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The energy crisis has led to a new order in Europe, with a strong Italy and a weak Germany.

Reuters: In the weeks after Russia invaded Ukraine on February 24, Claudio Descalzi, CEO of the Italian energy company ENI, went on a whirlwind of trips to gas suppliers in Africa.

According to company and government releases, Descalzi met with officials in Algeria in February and held talks in Angola, Egypt, and the Republic of Congo in March. He was often accompanied by high-level Rome officials.

State-run Eni and Italy were able to use their existing supply agreements with these countries to get enough extra gas to replace a big chunk of the gas it got from Russia, its main supplier.

Many European countries haven’t been able to make this quick change as Vladimir Putin’s war throws the continent into a different reality.

Take Germany. It used to be known as an economic powerhouse and a model of good planning, but now it has been caught completely off guard. It is close to going into a recession, its businesses are getting ready for gas and electricity rationing, and it just took over a major utility.

Italy has been through many economic crises, but it seems to be holding up well compared to other countries. It has bought more gas and is sure it won’t have to ration it. Its government says the country is the “best in Europe” when it comes to energy security.

“The respect DeScalzi has in a few African countries is definitely a competitive advantage,” said Alberto Cl, a former Italian industry minister and board member at Eni. He was talking about how hard it is to sign deals when there is a shortage of oil.

In fact, the two countries are in very different situations. There is a severe energy shortage on the continent, and different countries depend on Russian gas in different ways.

A winter supply crisis affects a large part of the region. Germany, Hungary, and Austria are among the countries most at risk. France, Sweden, and Britain, which haven’t always relied on Russia, as well as Italy, are less affected.

Martijn Murphy, an oil and gas expert at the research firm Wood Mackenzie, said that even though Russia has been Italy’s biggest gas supplier for a long time, the country is better able to handle a stop in Russian supplies than many others because it has a wider range of suppliers and has been connected to Africa for a long time.

“ENI has very strong ties with all the countries it works within north Africa and is present in all of them: Algeria, Tunisia, Libya, and Egypt. In most of these countries, it is the biggest upstream investor and international oil company producer.”

Because of the war, there is less power to go around. This has forced governments to face the risk of relying too much on a single supplier or region. It reminds me of the energy crisis in the 1970s, which made the West rethink how much it relied on oil from the Middle East. This change led to more exploration around the world and a search for other sources of oil, like Venezuela and Mexico.

The Government of Italy didn’t say anything. Germany’s Economy Ministry said it wanted to stop getting gas from Russia as soon as possible and find other sources. It pointed to the leasing of five floating terminals for liquefied natural gas as a step in the right direction. Germany doesn’t have any LNG terminals right now, but Italy has three and just bought two more.

TWO BUYERS’ STORIES

Last year, Italy bought 29 billion cubic metres (BCM) of gas from Russia, which was about 40% of its imports. From this winter on, more imports from other countries will slowly replace about 10.5 cm of that, according to ENI.

Most of the extra gas will come from Algeria. On September 21, Algeria said it would increase deliveries to Italy by nearly 20%, to a total of 25.2 cm for the year. This means it will become Italy’s top supplier and provide about 35% of its imports. Russia’s share has dropped to very low levels, Descalzi said this week.

From the spring of 2023 on, Egypt, Qatar, Congo, Nigeria, and Angola, among others, will send more and more LNG to Italy. This will allow Italy to replace another 4 BCM of Russian gas, Eni said.

Germany got 58% of the gas it used last year from Russia. Since June, the Nord Stream 1 pipeline has been sending less gas to Germany, and in August, it stopped sending gas at all.

Since it couldn’t get enough long-term replacement supplies from other countries and didn’t have a major oil and gas company that made oil and gas abroad, it had to buy replacement gas on the spot, or cash, market, where it had to pay about eight times what it did a year ago.

Energy security can be affected by things that people can’t change, like Italy’s closeness to North Africa or Britain and Norway’s wealth in the North Sea. It doesn’t have a lot of oil or gas.

Still, German officials and business leaders have made mistakes in the past few years, especially after Russia took over the Crimea Peninsula in Ukraine. This shows that the current crisis could have turned out differently.

Back in 2006, Italy was the first country to rush to buy Russian gas. Eni, the country’s biggest gas importer, signed the biggest-ever gas deal with Gazprom, an energy company controlled by Moscow (MCX:GAZP).

But in the last eight years, the two countries have gone in different directions. Germany has become more and more dependent on Russian gas, while Italy has tried to spread its risks.

Three sources familiar with the country’s energy strategy say that Italy started going in a different direction in 2014, when Putin’s longtime friend Silvio Berlusconi was replaced by a new government and Descalzi took over as head of Eni.

Descalzi was an expert in exploration and production. He was in charge of projects in places like Libya, Nigeria, and the Congo. One source said that he focused on what he knew best: exploring Africa.

In 2015, Egypt had a big win when Eni found Zohr, the largest gas field in the Mediterranean Sea. The source said that because Descalzi pushed Eni to speed up projects, Eni was able to start making oil at the Zohr in less than two and a half years, which is pretty fast for the oil business.

Eni has been in Algeria since 1981. In 2019, the company made a deal to keep importing gas until 2027.

AT CRIMEA, A CROSSROADS

When Russia took over Crimea in 2014 and the West punished them for it, it was a turning point.

In response to the sanctions, Rome also stopped backing Gazprom’s $40 billion South Stream project. This project was supposed to move gas from Russia to Hungary, Austria, and Italy without going through Ukraine. Eni gave up on South Stream later that year, before Moscow put it on hold.

Italy decided to build the smaller Trans Adriatic Pipeline from Azerbaijan through Greece and Albania instead.

Germany did not cut down on its ties with Russia, though.

“Over the past 40 years, Europe and Russia have built an energy partnership, and during that time, gas has never been used as a strategic weapon against the West,” Johannes Teyssen, who was CEO of E.ON at the time, said after the annexation.

Gazprom also made a deal with companies like Germany’s E.ON and Wintershall in 2015 to form a group that would build the Nord Stream 2 pipeline.

Germany has once more been caught off guard.

A day before Moscow invaded Ukraine, Klaus-Dieter Maubach, CEO of Uniper, Germany’s biggest importer of Russian gas, said that Gazprom was a reliable supplier.

Since then, he has changed his mind.

Seven months later, Uniper is getting ready to sue Gazprom for damages over supply cuts. The German government, which agreed in September to take over the company, has given the company a bailout of 28 billion euros ($29 billion) to help it get back on its feet.

Germany wants to stop getting all of its gas from Russia by the middle of 2024, but some utilities, like RWE, think it could take longer because there aren’t many other sources and it’s hard to get large amounts.

Everyone agrees that it will cost a lot of money.

In June, German Chancellor Olaf Scholz said, “We have depended too much and for too long on energy from Russia.” “It’s no longer true that Russia is a reliable economic partner, even in times of trouble.

($1 = 1.0218 euros)

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