March 2023

Italy and its North African
gas interconnections:
A potential Mediterranean gas ‘hub’?

OIES ENERGY COMMENT

Mostefa Ouki, Senior Research Fellow, OIESIntroduction
Italy, one of Europe’s biggest natural gas markets, has started 2023 with a remarkably active energy
diplomacy. In January, Italy’s new prime minister - Giorgia Meloni - undertook official visits to Algeria
and Libya to strengthen Italy’s energy trade relationship with its southern Mediterranean gas suppliersin North Africa.1 Meloni’s predecessor, Mario Draghi, also made two official visits to Algeria, in April andJuly 2022. For each of these high-ranking official visits, the Italian prime ministers led a large delegationof government officials and senior business representatives, including the head of Italy’s energy
company, Eni. Given Italy’s large gas market, extensive gas infrastructure and its gas pipeline
interconnections with Algeria and Libya, could a new natural gas “hub” 2 supplying Europe emerge inthat part of the Mediterranean?

A relatively large gas trade infrastructure
The southern part of Italy’s natural gas pipeline network is connected to two cross-border gas pipelines
originating in North Africa. The Trans-Mediterranean or TransMed gas pipeline3 links Algeria’s nationalgas dispatching centre in Hassi R’mel to Mazara del Vallo in Sicily via Tunisia. The TransMed has anannual capacity of 33 billion cubic metres (bcm) and started commercial operation in 1983. The
Greenstream gas pipeline connects Libya’s gas fields in the western part of the country (the Wafa
onshore field and the Bahr Essalam offshore field) directly to Gela in Sicily. The Greenstream pipeline
has an annual capacity of 8 bcm and started up in 2004. Recently, Libya’s government put forward theidea of doubling its capacity, despite its current low capacity utilization.
In addition to the proposed expansion of the TransMed capacity, a previously abandoned project of adirect link between Algeria and Italy was revisited during Meloni’s visit to Algeria.4 The Gazoduc Algerie
Sardaigne Italie, or GALSI, with an annual design capacity of 8 bcm was planned during the 2000s. But
it was shelved due mainly to a lack of gas demand in Italy/Europe to justify the building of an additional
inter-regional gas pipeline. The recent collapse of Russian gas supplies to Europe and changing
international energy market dynamics have renewed interest in this proposed new gas interconnection,
which this time would be designed to transport blue or green hydrogen as well as methane.
However, the question remains as to whether there would there be adequate long-term gas supply anddemand commitments to fill this potential new gas trade line and the proposed capacity expansions ofexisting lines from Algeria and Libya? These plans, if implemented, would potentially increase North
Africa’s cross-border annual gas pipeline export capacity to Italy from over 40 bcm to 60 bcm, which
would be the equivalent of 80 percent of Italy’s gas consumption or over 10 percent of total gas use inEurope in 2021.

Incremental gas supply challenges and potential
In this new age of government intervention in Europe’s energy trade transactions, closer relations
between European governments and North African energy producers are important. But politicaldeclarations and memoranda of understanding alone cannot make the expansion of the existing natural

Kaval, Allan (2023). “Giorgia Meloni launches her Mediterranean policy in Algiers - Eager to increase its gas imports fromAfrica, Italy wants to become an 'energy hub' between Europe and the southern Mediterranean.” Le Monde, 25 January.
https://www.lemonde.fr/en/international/article/2023/01/24/giorgia-meloni-launches-her-mediterranean-policy-inalgiers_6012947_4.html
2
In this article, the term ‘hub’ does not refer to gas trading hubs that exist in mature and liquid gas markets, it simply describes aphysical natural gas export/import infrastructure.
3
Also known as the Enrico Mattei gas pipeline in honour of Eni’s founder, Enrico Mattei, who was a supporter of Algeria’s
independence movement in the 1950s.
4
Sonatrach (2023). “Sonatrach-Eni: Signature de deux accords stratégiques portant sur l’augmentation desapprovisionnements en gaz et la réduction des émissions”, press communiqué, 23 January. https://sonatrach.com/wpcontent/uploads/2023/01/CP-du-23-01-2023-Ar_Fr_An-3.pdf
1

The contents of this paper are the author’s sole responsibility. They do not necessarily represent the viewsof the Oxford Institute for Energy Studies or any of its Members.

