Algeria's Natural Gas Exports to Italy Face Potential Price Hikes Amidst Geopolitical Tensions
Image: Echorouk
Takeaway
The potential increase in LNG prices from Algeria to Italy presents both a risk and an opportunity for energy companies. European utilities should closely monitor contract negotiations between Sonatrach and Italian importers like Eni. A significant price hike could incentivize further investment in alternative energy sources and accelerate the transition to renewables in Italy.
Italy is increasingly looking to Algeria for additional natural gas supplies amidst ongoing geopolitical instability in the Middle East. However, an Italian official has warned that these additional volumes of Algerian Liquefied Natural Gas (LNG) could come at a higher price. Algeria has become a primary gas supplier to Italy, providing 34% of the country's gas imports. Snam, the company responsible for Italy's internal gas network, has confirmed Algeria's position as a key provider.
Algeria's role as a crucial energy partner for Italy has strengthened over the past several years, especially as Italy seeks to reduce its reliance on Russian gas. In 2022, Eni, the Italian national oil company, and Sonatrach, its Algerian counterpart, signed a landmark agreement to increase Algerian gas exports to Italy from 22 to 31 billion cubic meters per year. This agreement aimed to maximize the capacity of the Trans-Mediterranean gas pipeline and decrease Italy's dependence on Russian energy imports. In 2023, Algeria supplied 25.5 bcm of natural gas to Italy, accounting for 41% of Italy's total imports.
Italy's natural gas infrastructure is expanding, with Snam opening its 5 billion cubic meter Ravenna floating storage and regasification unit (FSRU) in the first quarter of 2025. Italy's LNG import capacity is expected to triple from 16.1 billion cubic meters in 2022 to 47.5 billion cubic meters in 2026. The TransMed pipeline, which has a technical capacity of up to 35 bcm per year, transported 22 bcm to Italy in 2022, up from 20 bcm in 2021.
The potential price increases for additional Algerian gas could impact Italian consumers and businesses. While Italy has been diversifying its gas sources, Algeria remains a critical supplier. In the first four months of 2025, Algerian exports to Italy rose by 6.5% year-on-year to 3.8 billion euros, with dry gas supplies via the Transmed pipeline accounting for 79% of Algeria's total exports to Italy, valued at over 3 billion euros. The energy sector's dominance in trade between the two countries has been encouraged by geopolitical conflicts.
Industry analysts will be closely monitoring upcoming negotiations between Italian and Algerian energy companies to determine the pricing of additional LNG volumes. Factors influencing these negotiations include global gas prices, geopolitical risks, and the evolving supply-demand balance in the Mediterranean region. It is expected that the TransMed gas pipeline will be repurposed for the transport of green hydrogen by 2030.