Exclusive: Italy in talks with Bavaria on gas and hydrogen exports, eyes eastern Europe

MILAN/ROME, Sept 27 (Reuters) - Italy is in preliminary talks with Bavaria's government to supply gas and hydrogen to the southern German state, and also aims to sell energy to Austria and Hungary, four Italian and German industry and political sources told Reuters.

The conservative government of Giorgia Meloni has laid out plans to turn Italy into an energy gateway between Europe and Africa, capitalising on demand from neighbours seeking to reduce their dependence on Russian gas.

Eni (ENI.MI), Italy's largest importer of natural gas, has countered lower Russian supply by shipping increasing volumes from Africa, where it has had a presence for decades. It and other Italian shippers now plan to step up sales of excess gas.

"Austria, Bavaria and Hungary too," Italian Energy Minister Gilberto Pichetto Fratin told Reuters when asked about customers Italy could serve via the Adriatic Line, a gas pipeline that grid operator Snam (SRG.MI) aims to build by 2027.

The project is expected to boost gas transport capacity from southern Italy to about 10 billion cubic metres (bcm) annually in four years, potentially raising Snam's revenue.

The Adriatic Line will meanwhile allow Eni (ENI.MI) and other shippers to transport more gas extracted in Africa beyond the Alps, expanding markets for the fuel.

State-controlled Snam will invest 2.5 billion euros ($2.65 billion) in the Adriatic Line, which will also help set up the planned SoutH2 network to bring hydrogen from Africa to northern Europe from 2030.

Rome has applied for some 400 million euros of European Union funding for the project via the post-COVID RepowerEU initiative to ensure energy security and speed up the bloc's green transition.

Asked by Reuters about the possibility of receiving gas supplies from southern Europe, including Italy and Croatia, a spokesperson for Bavaria's regional government said: "We are taking every opportunity to bring sufficient gas and hydrogen to Bavaria from all directions, including the south."

The spokesperson said the region was aware of plans drawn up by gas grid operators - which also include Snam - to convert existing pipelines so that hydrogen too can flow from North Africa via Italy and Austria to Bavaria.

"The Bavarian government is aware of the ongoing talks on this at federal level. Bavaria is contributing to the further planning process - also in coordination with the grid operators - and remains in close exchange with politicians and companies in the countries involved," the spokesperson told Reuters.

Markus Kerber, chief strategist of the German centre-right CDU party and former state secretary for the interior ministry, said industry-intensive Bavaria was keen to strike deals to boost its energy security.

"Germany is organising liquefied natural gas (LNG) terminals and other solutions in the north, but it is not possible to rule out delays or blocks to the infrastructure... This is the reason why southern federal states in Germany want a 'plan B' to be safe," said Kerber, a former CEO of German business lobby BDI.

An industry source told Reuters Snam had held talks with Bavaria about making the network suitable for hydrogen transport. The Bavarian government said it was actively lobbying Germany's federal government to support such projects.

MATTEI PLAN

Once heavily reliant on Russian gas, Italy now imports the fuel mostly from North Africa, through several shippers including Eni, and sells on any excess. Last year, the country consumed 67 bcm of gas and exported 4.2 bcm to northern Europe, mainly Austria.

The Italian government sees efforts to strengthen energy infrastructure, which would also include additional LNG terminals and new power lines, as part of its "Mattei plan" for Africa.

Few details are known about this project, named after Eni's founder Enrico Mattei, but Meloni has said it will help frame future policies to boost development in Africa as Italy also seeks to curb mass immigration.

Longstanding relationships with countries in north Africa and the sub-Sahara region, where state-controlled Eni is the biggest international gas producer, makes Italy confident it can increase flows further and export more.

An industry source said the potential for bringing gas from North Africa - Algeria, Libya, Egypt and the eastern Mediterranean - was big, but that Italy needed to get rid of bottlenecks in the network to boost its exports.

This year Austria has already received gas from the Mediterranean through Italy, one person with knowledge of the matter told Reuters.

Austria's oil and gas group OMV (OMVV.VI) said it had secured additional gas transport capacity for the next few years, but that it was not holding talks to get African gas.

The government of Hungary, which still relies heavily on Moscow for its energy, did not respond to questions about whether it had initiated talks with Italy on gas supplies.

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