1gas pipeline trade between Algeria/Libya and Europe happen. This will critically depend on how gas
supply and demand will evolve on each side of the Mediterranean and the associated risks.
Algeria and Libya have Africa’s second and fourth largest proven gas reserves, respectively. In thelong-term, these two North African sources of gas supply to Europe could potentially expand their gas
output, though there is no doubt that neither Algerian nor Libyan gas exports could replace the present
loss of Russian gas supplies to Europe. But that is not the issue now. It is rather the question ofavailability of additional gas supplies over the next two or three years and up to 2030, when Europe’s
future gas demand is projected to start going through a pronounced decline phase. The scenarios
formulated by the International Energy Agency in its latest World Energy Outlook show a drop in the
EU’s gas demand varying from about 23 to 70 percent between 2030 and 2050. 5
Presently, Algeria’s domestic gas consumption represents about 50 percent of the country’s marketedgas production and is one of the key factors constraining Algeria’s gas exports. As shown in Figure 1,
marketed gas production has been stagnant or declining over a long period. Production from new fields,
as explained below, is expected to increase Algeria’s short to medium term gas output to meet domesticgas needs and provide incremental gas exports. But this additional gas production will not be enoughto sustain long-term gas export levels much higher than the average 50 bcm per year achieved during
the last ten to fifteen years. Thus, upstream investments, especially international investment flows, todevelop new and larger indigenous sources of gas supply are critical.
Figure 1: Algeria’s gas supply, consumption, and exports: 2009 - 2022 (billion cubic metres)

100

80

60

40

20

2009

2010

2011

2012

2013

2014

Marketed Production

2015

2016

2017

Dom. Consumption

2018

2019

2020

2021

2022

Exports

Sources: GECF and JODI

As part of its $40 billion five-year plan (2023 - 2027), Sonatrach has indicated that over $30 billion willbe allocated to exploration and production activities to increase short- and medium-term productionlevels and develop new projects, especially gas projects. 6 It pointed out that in recent years several
new gas fields have come on-stream and output has been boosted in some key existing fields such as
Hassi R’mel. Furthermore, over the next two years, new fields in the southwest and southeast are

International Energy Agency (2022). “World Energy Outlook”, October. https://www.iea.org/reports/world-energy-outlook-2022
Calik, Aydin (2023). “Algeria’s Sonatrach Targets ‘Rapid New Output’: Exclusive MEES Interview with CEO Toufik Hakkar”,
MEES, 06 January. www.mees.com
5
6

The contents of this paper are the author’s sole responsibility. They do not necessarily represent the viewsof the Oxford Institute for Energy Studies or any of its Members.

2expected to be commissioned to meet additional domestic demand and potential gas exports to Europe,“depending on operational and commercial conditions”.7
The fundamental question, however, is how much more gas will be available for exports and when?
Recently, Sonatrach stated that a fast-track production program starting this year for three projects(Hassi R’mel LD2, Ahnet and Ahnet Periphery) will make available an incremental volume of gas of 10
bcm per year from these projects alone. 8 This could at least fulfil Italy’s additional gas import needs
agreed last year.9
The situation of Libya’s natural gas balance is more complex due to the country’s on-going internal
political conflict. Looking at the supply side, contradictory data are publicly available on Libya’s gas
output. Natural gas production data published every year by the Gas Exporting Countries Forum(GECF) in its Annual Statistical Bulletin, 10 show much higher marketed gas production levels for Libya
than those presented by BP in its annual Statistical Review of World Energy. 11 The elucidation of thisdata discrepancy is beyond the scope of this short contribution. Nonetheless, there are clear indications
that Libya is currently facing significant gas supply constraints. Its power plants are suffering from ashortage of gas supplies 12 and Libya’s gas exports to Italy are well below Greenstream’s pipeline
capacity (see Figure 2).
Figure 2: Algeria & Libya’s pipeline gas exports to Italy: Jan 2021 – Jan 2023 (million cubic
metres)
3,000

2,500

2,000

1,500

1,000

500

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-

TransMedGreenst ream

TransMed avg cap.

