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Italy's Eni commits to long-term Algerian gas imports through 2027

London — Italy's Eni on Thursday reaffirmed its commitment to the long-term import of gas from Algeria -- one of Italy's major gas supply sources -- saying it had signed agreements with state-owned Sonatrach for the import of Algerian gas through 2027.

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The new agreement also included an option for the contract to be extended by a further two years -- to 2029 -- Eni said in a statement.

The deal comes at a critical juncture for Algeria, whose President Abdelaziz Bouteflika resigned in April after almost 20 years in power, amid regular civilian protests against the ruling administration.

"I am particularly pleased with the renewal of the gas supply contract and the level of the strategic partnership with Sonatrach, which spans from the exploration and production sector, to gas marketing and transportation, to renewables," Eni CEO Claudio Descalzi said.

The new agreement covers almost 15% of the gas imported into Italy, Eni said, and also defines arrangements for gas transportation via the 90 million cu m/d capacity Transmed pipeline from Algeria.

Total Italian gas imports were around 64 Bcm in 2018, according to data from S&P Global Platts Analytics, implying the newly agreed Eni import deal is for around 9.6 Bcm/year.

MARKET ALIGNMENT

The new deal comes despite Sonatrach CEO Rachid Hachichi having only been appointed as head at Sonatrach in mid-April after the new ruling regime sacked Abdelmoumen Ould Kaddour, who had been CEO since March 2017.

Italy last year imported a total of 16.8 Bcm of gas from Algeria, according to Platts Analytics data. That was slightly down on the 18 Bcm it imported in 2017.

Algeria -- which accounts for around a quarter of Italy's annual gas supply -- also has supply deals with Italy's Enel and Edison.

Eni has been especially active in recent years seeking market alignment in its long-term gas contracts with suppliers such as Sonatrach, which were traditionally oil-indexed, in a bid to eliminate losses from its gas and power business.

Its import contract with Sonatrach is still thought to be oil-indexed, though Eni has worked to introduce more hub indexation into other gas import contracts.

Algeria's oil-indexed gas contracts have been well out of the money compared with European hubs given the sharp fall in European gas prices since February when warmer weather took hold across the continent.

Oil indexation remains sub-economic versus the European gas hubs given the sustained oil price strength and the sharp fall in gas prices across Europe due to a well-supplied market and dampened demand.

--Stuart Elliott, stuart.elliott@spglobal.com

--Edited by Jonathan Loades-Carter, jonathan.carter@spglobal.com