Natural Gas Imports: Italy's Dependence On Algeria, Russia, And Beyond

Essay By Marco Brun | CEO & Chief Commercial Officer | AleAnna

Italy’s reliance on imported natural gas is a defining feature of its energy landscape, shaping its economic policies and geopolitical strategies. In 2023, approximately 73% of Italy’s natural gas consumption—amounting to 61.9 billion cubic meters (bcm)—was met through imports, with Algeria and Russia historically playing dominant roles. While efforts to diversify supply sources have reduced dependency on Russia, Algeria has emerged as the country’s leading supplier, underscoring the complexities of Italy’s energy security and economic planning.

Algeria:   Italy’s Top Supplier

Algeria has become Italy’s largest supplier of natural gas, accounting for 25.5 bcm in 2023, which represents 41% of Italy’s total imports. This partnership is facilitated through the Trans-Mediterranean (TransMed) pipeline, a critical link connecting Algeria to Sicily via Tunisia. The pipeline’s capacity of 33 bcm annually provides ample room for future increases in imports, strengthening the energy ties between the two countries.

Economic agreements between Algeria and Italy have deepened in recent years, with Italian companies like Eni playing a significant role in Algerian gas production. In 2022, bilateral trade between the two nations reached €7.5 billion, driven largely by energy exports. Algeria’s stability as a supplier has proven critical as Italy seeks to offset reduced imports from Russia.

Russia:   A Declining Role

Russia was once Italy’s largest natural gas supplier, providing up to 40% of its imports in 2021. However, geopolitical tensions stemming from the Russia-Ukraine conflict have dramatically shifted this dynamic. By 2023, Italy reduced its reliance on Russian gas to just 2.9 bcm, or 5% of its imports, marking a historic low.

This reduction reflects Italy’s commitment to energy security and alignment with the European Union’s REPowerEU initiative, which aims to phase out dependency on Russian fossil fuels. Investments in alternative sources, including liquefied natural gas (LNG) and renewable energy, have played a significant role in facilitating this transition.

Diversification Through LNG and Other Partners

To mitigate supply risks, Italy has significantly increased its LNG imports, which accounted for 15 bcm in 2023—approximately 24% of total imports. Key LNG suppliers include Qatar, the United States, and Egypt, providing Italy with greater flexibility in sourcing natural gas. The development of new LNG terminals in Piombino and Ravenna, expected to add an additional 10 bcm of annual capacity by 2025, underscores Italy’s strategic focus on diversification.

Other pipeline partners, such as Azerbaijan, contribute to Italy’s diversified portfolio. Through the Trans Adriatic Pipeline (TAP), Azerbaijan supplied 10 bcm of natural gas in 2023, cementing its role as a key energy partner. TAP has positioned Italy as a gateway for Caspian gas to Europe, enhancing its geopolitical leverage.

Economic Implications of Natural Gas Imports

Italy’s dependence on imported natural gas has significant economic implications. Rising global gas prices in 2022 resulted in increased energy costs for Italian households and industries, with natural gas prices peaking at €200 per megawatt-hour. To shield consumers, the Italian government implemented subsidies and capped energy prices, costing €40 billion in 2022.

However, the shift towards more diverse sources has stabilized prices. By late 2023, average natural gas prices fell to €120 per megawatt-hour, reflecting the benefits of LNG imports and reduced reliance on volatile suppliers like Russia.

Vital Importance of Italy's Reserves and Production

While Italy remains heavily reliant on imported natural gas, the strategic importance of its domestic reserves and production cannot be overstated. Italy produces approximately 3.5 billion cubic meters (bcm) of natural gas annually, accounting for around 5% of its total consumption. Key production areas include the Po Valley, the Adriatic Sea, and Basilicata, which together hold an estimated 90 bcm of recoverable reserves.

Domestic production serves as a critical buffer against global energy market volatility. For instance, during the 2022 European energy crisis, Italy’s local output played a pivotal role in maintaining supply for essential industries and mitigating the impact of reduced imports. Moreover, utilizing domestic reserves reduces the country’s exposure to geopolitical risks and enhances its energy sovereignty.

Investments in advanced extraction technologies and infrastructure are vital for maximizing the potential of Italy’s reserves. Enhanced recovery techniques, such as horizontal drilling and reservoir optimization, are being deployed in mature fields to increase production efficiency. The redevelopment of offshore fields in the Adriatic Sea is projected to boost production by 15% over the next decade, adding much-needed capacity to the national grid.

In addition to conventional natural gas, Italy is integrating renewable natural gas (RNG) production into its domestic energy strategy. RNG facilities that process agricultural and industrial waste are being co-located with traditional gas infrastructure, creating hybrid systems that lower emissions and increase energy output.

Domestic production also has environmental benefits. By minimizing the need for long-distance transportation of imported gas, Italy can reduce its carbon footprint while supporting local economies. Furthermore, regulatory reforms to streamline permitting processes for exploration and production projects are expected to attract investment and stimulate regional development.

Maximizing the potential of Italy's natural gas reserves is not just an economic necessity but a strategic imperative for energy security. By balancing imports with efficient use of domestic resources, Italy can navigate the complexities of global energy markets while advancing toward a sustainable and resilient energy future.

Challenges and Future Outlook

Despite progress in diversification, Italy faces challenges in reducing its overall dependency on natural gas. Seasonal demand fluctuations, particularly during winter months when consumption surges by 30%, highlight the need for robust storage solutions. Italy’s 20 bcm storage capacity, which can cover 30% of annual demand during emergencies, is a critical asset but requires expansion to keep pace with growing energy needs.

Additionally, geopolitical risks persist. While Algeria and Azerbaijan have been reliable suppliers, political instability or infrastructure disruptions could pose challenges. Investments in renewable energy and renewable natural gas (RNG) are crucial for reducing long-term dependency on imported fossil fuels. Italy’s goal of producing 10 bcm of RNG annually by 2030 is a step in this direction.

Conclusion

Italy’s natural gas import strategy underscores the complexities of balancing energy security, economic stability, and geopolitical considerations. While Algeria has become a cornerstone of Italy’s energy supply, reduced reliance on Russia and increased LNG imports demonstrate the country’s commitment to diversification. As Italy invests in renewable energy and modernizes its infrastructure, it is poised to reduce its dependency on imported natural gas, ensuring a more secure and sustainable energy future. Through strategic partnerships and innovation, Italy is navigating the challenges of its energy transition while maintaining economic resilience.