Greenstream avg cap.

Sources: ENTSOG.

Because of Libya’s internal political instability, gas supply flows, especially associated gas output, havefrequently been interrupted. Libya’s hydrocarbon infrastructure has not been properly maintained or
refurbished, and some segments of this infrastructure are being sabotaged or blockaded. This instability
has led to a long-lasting and severe lack of international oil and gas investments, although a very recent
announcement offers some hope of new investments.
On January 28th 2023, during prime minister Meloni’s visit to Libya, Italy’s Eni and Libya’s National Oil
Corporation signed an $8 billion agreement to develop Libya’s offshore hydrocarbon Structure A and E
7

Ibid.
Ibid.
9
Ouki, Mostefa (2022). “Algeria and the new geopolitics of gas supply” in Quarterly Gas Review, OIES, May.
https://a9w7k6q9.stackpathcdn.com/wpcms/wp-content/uploads/2022/05/Gas-Quarterly-Review-Issue-17.pdf
10
GECF (2022). “Annual Statistical Bulletin”, 26 October. https://www.gecf.org/insights/annual-statistics-bulletin?d=2022&p=1
11
bp (2022). “Statistical Review of World Energy”, June. https://www.bp.com/content/dam/bp/businesssites/en/global/corporate/pdfs/energy-economics/statistical-review/bp-stats-review-2022-full-report.pdf
12
Zaptia, Sami (2022). “Libya cuts gas exports to Italy’s ENI by 25 percent – gas is needed for local consumption”, Libya
Herald, 05 July. https://www.libyaherald.com/2022/07/libya-cuts-gas-exports-to-italys-eni-by-25-percent-gas-is-needed-forlocal-consumption/
8

The contents of this paper are the author’s sole responsibility. They do not necessarily represent the viewsof the Oxford Institute for Energy Studies or any of its Members.

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(western region) “aimed at increasing gas production to supply the Libyan domestic market as well as
to ensure exports to Europe.” 13 This long-delayed gas development project is planned to start
production in 2026 with an expected annual production plateau of about 8 bcm. Most of this additional
gas output is expected to be exported to Italy. 14 Additional annual volumes of about 1 to 4 bcm of gas
could also be made available through planned associated gas flaring reduction projects at someoffshore and onshore oil fields. But the speed of implementation of all these projects will depend on
how soon a durable political stability could return to the country after more than a decade of politicalturmoil.
Over the next three to five years, both Algeria and Libya could potentially make available 10 to 15 bcm
of incremental annual volumes for exports through the TransMed and Greenstream cross-border gas
pipelines to Italy. The above-mentioned potential volumes include 9 bcm that would be supplied byAlgeria, under the Sonatrach-Eni 2022 agreement,15 and 6 bcm from Libya’s new Structure A & E gas
development project (see note 13) and possibly a gas flaring reduction project. However, any sustainedlarge gas supply expansion from Algeria and Libya to Italy and other parts of Europe will require newlong-term international gas development investments. This will mainly depend on the future gas
demand situation in Europe.

