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Italy Turns Its Back On Russian Gas

New natural gas discoveries in the Eastern Mediterranean might be a boon for the European Union’s efforts to move away from dependence on Russian energy supplies. In the current complex energy game between Europe and Russia, Italy could play an important role as an entry point for gas deliveries from Egypt, Israel and Cyprus, despite the current Italian government’s largely sympathetic stance toward the Kremlin (see EDM, April 10, 2018June 6, 2018).

On February 28, the United States energy giant ExxonMobil announced it discovered natural gas off the southwestern coast of Cyprus (Exxonmobil.com, February 28). The new find adds to other giant offshore gas fields discovered in the region such as Aphrodite and Calypso in Cypriot waters, Israel’s Leviathan and Tamar, and Egypt’s Zohr (Iai.it, February 23).

By the end of the year, the governments of Italy, Greece, Cyprus and Israel are expected to sign a multilateral agreement to build the EastMed pipeline, which promises to bring a natural gas bonanza to Europe (Edison.it, accessed on March 4). Russia is currently the largest single provider of gas to the EU, and supplies from the Eastern Mediterranean basin are seen as a viable alternative to state-owned Russian gas monopoly Gazprom. Currently, Russia accounts for around 40 percent of the European bloc’s natural gas imports (Ec.europa.eu, November 19, 2018).

natural gas

(Click to enlarge)

The planned EastMed gas corridor is projected to cost $7 billion and is backed by the European Commission. It is designed to initially transport 10 billion cubic meters (bcm) of gas per year from offshore reserves in Cyprus and Israel to Greece and, thanks to its connection with the planned Poseidon pipeline, onward to southern Italy.

Yet, critics say the project is too expensive and faces serious technical challenges (Cyprus Mail, February 13, 2019; Bruegel.org, May 10, 2017). Furthermore, EastMed is opposed by Turkey, which has territorial disputes with the internationally-recognized Cypriot government in Nicosia, including competing claims to waters around the island.

Related: Pakistan Aims To Become A Natural Gas Hotspot

For their part, the Egyptians emphasize that the EastMed initiative is still in the feasibility study stage—a process that will take a couple of years to be completed—and note that Egypt could re-export the region’s natural gas to Europe now by using underutilized Egyptian gas liquefaction plants, more quickly and at a lower cost (Cyprus Mail, February 11, 2019).

Indeed, Egypt is already moving in that direction. A new conduit will deliver natural gas from Cyprus’ Aphrodite field to Egyptian territory. Some experts argue the Cyprus–Egypt pipeline puts the EastMed corridor at risk because the latter needs all Cypriot gas to be commercially feasible (Haaretz, February 27).

Interestingly, Italian Deputy Prime Minister Matteo Salvini, the kingmaker in Italy’s fractured coalition government led by the anti-establishment Five Star Movement and the nationalist League party, is a supporter of the EastMed gas pipeline (Startmag, December 13, 2018). Salvini’s Russia-friendly League is also endorsing the completion of the Trans-Adriatic Pipeline (TAP), which the Five Star Movement has tried to block by raising environmental concerns (Tpi.it, February 27, 2019; see EDM, November 5, 2018). TAP is the westernmost section of the EU-supported Southern Gas Corridor (SGC), a planned system of conduits to carry natural gas from the Azerbaijani Shah Deniz gas field to Italy, via Georgia, Turkey, Greece and Albania. TAP is designed to pipe 10 bcm of Azerbaijani gas to Europe by 2020, with the target of doubling supplies in the following years.

The EU aims to diversify gas imports away from Russia with the help of EastMed and TAP, in addition to other energy transit projects. In this respect, Italy’s support for the two gas pipelines could be a source of friction between Salvini and the Kremlin, whose relations are reportedly close. A recent journalistic investigation claims that an aide to Salvini negotiated with the Kremlin to secure Russian funding for the League’s European Parliament election campaign (L’Espresso, February 21).

But other issues risk damaging the relationship between the Italian leader and Moscow. Salvini has so far done nothing to cancel or ease economic and financial sanctions that the EU leveled against Russia in response to its annexation of Ukraine’s Crimea in 2014 and armed intrusion into Donbas. Salvini promised to do so last spring, after his rise to power.

