The significance of the gas agreement between Italy and Algeria

In this interview with CNBC Arabia, Dr Carole Nakhle, CEO of Crystol Energy, comments on the gas agreement between Italy and Algeria.

Dr Nakhle explains that the relationship between Italy and Algeria spans decades, particularly in the energy sector, with ENI being a prominent investor in the country. The upward march in gas prices in Europe which started last year (and even earlier in Asia) and Europe’s quest for reducing its reliance on Russian gas have provided support to boosting Algeria’s gas exports. It has been reported that Algeria will increase its exports to Italy by 50% which equates to 7 billion cubic meters (bcm) – not a huge amount given the scale of the crisis, but it can enable Algeria to become Italy’s biggest gas supplier ahead of Russia.

The question, however, is whether Algeria will be able to further increase its gas exports to play a more meaningful role in Europe. This depends on taming domestic demand growth and boosting investment to support increase in production. The latter requires supportive government policies.

The EU will not be able to completely replace Russian gas imports and surely not in the short term. However, it is determined to significantly curtail its dependence on Russian gas. Agreements such as the one with Algeria will first signal to Russia that alternatives are present and second will help to ease the pressure on gas prices, especially if no sanctions on Russian gas take nor Russia cuts off its gas exports.

Dr Nakhle further discusses the issue of sanctions arguing that in the EU this is a collective matter, i.e. at the Union level and there is a significant divergence between countries in terms of dependence on natural gas and Russian gas in particular. This explains the dilemma facing the EU’s reluctance to impose sanctions on Russian gas.