Europe’s gas demand and import uncertainties
According to the EU’s REPowerEU plan, the EU is planning not only “to phase out, as soon as possible”
its dependence on Russian gas imports, but also to gradually reduce its use of natural gas and otherfossil fuels. A REPowerEU document states that “In the new reality, the EU’s gas consumption will
reduce at a faster pace, limiting the role of gas as a transitional fuel.”16 The European Commission
expects the EU’s demand for gas to be reduced by 30 percent by 2030 with “a massive speed-up andscale-up in renewable energy” planned to accelerate the EU’s move away from fossil fuels.17
There is no doubt that the EU is committed to reduce its long-term consumption of natural gas.
Nevertheless, there are uncertainties about the magnitude of the drop in gas demand and how it will
evolve over time. Long-run gas demand scenarios for Europe presented by various international
institutions and companies suggest a declining trend starting around 2030, as indicated earlier. But
even over the medium term, there are different views or scenarios about the level of European gas
demand. For example, the International Energy Agency’s scenarios present a decrease in the EU’s gas
demand varying from about 15 to 40 percent between 2020 and 2030. 18 BP’s 2023 energy outlook,released at the end of January, has three scenarios where the fall in the EU’s natural gas demand by2030 varies between about 20 and 50 percent compared to 2019. 19
This wide variation in gas demand prospects, which reflects different EU energy transition scenarios, isa major restraining factor for the development of new gas resources and gas export projects. In addition
to local barriers and risks, this level of uncertainty in European gas demand is limiting long-term
international investments and project financing in Algeria and Libya’s hydrocarbon sectors.
Furthermore, even as gas continues to be consumed in Europe, the ability to import unabated gas
volumes could become challenging. European regulations are likely to tighten the conditions for fossil
Eni (2023). “Eni launches a major gas development project in Libya”, press release, 28 January.
https://www.eni.com/en-IT/media/press-release/2023/01/eni-launches-a-major-gas-development-project-in-libya.html
14
de Souza, Olivier (2023). “Eni signe un accord de développement gazier (EPSA) de 8 milliards de dollars avec la Libye”,
Ecofin, 30 January. https://www.agenceecofin.com/gaz/3001-104949-eni-signe-un-accord-de-developpement-gazier-epsa-de8-milliards-de-dollars-avec-la-libye
15
Eni (2022). “Eni and Sonatrach agree to increase gas supplies from Algeria through TransMed”, press release, 11 April.
https://www.eni.com/en-IT/media/press-release/2022/04/eni-and-sonatrach-agree-to-increase-gas-supplies-from-algeriathrough-transmed.html
16European Commission (2022). “REPowerEU: A plan to rapidly reduce dependence on Russian fossil fuels and fast forward
the green transition”, 18 May. https://ec.europa.eu/commission/presscorner/detail/en/IP_22_3131
17
Idem.
18
International Energy Agency (2022).
19
bp (2023). “bp Energy Outlook 2023”, 30 January. https://www.bp.com/content/dam/bp/businesssites/en/global/corporate/pdfs/energy-economics/energy-outlook/bp-energy-outlook-2023.pdf
13

The contents of this paper are the author’s sole responsibility. They do not necessarily represent the viewsof the Oxford Institute for Energy Studies or any of its Members.

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fuel imports, with new restrictive measures such as the EU’s Carbon Border Adjustment Mechanism(CBAM) having the potential to expand their reach beyond the current remit of products such as steel,cement and fertilisers. Italy’s existing North African pipeline gas suppliers, Algeria and Libya, areunlikely to be able to address quickly the issue of unabated gas and develop carbon capture and storage
capacities. This could be a key barrier for an expansion of North Africa’s gas exports to Europe, but notan unsurmountable one.

