril.
Morocco Plays Its Own Cards
As its star rises in the Mediterranean, Italy also benefits – indirectly - from the confused state of Spain’s relations – until last year with Morocco and today with Algeria (Endless concessions: Spain’s tilt to Morocco – European Council on Foreign Relations (ecfr.eu)). Combined with Algeria’s traditional rivalry with Morocco, this has resulted in the closure the pipeline which, until last autumn carried Algerian gas to the Iberian Peninsula via Morocco but left open the Medgaz which carries Algerian gas directly to Spain. Algerian leaders are unhappy at Spain’s change of position on the eventual status of the disputed territory of the Western Sahara but value Spain as their second largest gas client. President Tebboune was stating the obvious when he indicated that Algeria had no intention of breaching its contracts with its gas clients in Spain.
Spain, which has roughly twice as much gas regasification capacity than its domestic market, requires but will only be able to contribute more to the EU’s overall gas security when France’s nuclear lobby lifts its long-standing veto to an increase in the 7 bcm capacity of the gas line which carries gas northward across the Pyrenees. The Iberian corridor will then come into its own***. Meanwhile, flows in the Maghreb-Europe pipeline restarted on 28 June when reverse flows of gas will use the pipeline e which was closed on 1 November 2021 when Algeria cut off supplies to Morocco. The German utility RWE has won the contract which allows Morocco access to Europe’s largest LNG market.
Meanwhile Morocco is developing other energy links, beyond the EU, with the United Kingdom. Energy tech pioneer Octopus Energy Group, in partnership with Xlinks, was contracted last May to build the world’s largest subsea power cable to deliver renewable energy from Morocco to Devon, in the southwest of the United Kingdom. This project fits in with Morocco’s long-standing ambition to become a world leader in solar energy.
Energy Links Are Being Re-Drawn
So, although the stars are aligned to give Italy unprecedented influence in the central Mediterranean, other national actors in north - Africa (Morocco) and outside the region (China and Turkey) are increasing their economic footprint and, in the case of the latter, their military presence, in the Maghreb. France can only fight to retain what it considers its historic sphere of influence. The Russian invasion of Ukraine is accelerating a reshaping of the political and economic landscape of the central and western Mediterranean. The framework of economic cooperation put in place by the Barcelona Process in 1995 has given way to a quite different Mediterranean order - in the key field of energy at least. New and important energy transactions continue despite what a senior adviser to King Hassan II and King Mohamed V once called “le bétisier sans fin des relations algero-marocaines” (the never-ending stupid tit for tat of Algerian-Moroccan relations). What is occurring is not so much an economic decoupling between the EU and the Maghreb as a recoupling which is inserting Morocco (in energy but also financial terms with the growing importance of Casablanca Finance Centre) into more global networks.
* Pipelines carrying CO2 exist, the consequence of years of injection into gas and oil fields but there is no experience of H2 pipelines where specific issues of distance, material and compressor stations have yet to be solved. There is no market for hydrogen today, only very different assumptions about pricing and cost. Any capital to finance such projects would thus have to come from the state as no private sector bank or investor could justify putting up the necessary money.
***Riley and Ghiles, The Iberian corridor, CIDOB 2018
Disclaimer: The opinions expressed in this publication are those of the author. They do not purport to reflect the opinions or views of Frontier or the Members of the Frontier Energy Network.