The Piano Mattei lands in Brazzaville: A Look at Italy's Latest Quest for Energy Security.
On 25 April 2022, Italy moved one step further in consolidating its energy diplomacy across Africa. After securing gas deals in Libya, Morocco and Algeria, the state-owned energy group Ente Nazionale Idrocarburi (Eni) signed a US$ 5 billion deal gas liquefaction project with the Republic of Congo, from whom it had previously acquired the Tango FLNG liquefaction station in early August of 2022. Together, the facilities make up the Marine XII joint venture project along with 31 drilling wells, 10 platforms and 1 gas pre-treatment plant logistically integrated off the shores of Pointe-Noire.
Eni has been the flagship of Rome’s new foreign policy towards Africa dubbed as the Piano Mattei, initiated by Prime Minister Giorgia Meloni as a strategy to reduce dependency on Russian gas imports by projecting its influence just below the Mediterranean Sea. Since the Piano could be pivotal for the EU to fulfil its energetic security objectives (as we previously discussed in this must-read Spotlight!), this article identifies key drivers of risk and success emerging from Eni’s new undertaking in the Republic of Congo and what is its contribution to Italy’s greater energetic security planning.
How Eni did it: Managing Political Risk in Congo
After almost 60 years in Congo, one could expect that Eni would have nurtured an engagement with the country’s most influential stakeholders in order to create an identity of interest that would later pay off as the company’s most competitive aspect to secure the resilience of its business. Interestingly, Congolese law largely centralizes the administration of oil and gas exploration projects - including the issuance of permits, renewal of contracts, and local content requirements - under the Minister of Hydrocarbons’ authority and discretion. Minister Bruno Jean-Richard Itoua, the current incumbent, not only oversaw the signing of the new LNG project but actively supports it as a potential driver of Congolese economic growth and energy self-sufficiency. Such good deeds bode well for the project's stability and are likely to work as a preemptive measure against any major regulatory disruption for the foreseeable future.
The Republic of Congo’s stable relations with Italy, the European Union and major continental powers such as France are also likely to play a stabilizing and supportive role in the operation as they currently show little signs of major degradation, even if thorny issues such as corruption, autocratic practices, and environmental degradation should be kept on a close watch for precaution’s sake.
On the other hand, the majority of installations comprising the Marine XII project - including the ones designed to export liquefied gas - are located on the Gulf of Guinea where piracy activities targeting cargo ships happen, thus remaining a relevant risk to be observed along with the possibility of criminal violence against foreigners in Pointe-Noire. Whether Eni's previous incidents in Nigeria will foster greater investment in maritime security against piracy remains something to be seen.
Was it really all for nothing?
Despite positive outlooks, Eni’s new undertaking in Congo is likely to do little for Italy’s energy security. Congo’s LNG production is expected to reach a peak of 4.5 billion cubic meters per year by 2025, which would only correspond to roughly 6.5 per cent of Italy’s total LNG imports in 2022. More broadly, the experience is telling of Piano Mattei’s fundamental weakness of over-pulverizing supply among possibly more reliable sources while still relying on other major individual actors.
Figure 1: Share of Italy’s Natural Gas Imports by Country (2010-2021). Based on data compiled by the Ministry of Environment and Energy Security (2021),
For example, in 2020, it would take the combined gas supply of 4 countries (Netherlands, Libya, Netherlands and Qatar) to match Algeria’s participation totalling 24 per-cent in that year. While it should be recognized that Russia’s participation suffered sharp drops in 2022 and that logistical impediments could certainly hinder alternative solutions, data seems to indicate that Piano Mattei's current supply diversification strategy currently seems more like a substitution: by trading Moscow for Algiers, Rome’s new diplomatic undertaking might still be falling short of its ambitions. Nevertheless, the pursuit of risk hedges could be recognized.
Since Meloni has veiledly thrown her support behind Algeria on the Western Sahara conflict before, further signs of support in this and other issues could indicate an appeasement with Algeria for the short term. Likewise, the share of renewable energy consumption consistently grew from 2018 to 2021 as well as their participation in Italy’s total energy consumption, despite still accounting for the smaller share. Thus, in the long term, the return of investment flows to renewables production capacity could become pivotal for Italy to achieve its desired - and fiercely pursued - energetic security.
All eyes on Algeria: how natural gas is shaping North-African politics
One country in North-Africa seems to be making the most out of the current energy crisis and a new era in great-power rivalry - Algeria. Great potential has fuelled massive interest in the country’s gas industry and led to a significant increase of gas revenues in the past years. As a consequence, the country is able to spend big, both domestically and abroad, and charter a more active foreign policy. The latter, however, is held under increased scrutiny by parliamentarians and senators across the Atlantic, raising questions about the risks of Algerian gas imports. Another question, which is worth asking, is to what extent Algerian gas potential can be turned into actual export flows.
