Italy weighs in as Cypriot fund goes after Lukoil plant

An Israeli-backed Cypriot fund’s deal to buy a Lukoil-owned refinery in Italy is hanging in the balance ahead of a Cabinet meeting in Rome possibly this week, when veto powers would be weighed against energy hub aspirations that could replace Russian gas and put the final nail in the coffin of a proposed EastMed pipeline.

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According to Reuters, Italy's cabinet is expected to decide this week, possibly on Thursday, whether to use "golden power" laws to halt the sale of a Lukoil-owned refinery to Cypriot private equity firm G.O.I. Energy, an Israeli-interest subsidiary of Cypriot-based Argus fund.

The report, that cited sources who asked not to be named due to the matter's sensitivity, comes as both Italy and Israel have been discussing potential energy solutions following Russia’s invasion in Ukraine one year ago.

Last week Italian Prime Minister Giorgia Meloni hosted her Israeli counterpart Benjamin Netanyahu in Rome, where he spent three days also meeting political and business leaders.

Netanyahu has been waging the battle for Israel since his re-election, saying his country wants to export gas to Europe via Italy. After his meeting with Meloni, the Israeli premier spoke with reporters about Rome’s energy aspirations in light of Europe seeking fast solutions to replace Russian gas.

"Italy has said it wants to be a hub for the supply of energy for Europe. We think exactly that and we have gas reserves that we are now exporting and we would like to expedite more gas exports to Europe through Italy," Netanyahu said.

Back in January, Russian oil company Lukoil made a deal to sell its Isab di Priolo refinery to GOI Energy, which would be backed by global supply commodity trader Trafigura based out of Singapore.

The agreement, which calls for a deal to be closed no later than late March, is slated to be one of Europe’s most important energy transactions.

Italian concerns about labor and climate

But the deal has raised eyebrows both inside and outside Italy, touching on issues ranging from labor and environment to redrawing gas routes in the region.

Italian Industry Minister Adolfo Urso has warned that Rome would need to ensure jobs would be protected, while also calling for environmental standards to be maintained in the sale of the plant in Syracuse.

GOI Energy CEO Michael Bobrov had said in a statement after the announcement that it would act in close coordination with the Italian government for the next steps, with Knews understanding specific terms were being hashed out on labor and climate standards as per the initial deal.

“We have a deep understanding of the significance that ISAB has for the Italian economy, Sicily, and the local community. We firmly believe that ISAB has growth potential, and we have a solid business plan to enhance it,” the CEO said.

Media speculation over Russian connections

But there could be additional concerns for NATO’s ally in southern Europe following speculation in the media that the deal could still be prone to Russian influence.

Reuters has made references to that speculation from some networks that took note of Priolo refinery’s physical proximity to a NATO base in Sigonella.

G.O.I Energy issued a statement last month saying neither the company nor Bobrov, who is also CEO of Green Oil Energy - a big energy player in Israel, had connections to Russia.

EastMed gets buried but Cyprus still in the mix

The Lukoil deal, whether it goes through or not this month, has also amplified doubts about EastMed, a proposed subsea pipeline designed to supply gas to Europe from the east Mediterranean via Israel, Greece and Cyprus, excluding Turkey, to Italy.

EastMed has been losing steam due to geopolitical and financial questions, protests by activists, but also because European countries, including Italy, seek fast-track solutions to replace Russian gas.

But Nicosia has recently adapted to the new developments after European and US officials called for immediate or interim solutions, such as using LNG facilities in Egypt and taking advantage of existing infrastructure through short interconnectors.

In January 2022 the EastMed project lost momentum after Washington withdrew its support in a non-paper leaked to the press, along with further arguments in favor of alternative fast energy solutions and regional cooperation.

The Republic of Cyprus did not completely rule out the project but conceded there could be other ways to include Cypriot gas in the regional pool for exports to Europe.

Netanyahu raises possibility for LNG terminal in Cyprus

But both Israel and Egypt have been facing questions as to whether they could boost natural gas exports while also meeting domestic demand as economies rebound in the region.

According to Euronews, during his trip to Italy Netanyahu alluded to Cyprus as another “possibility” where Israel would create an additional liquefied natural gas terminal to “increase the capacity for gas exportation from Israel to Italy, and from Italy across the rest of Europe.”