Eni's Algerian Gambit: Securing Energy Security and Transition in North Africa

The partnership between Italy's Eni and Algeria's state-owned Sonatrach, sealed in July 2025 with a $1.35 billion production sharing contract (PSC) for the Zemoul El Kbar gas field, marks a strategic pivot in energy geopolitics. This 30-year agreement—extendable to 40 years—positions Eni as a linchpin in North African hydrocarbons, while bolstering Europe's gas supply diversification and aligning with Algeria's regulatory reforms under Law 19-13. The deal underscores the growing imperative to balance fossil fuel security with energy transition goals, offering investors a rare blend of stability and growth potential.

Strategic Value of the Zemoul El Kbar PSC

The Zemoul El Kbar project covers 4,200 sq km in Algeria's prolific Berkine Basin, an underexplored region with estimated reserves of 415 million barrels of oil equivalent (BOE), including 9.3 billion cubic meters of natural gas. The 7-year exploration phase and 30-year production span provide Eni with a long-term foothold in a region critical to Europe's energy security. With existing infrastructure and proximity to TransMed pipeline routes, the project's gas could flow directly to European markets, reducing reliance on Russian supplies.

The PSC structure, governed by Algeria's Law 19-13, allows Eni to recover exploration costs and share in production profits—up to 49%—while Sonatrach retains ownership of hydrocarbons at the measurement point. This framework, reintroduced in 2019, has revitalized Algeria's hydrocarbon sector by attracting international capital. For Eni, the deal reinforces its position as a top operator in North Africa, complementing its 2024 acquisition of the Reggane II block and existing 137,000 BOE/day production in Algeria.

Europe's Gas Security: A North African Anchor

Europe's scramble to diversify gas supplies post-Ukraine war has made North Africa a linchpin. Algeria, with the third-largest gas reserves in Africa, is uniquely positioned to supply Europe via pipelines and LNG. The Zemoul project's gas could directly feed into the TransMed system, which already delivers 30 billion cubic meters annually to Italy and France. Eni's deep ties to Mediterranean markets—via its GNL infrastructure and regional partnerships—make it a natural conduit for this supply.

Law 19-13's reforms, which streamlined fiscal terms and foreign investment frameworks, have been instrumental in unlocking such deals. The law's emphasis on local content (e.g., subcontracting Algerian suppliers) and worker training (via a three-year ECU framework) ensures long-term economic benefits for Algeria, while Eni gains operational stability and political goodwill.

Synergies with Renewables and Hydrogen

While the Zemoul PSC focuses on conventional gas, its strategic value extends to Algeria's energy transition. The project's proximity to solar-rich regions aligns with plans for the SoutH2 Corridor, a proposed 3,300-km pipeline to export green hydrogen to Europe. Zemoul's gas could be used as feedstock for blue hydrogen production, while solar-powered electrolysis could generate green hydrogen—a dual-use strategy that balances fossil fuels with renewables.

The 2024 Algeria Bid Round, which awarded Eni the Reggane II block, further highlights its role in unconventional gas exploration—a resource critical for both traditional energy and hydrogen feedstock. Eni's expertise in digital optimization and reservoir management positions it to extract maximum value from Algeria's underdeveloped reserves.

Investment Implications: A Portfolio of Resilience

For investors, Eni's Algerian pivot offers three key advantages:
1. Stable Cash Flow: The 30-year PSC provides a predictable revenue stream, insulated from short-term price volatility.
2. Geopolitical Hedge: North African supply diversifies Eni's portfolio, reducing exposure to Middle Eastern or Russian energy politics.
3. Transition Alignment: The Zemoul project's potential to evolve into hydrogen infrastructure positions Eni as a leader in bridging fossil fuels and renewables.

Risks include Algeria's political stability and the pace of global energy transition. However, Eni's integrated strategy—combining conventional gas with renewable synergies—mitigates these risks.

Conclusion: A New Era for Eni and Energy Security

Eni's $1.35 billion bet on Algeria is more than a gas deal; it's a masterstroke in securing energy security for Europe, leveraging regulatory reforms, and positioning itself at the nexus of fossil fuels and renewables. With Algeria's gas reserves and Eni's operational prowess, this partnership could redefine North African energy dynamics. For investors seeking stability and growth in an era of transition, Eni's Algerian gambit is a compelling play.