Italy is tapping its deep and historic African ties to replace Russian energy sources. But Libya’s internal conflicts could threaten an $8 billion natural gas exploration agreement.
In a nutshell
- Russia’s war in Ukraine has accelerated Italy’s shift to African energy producers
- The strategy is paying off in Algeria, which now supplies 34 percent of Italy’s gas
- Libya’s political rivalries will create challenges for a new gas exploration deal
At the end of 2022, shortly after her party won the parliamentary elections, Italian Prime Minister Giorgia Meloni spoke of a new “Mattei plan’’ for Africa, a long-term strategy of close and respectful cooperation between Europe and Africa. Enrico Mattei was the founding chairman of Eni, Italy’s multinational energy company, from 1953 until his death in a plane crash in 1962. He was a pioneer in oil management who set the foundation for Eni’s policy of generous royalties and revenue sharing for host African states.
In Mr. Mattei’s vision, oil was to be not only an energy resource but also a political glue. He is remembered with fondness on the continent. In Algiers, a garden was dedicated to him in 2021, memorializing those democratic principles for which he had fought so hard during fascism as a Christian partisan and which he later applied to business. This recipe would prove to be successful over time and allowed the Italian oil giant to keep working, for example, even during the darkest moments of Libya’s long civil wars.
The impetus of Russia’s war
Russia’s war against Ukraine has accelerated Italy’s shift to African suppliers. The risk of being without Russian natural gas has awakened Italian politicians to the hard realities of the nation’s dependence on energy imports. Rome’s search for partners to reduce its energy deficit brings its leaders to Algeria and Libya, among other states.
Ms. Meloni’s first trip to Africa as prime minister, with Eni CEO Claudio Descalzi by her side, was to Algeria. There she met with President Abdelmadjid Tebboune. A few days later, she flew to Libya. Italian Foreign Minister Antonio Tajani also got involved in the push this year, with visits to Egypt, Tunisia and Libya. Ms. Meloni and Mr. Tajani went to Tripoli, the seat of the internationally recognized Government of National Unity (GNU) led by Prime Minister Abdul Hamid Dbeibeh. His administration’s legitimacy is, however, challenged by the Government of National Stability (GNS) in Sirte led by Fathi Bashagha.
The 40-year agreement with Libya will boost production, starting in 2026, up to 800 million cubic feet of gas per day.
Before Moscow’s war, Russia’s Gazprom supplied 47 percent of Italy’s gas pipeline flow. Today this figure has dropped to around 16 percent. The strategy is paying off. Today, Algeria’s Sonatrach supplies about 34 percent of Italy’s gas needs through the Transmed pipeline (also known as the Enrico Mattei pipeline) that crosses Tunisia and arrives in Sicily at Mazara del Vallo. The Algerian import figure had been as low as 11 percent in recent years.
It is a different matter for Libya, whose gas supplies to Italy go through the GreenStream pipeline from Mellitah to Gela, built 20 years ago and owned 50/50 by Eni and the Libyan National Oil Company (NOC). Those flows have dropped from 3.2 billion cubic meters (bcm) in 2021 to 2.6 bcm in 2022. On January 28, 2023, Prime Minister Meloni and Mr. Descalzi met with her Libyan counterpart, Mr. Dbeibah, and the new NOC CEO Farhat Bengdara.
The $8 billion agreement
These were fruitful meetings. During Ms. Meloni’s visit to Libya, Eni and NOC signed an $8 billion agreement for the offshore development of natural gas. The 40-year agreement with Libya will boost production, starting in 2026, up to 800 million cubic feet of gas per day, NOC chairman Farhat Bengdara said.
Under the arrangement, Eni recoups its investment by retaining 38 percent of the extracted volumes for 15 years, after which Eni’s share will drop to 30 percent for the remaining 25 years. About a third of the gas retained by Eni could then flow into the GreenStream subsea pipeline. The agreement will include the construction of a carbon dioxide capture and storage plant.
The project deepens Eni’s Libyan involvement. Italy already supplies 80 percent of the nation’s domestic natural gas needs (9.3 bcm of gas in 2022).
The rosy premise of Italy’s ambitions of becoming a hub for African energy has complications. First of all, an important figure was not present at the signing of this agreement: Libyan Minister of Oil and Gas Mohamed Oun, Libya’s representative to OPEC from April 2015 to June 2019. Mr. Oun declared the deal invalid because there was no prior approval from his ministry. This is the same minister, however, who took it upon himself to renew a memorandum of understanding in October 2022 with Turkey for hydrocarbon exploration in areas of the Eastern Mediterranean claimed by Greece and Egypt.
Each of the main players has backstage supporters who have been fighting since 2011. The ongoing civil strife has weakened power centers and kept the country deeply disjointed and vulnerable to outside forces. Russia’s presence on Libyan territory through its Wagner mercenaries could make onshore oil operations more difficult, given the opposition to the Eni-NOC arrangement.
Despite Prime Minister Meloni’s triumphalist tones, the challenges for Eni are clear and manifold.
Turkey is very likely to view this agreement positively. The Italian government, by signing the deal with the GNU, shows its support for Mr. Dbeibeh as prime minister. The controversy that arose over the renewal of the 2019 memorandum of understanding between Ankara and Tripoli was based on the fact that Mr. Dbeibeh’s term had expired on December 24, 2021. Moreover, the interim government in Tripoli was obliged by the Libyan Political Dialogue Forum not to sign any new agreements. The Italian move, therefore, while it may improve energy security, also has the potential to stir international conflict.
Facts & figures
Everything goes smoothly
The possibility of minor problems ahead seems unlikely for now, given Libya’s deep instability and a massive number of weapons. Militias have used critical infrastructure – oil, electricity and water – as bargaining chips, threatening to close or disrupt supplies. Such blackmail would not be surprising in the Eni-NOC deal.
Greater costs and difficulties ahead
The more likely scenario is trouble ahead. Despite Prime Minister Meloni’s triumphalist tones, the challenges for Eni are clear and manifold. The country is deeply divided, with rival governments in strong conflict – one of which has not recognized the agreement. Institutions are only a facade to hide the rapacity and mediocrity of the Libyan political class. With these factors firmly in mind, the agreement may become costly and painful, if it is implemented at all.