This analysis will take a deep-dive into 1) the drivers of increased interest and cooperation in Algeria, 2) the outcomes so far, and 3) complications and geopolitical dynamics, after which a small outlook will be presented.
Drivers of increased interest and cooperation in Algeria
Increased interest and cooperation in Algeria and North Africa are partly driven by the war in Ukraine and the need to source new gas supplies. In a bid to curb Russian gas imports, both European and international energy companies are scrambling supplies across the globe. Before the war, Russian natural gas accounted for roughly 45% of EU imports or 155 bcm, whereas it is now standing at roughly 10% of EU imports or 34.4 bcm. That leaves a gap of roughly 120.6 bcm to satisfy demand. And while some supplies may be curbed by lowering demand through the increase of energy efficiency and the usage of other fuels, most will have to be sourced elsewhere.
Algeria, as a source of natural gas, offers much potential. It is Africa’s largest natural gas exporter and in combination with its location, the country could offer an ideal place to source gas. Algeria’s potential has led to increased interests in its gas industry. Other countries in North Africa, including Libya and Egypt, have also received increased interest. Notably, Libya secured an $8 billion exploration deal with Italian energy major Eni.
*Note that the Trans-Saharan and Galsi potential or planned pipelines.
Algerian gas market: Facts and Figures
Reserves: The country holds roughly 1.2% of proven natural gas reserves in the world, accounting for 2,279 bcm.
Production: Its production stands at 100.8 bcm per year.
Exports: In 2021 it exported 55 bcm, 38.9 bcm through pipelines, and 16.1 bcm in the form of LNG. European imports accounted for 49.5 bcm, 34.1 bcm by pipelines, and 15.4 bcm in the form of LNG.
Export capacity: Algeria has a total export capacity of 87,5 bcm: the Maghreb-Europe (GME) pipeline (Algeria-Morocco-Spain) 13.5 bcm, Medgaz (Algeria-Spain) 8 bcm, Transmed (Algeria-Tunisia-Italy) 32 bcm, LNG 34 bcm.
Aside from potential, ambition (on both sides of the Mediterranean) is another reason for interest and cooperation. Interest has come from the EU and several member states, but mostly from Italy. Instead of merely securing gas supplies, Italy aims to become an energy corridor for Algerian gas in Europe. This will boost Italian significance in the European energy market, increasing both transit revenues and investment in its own gas industry. Moreover, Rome seeks to increase its profile in the Mediterranean, mainly to stabilize the region and decrease migration flows. It views both Algeria and its national energy firm Eni as key factors in that aim.
Algeria is also looking for a more active role in the region. For the past years, the country has been emerging from its isolationism, which characterized the rule of president Bouteflika, who was ousted in 2019. With new deals and increased gas revenues it hopes to increase defense and public spending, prop-up its gas industry, which suffered from lack of investment, and stabilize its economy and the region. Aside from economic reasons, therefore, cooperation between the two sides is politically motivated as well.
What has this increased interest and cooperation so far led to?
As a result of increasing gas prices and rising demand, the Algerians have seen their revenues increase massively. Sonatrach, Algeria’s state-owned energy company, reported a massive $50 billion energy export profits in 2022, compared to $34 billion in 2021, and $20 billion in 2020. This will allow for more fiscal space and public spending. In fact, the drafted budget of 2023 is the largest the country has ever seen, increasing 63% from $60 billion in 2022 to $98 billion in 2023. Because of bigger budgets, Algeria will also be able to partly stabilize its neighbors by offering electricity and gas at a discount - something the country is currently discussing with Tunisia and Libya.
The Italian trade looks most promising and has led to multiple deals. Trade between the two countries has doubled from $8 billion in 2021 to $16 billion in 2022, whereas dependence on Algerian gas increased from 30% before the Ukraine war to 40% at the moment. Last year, Eni CEO Claudio Descalzi secured approval from Algeria to increase the gas its exports via pipeline to Italy from 9 bcm to 15 bcm a year in 2023 and 18 bcm in 2024, and last month, Italian Prime Minister Meloni, joined by Descalzi, visited Algeria to build upon that earlier cooperation. Again, two agreements were signed, one with regards to emissions reduction and the other to increase energy export capacity from Algeria to Italy.
The visit and new plans reflected ambitions from both sides. President Tebboune recently announced Algeria’s aim to double gas exports and reach 100 bcm per year and Meloni mentioned a new ‘Mattei plan’ (which refers to Enrico Mattei, founder of Eni, who sought to support African countries' development of their natural resources in order to help the continent maximize its economic growth potential, while facilitating Italian energy security). Furthermore, the Algerian ambassador stated the country’s intention to make Italy a European hub for Algerian gas, whereas Eni CEO Descalzi mentioned the possibility of a north-south axis, connecting the European demand market with the (North) African supply market.
