Italy-Saudi ties strengthen with $10bn energy deals
Italian companies have signed a number of agreements for energy — including hydrogen — projects with Saudi Arabia, which are worth US$10 billion.
The Italian move highlights the strengthening ties between the two countries and signals the growing relevance of the Middle East for Italy, amid a tenser relationship between Europe and the U.S. as Donald Trump took office for a second presidential mandate last month.
The deals were part of a strategic partnership that involved energy as well as other sectors such as defence and infrastructure, Italian Prime Minister Giorgia Meloni said after meeting Saudi Crown Prince Mohammed bin Salman, Reuters reported.
Among the deals, Italy’s credit export agency SACE said it would provide loan guarantees worth $3 billion for Saudi Arabia’s NEOM real estate project.
SACE also inked a Memorandum of Understanding (MoU) with Saudi Electricity Company to provide credit guarantees for green projects as well as engineering, procurement and construction activities.
Italian gas grid operator Snam signed a deal with ACWA Power focused on developing a green hydrogen supply chain to Europe. The companies will also evaluate the development of an ammonia import terminal to facilitate the delivery of green hydrogen from Saudi Arabia to Italy, Austria and Germany.
Furthermore, Italian electrode maker Industrie De Nora signed a deal with ACWA Power to develop water desalinisation solutions. De Nora also signed a deal with Saudi Water Authority regarding water desalination.
Saudi Arabia is well-positioned to export its solar energy resources, which could support hydrogen production at cost-competitive levels and could become a key “low-cost hydrogen supplier to the European market,” the CEO of De Nora, Paolo Dellachà, told Gas Outlook.
The country is investing in export infrastructure, including ports and storage facilities, which is expected to further reduce transport costs, he said.
While producing hydrogen through electrolysis requires utilising vast amounts of water, desalinisation, recycling and water treating projects such as the one that the company is progressing in Saudi Arabia would address the issue by reducing reliance on freshwater for energy uses, he said.
“Renewable energy produced in [Middle Eastern countries] is cheaper” thanks to higher sun irradiation and stronger wind and opens up opportunities to import cheap electricity via cable into Europe and Italy, Antonio Michelon, head of the Italian office at consultancy AFRY, told Gas Outlook.
Renewable energy can also support hydrogen production for exports, as part of Saudi Arabia’s strategy to shift away from oil exports, he said.
Commenting on the wider partnership between Italy and Saudi Arabia, Dellachà said that compared to other markets this offered Italian companies “significant advantages” in being involved in projects of global scale and impact.
The cooperation “is a unique platform” that goes beyond trade, positioning Italian companies including De Nora as central in the global energy transition race, he argued.
The company is to supply green hydrogen technology to NEOM, an urban and industrial development in the Red Sea expected to house 9 million people, and running entirely on renewable energy. The project is central to Saudi Arabia’s Vision 2030 plan to move away from a fossil fuels-based economy.
Furthermore, De Nora is involved in the Al Jubail desalination project — set to become the world’s biggest — by processing up to 1 million cubic meters of water per day.
“Italy is geographically and culturally inclined to deepen the political and energy links with the wider” Middle East area, Francesco Sassi, a researcher at Italy-based consultancy Ricerche Industriali ed Energetiche, told Gas Outlook.
However “we had to wait until the 2022 crisis for this to result in any decisive action.”
Despite that, the strategy might not yield “more energy security and a faster energy transition” as hoped, he warned.
“Building these assets requires investments and a long-term political commitment.”
“Only time will tell if Rome’s plans are feasible.”
U.S.-EU ties
The strengthening of ties with the Middle East happens amid the start of Trump’s second presidency, in which he pleaded to redress trade imbalances with Europe by imposing tariffs on goods imported from the EU.
The worsening of the U.S.-EU relationship clashes with the increasingly central role of U.S. LNG exports in Europe’s energy security in recent years, as the U.S. has become Europe’s biggest supplier of LNG.
An even greater commitment of European buyers to U.S. LNG has been put on the table by European leaders to placate tariff threats by the U.S., although governments as such do not buy gas but can mandate companies to purchase gas from any seller.
Hydrogen exports from the Middle East are not in direct competition with LNG of U.S. or any other origin, Michelon noted.
But while so far these geopolitical tensions involving the U.S. have had a limited role in driving Italy’s ambitions to be a partner to Middle Eastern countries including Saudi Arabia, “a further weakening of the U.S.-EU axis could certainly drive the development of these dynamics” moving forward, Sassi said.