Italy Leads European Rush to Reduce Russia-Gas Dependency

Italy is moving ahead with its efforts to reduce its dependence on Moscow, nearly five months after Russia invaded Ukraine.

From 40% at the beginning of the year, the country has reduced its dependence on Russian gas imports by 25%. Germany, Europe’s largest economy, still imports around 35% of its Russian gas.

Governments across the European Union are scrambling to fill gas storage locations and exploring alternative energy sources, even if it means that they could be putting a strain on the environment. Russia already has halted shipments to Italy because of the climate emergency. Officials in Rome are preparing for more cuts.

Next week, Prime Minister Mario Draghi will travel to Algeria (now Italy’s largest gas supplier) for the second time in the year to discuss strengthening ties between the two nations.

Russia’s GazpromPJSC stopped shipments to certain EU countries earlier this year due to a dispute over payment. Germany’s government is concerned that flow will not resume fully when the Nord Stream pipeline, Russia’s largest gas link to Europe — returns from scheduled maintenance next Wednesday.

Cutting Ties

Italy has imported more natural gas from Algeria since April than it did from Russia.

Source: Bloomberg calculations based upon SNAM Rete Gas daily transportation data

Notice: The July figure is based on the first eleven days of the month

“Italy is more resilient than Germany which depends only on Russian imports,” stated Annalisa perteghella senior policy advisor for energy and climate at Ecco. Russia will likely continue to use a “stop and go” strategy to increase gas prices and bank on it.

Officials in Italy are working now to ensure that Italy is able to survive the winter without having to ration gas to households and businesses.A spokesperson for Rome’s government declined to comment.

European Crisis

This is Europe’s most severe energy crisis in decades. The continent had low gas inventories prior to the war in Ukraine. A heatwave is now sweeping parts of the region, straining electric lines and putting at risk energy security plans.

The EU wants gas storage sites to be at least 80% full by November 1. It is encouraging citizens to conserve energy to prevent the industry from having to use less power during winter. Italy’s gas storage sites are about 60% full at the moment.

Some countries, such as Germany or Italy, are considering bringing back coal plants to alleviate the shortage, despite long-term climate goals.

To diversify supplies away from Russia, the Italian government and state-controlled company Eni SpA have made deals with African and North African nations to increase gas imports.

Italy’s gas network company Snam SpA also purchased two Floating Storage Regasification units to increase liquefied natural gas capacity over the next two years, although one unit was opposed by the Piombino industrial district.

According to Snam data, Tuesday’s gas flows from Algeria exceeded those from Russia by more than twice.

Rationing Risk

Perteghella stated that Italy is well-positioned due to its diversification in supplies. “But, if storages are not filled on time then rationing will be necessary and voluntary behavior changes should be made as soon as possible.”

Gazprom has been reducing its shipments to Italy since mid-June. Eni stated earlier this week that Russia plans to cut supplies by a third. The Bank of Italy Governor Ignazio Vsco has warned of recession if Moscow halted flows completely.

According to sources familiar with the matter, the government in Rome has already provided around 33 billion euros ($33billion) to families and businesses to help them avoid higher energy bills. It is also working on an additional aid package of up to 8 billion euros.

Officials are still working on a contingency strategy, which could include energy rationing, but this is unlikely to happen, according to people.

Temperatures during winter are a key factor.

Simona Benedettini (an independent energy advisor based in Rome) stated that rationing would not be possible if Russia cuts supplies to Italy in the middle of winter.

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