Interest has also led to other plans, potential deals, and rapprochement. Firstly, the EU sees potential and aims to secure Algeria as a long-term strategic partner. Last year, the EU’s energy commissioner visited Algeria as part of “a charm offensive”. Secondly, the Ukraine war and Algeria’s abundance of gas supplies also seems to be the main reason for France’s rapprochement toward Algeria. In addition to this, Slovenia plans to build a pipeline to Hungary to transport Algerian gas as Algeria aims to increase electricity exports to Europe. Algeria’s future as an energy supplier could also go beyond natural gas, as last December German natural gas company VNG signed an MoU with Sonatrach to examine the possibilities for green hydrogen projects. Algeria’s future as a hydrocarbons supplier could also extend beyond Europe as Chevron aims to reach a gas exploration agreement with Algeria and is assessing the country’s shale resources.
Complications & geopolitical dynamics
Translating all that interest and cooperation into more Algerian output, and stable secure supplies for Italy and Europe, on the other hand, is a different story. There are several factors that hamper or complicate the growth of the Algerian gas industry and the potential North-South Axis. Those complications can be divided into two broad groups: (i) industry specific complications and (ii) complex (international) politics.
Industry specific complications
There are specific limitations to the technical feasibility of increasing production. Years of underinvestment, due to corruption, unattractive fiscal terms and a slow bureaucracy, have resulted in less exploration and development of new fields, which roughly take 3-5 years from the exploration phase to production. In combination with decline from maturing fields, this limits industry growth and export potential in the short-term. Internal audits show that Sonatrach can barely mobilize an additional 4 bcm per year, let alone the additional 9 bcm meant for 2024. Doing so will take a bite out of its LNG business, which currently sells for a much higher price. Exploration and development will take time and mostly affect the medium-term in 3-5 years. Furthermore, Algeria has to perform a balancing act between its exports and increasing domestic demand, which is set to grow 50% by 2028.
A North-South axis will require Italy to upgrade its gas network as well. The country will have to establish several energy corridors to demand markets in Europe and expand its domestic gas network, which requires billions of investment. In this light, some analysts point to the fact that claims about such an axis are currently rhetoric and are meant to secure investments that are needed for its own gas industry.
Geopolitics
Geopolitical considerations also may influence gas flows toward Europe. For starters, Algeria has a complicated relationship with Morocco, which according to Algiers, 'occupies’ the Western Sahara. Algeria maintains it is a sovereign territory and in 2021, this row resulted in the suspension of the GME pipeline, which runs through Morocco. While Spanish imports through the Medgaz pipeline increased from 8 bcm to 9 bcm in 2022, the closure of the GME pipeline resulted in an overall decrease of exports to Spain by more than 35%. By using gas (revenues) as a tool of statecraft, Algeria also managed to convince Tunisia in countering Morocco, after handing it economic aid.
The country’s relations with Russia might also complicate gas flows. Its relation encompasses military cooperation, including joint military exercises and weapons purchases. Algeria is the 6th largest importer of weapons in the world and roughly 70% of Algeria’s weapons are sourced from Russia. In 2023, its largest budget draft ever included a rough 130% or $13.5 billion rise in military expenditure and, in November, plans were announced to dramatically increase its acquisition of Russian military equipment in 2023, including stealth aircraft, bombers and fighter jets, and new air defense systems.
With the war in Ukraine, Algeria’s relation with Russia creates a risk of sanctions, with some U.S. senators and EU parliamentarians being particularly vocal on this. As a result of sanction risk, Sonatrach included a clause in its gas contracts, which allows for currency denomination change every 6 months, reflecting warrines of U.S. sanctions and dollar-denominated gas trade. Its recent application to BRICS, will increase the country’s capacity to charter its own foreign policy, without endangering security and trade ties to Beijing and Moscow.
Outlook
Significant rises in Algerian export output, outside of its current commitments, are not likely in the short-term.
Ambitions with regards to a potential North-South axis are largely rhetorical and meant to increase investment and gather broader regional and European-wide support for an energy corridor.
Sanction-risks remain low. Because of Algerian significance to the European gas market, the EU and its member states will likely try to maintain good ties with the North-African country.
The effect of future massive weapons purchases from Russia will likely have a negative effect on relations with the EU, but it is unclear whether that will immediately impact (future) gas flows.
Increasing gas revenues and bigger budgets will decrease the risk of domestic instability. As a consequence, Algeria has the possibility to charter a more active foreign policy - something we are currently already seeing. The main goal of such a foreign policy will be to stabilize its immediate neighborhood.