Europe can cut Russian energy dependence faster than expected with new supply deals

Italy signs agreement with Algeria for 9 billion cubic metres of natural gas

The gas receiving station of the halted Nord Stream 2 project in Lubmin, Germany. Europe plans to wean itself off Russian fossil fuels with alternate supplies. Photographer: Krisztian Bocsi / Bloomberg
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Europe can diversify its energy sources away from Russia faster than expected with new supply deals and other measures, Italian Prime Minister Mario Draghi said on Sunday.

Italy signed an agreement with Algeria for 9 billion cubic metres of natural gas to reduce its reliance on Moscow for energy imports and other countries will follow, Mr Draghi told the Italian newspaper Corriere della Sera in an interview.

“Diversification is possible and feasible in a relatively short time — shorter than we imagined just a month ago,” Mr Draghi, who previously served as the president of the European Central Bank, said.

“I have just been to Algeria, where Eni has signed an agreement for the supply of 9 billion cubic metres of natural gas more, about a third of what we import from Russia.”

Europe is heavily dependent on Russian gas to meet its energy requirements. In 2021, the EU imported 155 billion cubic metres of natural gas from Russia, which accounted for about 45 per cent of EU gas imports and close to 40 per cent of its total gas consumption, according to the International Energy Agency.

Italy is “well positioned” to tackle winter and any slowdown in industrial production as it focuses on cutting Russian supplies, Mr Draghi said.

“We have gas in storage and will have new gas from other suppliers. Even if containment measures were to be taken, these would be mild. We are talking about a reduction of one to two degrees in heating temperatures and similar variations for air conditioners.”

Last month, the International Energy Agency proposed a number of new measures to help the EU reduce its reliance on Russian natural gas amid the country's conflict with Ukraine.

Italy's Prime Minister Mario Draghi said the country had signed an agreement with Algeria for the supply of 9 billion cubic metres of natural gas to reduce its reliance on Russia. Reuters

The new proposals include halting new gas supply contracts with Russia, replacing Russian supplies with gas from alternative sources and accelerating the deployment of renewable energy as well as increasing power generation from bio-energy and nuclear plants, among others.

Speeding up the replacement of gas boilers with heat pumps and accelerating energy efficiency improvements in building and industry are also included in the proposal.

“The government has already approved rules to unlock investment in renewable energy. We will do others shortly,” Mr Draghi said. “The goal is to ensure maximum speed in investments in renewables. Up to now, the obstacle has been essentially of a bureaucratic and authorisation nature. We can no longer afford these.”

Europe continues to finance Russia by purchasing oil and gas, among other commodities at a price that has no relation to historical values ​​and production costs.

“Imposing a ceiling on the price of Russian gas, as proposed by Italy, is a way to strengthen sanctions and at the same time minimise the costs … we no longer want to depend on Russian gas,” Mr Draghi said.

The US, the world's biggest consumer of oil, and the UK have already banned Russian energy imports to reduce its revenue.

About 3 million barrels a day of Russian production is expected to be offline from May as countries shun Russian crude and sanctions bite, the IEA said last week.

Updated: April 17, 2022, 4:40 PM
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