The Italian deputy prime minister is also trying to build a political axis in the European Parliament with right-winger Jaros?aw Kaczy?ski, the leader of Poland’s ruling Law and Justice party, who is a staunch critic of Putin’s Russia (Corriere della Sera, January 9). Moreover, in sync with the United States, Salvini has expressed support for the interim government of self-declared President Juan Guaidò in Venezuela, who is challenging embattled de facto President Nicolás Maduro, an ally of Russia in Latin America (Il Giornale, February 4).

Related: The EIA Cuts U.S. Oil Output Projections

Moscow has been publicly silent on Salvini’s recent moves and declarations, especially as far as natural gas exploitation in the Eastern Mediterranean is concerned. Russian leaders continue to say that their gas is cheaper for European consumers than other sources, and Europe may need new imports by 2030 because of falling production at home (RT, February 28, 2019; TASS, August 2, 2018). Nevertheless, Italy wants to diversify gas suppliers and become a gas hub in southern Europe, be it through the EastMed pipeline or Egypt’s shipments of liquefied natural gas (LNG).

Italian state-owned oil and gas producer ENI, the leading company in the exploitation of the Zohr supergiant gas field, has already advanced the idea of turning Egypt into a hub to pipe local, Israeli and Cypriot gas to Europe (see EDM, April 10, 2018). The Kremlin has had to walk a fine line with regard to ENI’s strategies in the region, given that Russia’s Rosneft has a 30 percent stake in the Shorouk concession, where the Zohr gas field is located.

As Italy seeks to raise its energy profile, it is also aligned with the US and some countries in Central Eastern Europe against Nord Stream Two, the pipeline project designed to double the preexisting natural gas conduit that runs under the Baltic Sea and links Russia to Germany (Europa Today, February 4, 2019; see EDM, November 5, 2018). The capacity of Nord Stream One stands at 55 bcm, and Russia’s state-run gas monopoly Gazprom wants to complete the parallel Nord Stream Two by the end of 2019.

Salvini has built his political brand on the promise to protect Italy’s national interest. If this collides with Putin’s geopolitical plans, the leader of the League will not hesitate to go against his Russian “friend.”

By The Jamestown Foundation

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  • Mamdouh Salameh on March 16 2019 said:
    The EastMed gas pipeline that is supposed to carry Cypriot and Israeli gas supplies under the Mediterranean to Italy and then the European Union (EU) via the Greek mainland will never see the light of day.

    Though Turkey and Egypt find themselves on opposing sides politically over the growing tension and conflict surrounding the gas discoveries in the Eastern Mediterranean, they both oppose the proposed EastMed gas pipeline.

    Turkey opposes it because it will compete with the Turk Stream gas pipeline which will bring Russian gas supplies once it becomes operational by the end of 2019 to Turkey and the EU under the Black Sea and also with the Southern Gas Corridor (SGC) bringing Caspian gas from Azerbaijan to Turkey and then to the EU via the Trans Adriatic Pipeline (TAP).

    Egypt, on the other hand, would not welcome the EastMed gas pipeline since it hopes to get any Cypriot gas exports shipped by a subsea gas pipeline to its two LNG terminals in Damietta and Idku for conversion to LNG and re-exporting along with Egypt’s own LNG to the Asia-Pacific region.

    However, it seems that the EastMed estimated to stretch over a distance of 1900 km and costing an estimated $7 bn is all but dead. Cyprus has yet to discover any sizeable gas fields like Egypt’s Zohr (30 tcf) and Israel’s Leviathan (18.9 tcf) other than the two relatively small gas fields: the 6-8 tcf Calypso, the 4.5 tcf Aphrodite and the recently ExxonMobil-discovered Glaucus-1 (5-8 tcf).

    If we are to judge the economic viability of the EastMed on the current situation, there is only Calypso and Israel to fill the pipeline. Israel has already signed a deal worth $15 bn of Israeli gas exports to be sent to Egypt for conversion to LNG and re-exporting. Cyprus on its own couldn’t muster enough gas to fill the EastMed annual throughput capacity of 20 billion cubic metres (bcm). Moreover, Turkey will never allow the Greek Cypriots to produce more gas let alone export it without securing a share for the Turkish Cypriots. The other obstacle is that the price of shipped gas via the EastMed couldn’t compete with Russian piped gas to the EU once production costs and shipping have been added. It would seem the EastMed may never see the light of day.