Security of supply concerns and “friend-sourcing” of gas
Another level of uncertainty should be highlighted regarding the prospects for a material expansion ofgas trade through cross-border gas pipelines supplying North African gas to Italy and potentially to otherparts of Europe. The fallout of the Ukraine war has acutely focused the attention of Europe’s
policymakers on the issue of security of energy supply risks. Beside the long term planned transition
away from fossil fuels, Europe is actively pursuing a gas import diversification policy involving the fasttrack development of several floating, storage and regasification units (FSRUs) to import liquefied
natural gas (LNG) supplies.
At some stage, could Europe start reducing its gas imports from sources categorised as risky areasand concentrate on low-risk gas suppliers from countries considered as “friends or allies” by adopting
a sort of “friend-sourcing” of gas approach, like the new concept of “friend-shoring”20 of supply chains?
Could this accelerate the level of LNG imports into Europe and reduce or freeze the level of crossborder gas pipeline imports from North Africa, even though friend-sourcing of gas supplies does notmean that these supplies would be the cheapest and always available? This would depend on the value
and impact of the geopolitical risk premium attached to sources of gas supply and also on the demandfor LNG from other regions, such as Asia.
European gas importers may consider North African countries as higher risk than OECD-based gas
suppliers. However, it is worth noting that these countries are nearby sources of gas supply
diversification for Europe with existing gas pipeline interconnections to southern Europe that have beenin operation for decades. Furthermore, North Africa’s gas pipeline exporters rely heavily on Italy’s
market and potentially other European markets that may be accessible through TransMed andGreenstream. There are no non-European alternatives for Algerian and Libyan gas transported bythese cross-border gas pipelines. In fact, it is Europe’s future gas demand situation that is currently arisk concern for North Africa’s gas suppliers.

Concluding thoughts
Recent high-profile visits by Italian prime ministers to Algeria and Libya have drawn renewed attention
to the importance of the Italy - North Africa energy relationship. Are these recent diplomatic activities
laying the ground for a new Mattei Plan21, with a green energy dimension, to transform Italy into anenergy bridge between the southern part of the Mediterranean and Europe? It is difficult to comment inthis note on the prospects of such an ambitious inter-regional initiative. But Eni’s decision to launch amajor gas development project in Libya 22 and its continued involvement in project developments in
Algeria’s energy sector send positive signals for strengthened energy cooperation between Italy and its
southern Mediterranean neighbours.
A relatively large cross-border gas pipeline infrastructure connects Italy’s extensive gas network to
Algeria and Libya’s gas supply centres and an expansion of this gas transport capacity is being
considered. Both Algeria and Libya have the natural gas reserves/resources to increase the gas supply

Sarah Kessler (2022). “What is friendshoring”, The New York Times, 18 November.
https://www.nytimes.com/2022/11/18/business/friendshoring-jargon-business.html
21
Borrelli, Sciorilli (2023). “Italy renews its ‘Mattei plan’ to develop energy ties to Africa”, Financial Times, 11 January.
https://www.ft.com/content/05d17d35-b0c3-47d2-b6b7-6f7d65d758fc
22
See note 13.
20

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5potential for their domestic markets and exports. In the short to medium term, moderate gas supply
increments will be made available for Italy’s gas market.23
In the long-term, depending on Europe’s future gas demand prospects and clean energy regulations;security of supply considerations; international upstream investments and financing in Algeria and
Libya; and, the resolution of Libya’s political conflict, more gas could be exported to Italy and other
European countries through cross-border gas pipelines. It is also important to note that given the current
disruptive nature of events affecting our world and the emergence of black swans24, like the Ukraine
war, other factors may come into play and affect energy trade in this region positively or negatively.
Nevertheless, a lot of effort is being deployed by Italy and its southern Mediterranean neighbours todevelop a new Mediterranean gas pipeline hub supplying larger volumes of North African gas not only
to Italy, but also to other European energy markets. These would be part of a diversified energy portfolio
for Europe. The potential for such a Mid-Med gas hub to emerge does exist, though with some key
challenges and uncertainties.

In November 2022, Slovenia’s Geoplin signed a 3-year contract with Sonatrach to import a small volume of Algerian gas thatwill be transported through the TransMed. Slovenia previously imported Algerian gas via the TransMed from 1992 to 2012.
https://www.geoplin.si/en/news-and-reports/geoplin-signed-a-contract-for-natural-gas-from-algeria
24
Unexpected events with enormous impact. See Taleb, Nassim Nicholas (2007). “The Black Swan: The Impact of the Highly
Improbable.” https://www.penguinrandomhouse.com/books/176226/the-black-swan-second-edition-by-nassim-nicholas-taleb/
23

The contents of this paper are the author’s sole responsibility. They do not necessarily represent the viewsof the Oxford Institute for Energy Studies or any of its Members.

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