MILAN/FRANKFURT, Sept 30 (Reuters) – In the weeks following Russia’s Feb. 24 invasion of Ukraine, Claudio Descalzi, chief executive of Italian energy giant Eni ( ENI.MI ), embarked on a whirlwind of travel to gas suppliers in Africa.
The visits included meetings with officials in Algeria in February and talks in Angola, Egypt and the Republic of Congo in March, with Descalzi often accompanied by senior officials in Rome, according to company and government statements.
State-controlled Eni and Italy were able to leverage existing supply relationships with those nations to secure additional gas to replace a large portion of the volumes it received from its main supplier Russia.
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It’s a nimble shift that many European countries have been unable to pull off as Vladimir Putin’s war shakes the continent into an alternate reality.
Take Germany. An economic powerhouse and long synonymous with prudent planning, it has been caught unprepared. It is on the brink of recession, its industry is bracing for gas and electricity rationing, and it has just nationalized a major utility company.
Italy, a country familiar with economic crises, appears relatively resilient. It has secured extra supplies and is confident it won’t need to ration gas, with its government hailing the nation as the “best in Europe” for energy security.
“The appreciation enjoyed by Descalzi in several African countries is undoubtedly a competitive advantage,” said Alberto Clò, former Italian Industry Minister and former Eni board member, referring to the difficulties of signing deals during a crisis of supply
Indeed, the two countries find themselves in contrasting circumstances, as a severe energy crisis weighs unevenly on a continent where dependence on Russian gas varies widely.
Much of the region is facing a winter supply crisis, with those most exposed including Germany, Hungary and Austria. Less affected nations include France, Sweden and Britain, which have traditionally distrusted Russia, as well as Italy.
Martijn Murphy, an oil and gas specialist at research firm Wood Mackenzie, said that while Italy had long relied on Russia as its main gas supplier, its greater diversity of suppliers and its long standing with Africa meant that it was better placed to withstand a cessation of Russian production. supply than many others.
“Eni has very strong ties with all the countries with which it operates in North Africa and is present in all of them: Algeria, Tunisia, Libya, Egypt and in most of these countries it is the largest upstream investor and producer of international oil companies “.
The power crisis caused by the war has forced governments to face the risks of becoming overly dependent on a dominant supplier or region. It has echoes of the energy crisis of the 1970s that led the West to rethink its dependence on Middle Eastern oil, a shift that spurred global exploration and the search for alternative suppliers such as Venezuela and Mexico.
The Italian government declined to comment. Germany’s economy ministry said it wanted to move away from Russian gas imports as soon as possible and diversify its supplies, citing first steps toward that, including leasing five floating liquefied natural gas terminals ( LNG). Germany currently has no LNG terminals, while Italy has three in operation and recently purchased two more.
A TALE OF TWO BUYERS
Italy consumed 29 billion cubic meters (bcm) of Russian gas last year, accounting for around 40% of its imports. According to Eni, around 10.5 bcm of this is being gradually replaced by increased imports from other countries starting this winter.
Most of the additional gas will come from Algeria, which said on Sept. 21 it would increase total deliveries to Italy by nearly 20% to 25.2 bcm this year. This means that it will become Italy’s main supplier, contributing approximately 35% of imports; Meanwhile, Russia’s share has fallen to very low levels, Descalzi said this week.
From spring 2023, an increasing flow of LNG will start arriving from countries such as Egypt, Qatar, Congo, Nigeria and Angola, allowing Italy to replace another 4 bcm of Russian gas, Eni said.
Germany, whose 58 bcm of Russian gas it imported last year accounted for 58% of consumption, has seen supplies through the Nord Stream 1 pipeline reduced since June and stopped in August.
Unable to secure sufficient long-term replacement supplies from other countries, and lacking a domestic oil and gas company with overseas production, it has been forced to go to the local market, or cash, where he has had to pay about eight times the prices. seen a year ago by replacement gas.
Factors beyond human control can condition energy security: Germany does not enjoy Italy’s proximity to North Africa, for example, nor the North Sea riches of Great Britain and Norway. It does not have large oil or gas reserves.
However, German officials and executives have made miscalculations in recent years, particularly after Russia’s annexation of Ukraine’s Crimea peninsula, suggesting the current crisis could have turned out differently .
In 2006, Italy was the fastest with Russian gas, with Eni, the country’s main gas importer, agreeing at the time the largest gas deal in the history of a European company with the Moscow-controlled energy giant Gazprom (GAZP.MM).
But in the past eight years, the two countries have diverged: Germany has doubled down on Russian gas and become increasingly dependent, while Italy has tried to hedge its bets.
Italy began charting a different course in 2014 when a new government replaced that of Silvio Berlusconi, a longtime friend of Putin, and Descalzi took over as head of Eni, according to three sources familiar with the energy strategy of the country.
Descalzi, an exploration and production specialist who had overseen projects in places like Libya, Nigeria and Congo, focused on what he did best, a source said: exploring Africa.
A major success took place in Egypt in 2015, when Eni discovered the largest gas field in the Mediterranean Sea, Zohr. When Descalzi pushed Eni to fast-track projects, the source added, Eni was able to start production at Zohr in less than two and a half years, a relatively fast development in the industry.
In Algeria, where Eni has been present since 1981, the company reached an agreement in 2019 to renew gas imports until 2027.
CRUÍMA IN CRIMEA
Russia’s annexation of Crimea in 2014, and subsequent Western sanctions, was a watershed moment.
Rome withdrew its support for Gazprom’s $40 billion South Stream project, which was meant to transport gas from Russia to Hungary, Austria and Italy while bypassing Ukraine, also in response to the sanctions. South Stream was abandoned by Eni later that year, before Moscow scrapped it.
Instead, Italy set its sights on building the smaller Trans-Adriatic pipeline from Azerbaijan through Greece and Albania.
However, Germany did not reduce its exposure to Russia.
“Europe and Russia have built an energy partnership for four decades, and there has not been a single day in that time when gas has been used as a strategic weapon against the West,” Johannes Teyssen, then CEO of E .ON (EONGn). .DE), he said in 2014 following the annexation.
Also, an agreement was reached in 2015 between Gazprom and companies such as Germany’s E.ON and Wintershall ( WINT.UL ) to form a consortium to build the Nord Stream 2 pipeline.
Germany has been blindsided again.
A day before Moscow invaded Ukraine, Klaus-Dieter Maubach, chief executive of Uniper ( UN01.DE ), Germany’s biggest importer of Russian gas, described Gazprom as a reliable supplier.
He has since changed his mind.
Seven months later, Uniper is preparing to sue Gazprom for damages over supply cuts and has been bailed out for 29 billion euros ($28 billion) by the German government, which agreed in September to nationalize the company.
Germany aims to completely replace Russian gas by mid-2024, although some utilities, including major power producer RWE ( RWEG.DE ), believe it could take longer, as alternative sources they are scarce and volumes are hard to come by.
All agree it will be an expensive endeavor.
“We have relied too long and too much on Russia’s energy supply,” German Chancellor Olaf Scholz said in June. “The old equation that Russia is a reliable economic partner even in crises no longer applies.”
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Reporting by Francesca Landini in Milan and Christoph Steitz in Frankfurt; Editing by Pravin Char
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