    Combining Cypriot and Israeli natural gas production with Egypt’s existing LNG infrastructure for exports to the Asia-Pacific region could prove to be a far better and more cost-effective option than the underwater EastMed gas pipeline to the EU.

    As for Nord Stream 2 gas pipeline which will carry Russian gas supplies to Germany and the EU under the Baltic Sea once it is completed in November this year, it is unstoppable for the following reasons.

    The first is that Germany and Russian gas giant Gazprom have always considered Nord Stream 2 first and foremost an economic project which will bring uninterrupted and cheap Russian gas supplies to Germany and the EU thus ensuring energy security to the whole of the EU.

    The second reason is that even if the United States decided to impose sanctions on European companies involved in the financing and the construction of Nord Stream 2, Gazprom and Germany can finance the project without any need to borrow money.

    The third reason is that the German Chancellor Angela Merkel would have never succumbed to US threats of sanctions against her country. She believes that EU energy policies should be determined in Europe and not in Washington.

    A fourth reason is that the EU demand for gas and LNG is growing by leaps and bounds at a time when European gas production is projected to halve by 2040.

    A fifth reason is that the majority of Europeans believe that US opposition to Nord Stream 2 has far less to do with Russia’s tightening its grip on the EU gas market and far more to do with self-interest, namely replacing Russian piped gas with US LNG exports.

    A sixth reason is that US LNG prices can never match the price of Russian piped gas now or for the foreseeable future.

    So Italy and its Deputy Prime Minister should save their breath regarding both the EastMed and Nord Stream 2 gas pipelines.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Bill Simpson on March 16 2019 said:
    The Europeans would be very foolish to get gas from Russia, if there is any other affordable choice. Not only would the new pipelines weaken a dangerously aggressive dictator who poisoned people with internationally banned nerve gas, but it would lower the price of the gas they import.
  • Douglas Houck on March 16 2019 said:
    The Jamestown Foundation never disappoints, and what country doesn't look out for it's own national interest?.

    There are a couple of errors and left out information in the article which might make it more accurate.

    1) Italy is the second largest importer of Russian natural gas in Europe although still way behind Germany (18.3 vs 42.7 billion cubic meters ; for 2018).

    2) On Feb. 4, 2019 the Italian government blocked a joint EU position to recognize Venezuela’s opposition leader Juan Guaido as interim president irrespective of Mr. Salvani's opinion. “The 5-Star Movement and this government will never recognize people who appoint themselves president.” see: https://www.reuters.com/article/us-venezuela-politics-italy/divided-italy-blocks-eu-statement-on-recognizing-venezuelas-guaido-idUSKCN1PT15G

    3) Without Egypt the EastMed pipeline is not going anywhere and as the article states, Egypt is a long ways off from committing to such a project.

    4) Italy is opposed to NordStream 2 as they are in competition with Germany for all that Russian gas. It's a national interest thing.

    5) It's all about price (national interests) wether for Germany, Italy or any other nation.

    As stated in the Dec. 2018 Forbes article: "On the one hand, the Italian government is trying to rely more on the Trans Adriatic Pipeline (TAP) which brings natural gas from Azerbaijan and has started to buy more oil coming from the United States, but on the other hand, it is just not possible to stop buying so much Russian gas. The main reason is quite simple: Russian gas is cheaper."
    see: https://www.forbes.com/sites/annalisagirardi/2018/12/12/growing-dependent-on-russia-the-gas-routes-in-europe/#5e252fbb62b0
  • Steven Conn on March 16 2019 said:
    Italian purchase of Russian gas has grown from year to year. Italy supports the extension of Turkish Stream through Greece and also has been buying Russian Nord Stream gas through Austria. The title of the article is beyond misleading, to put it nicely. Moreover, anybody who is familiar with the founders of Jamestown.org and its main funding would know the worth and purpose of such info toss ins. Jamestown.org could have written the same article about Turkey and Germany!

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