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(Bloomberg) -- Algeria’s state-run energy producer Sonatrach signed an agreement with oil-trading Vitol Group to ship crude to Italy to be processed and sent back as refined products, in the first deal of its kind to trim the country’s $2 billion annual bill for imported fuel.

The arrangement will enable Algeria to stop buying refined fuels in three years -- when the agreement expires and a new refinery in the North African nation is set for completion, Ahmed Fettouhi, Sonatrach’s vice president for downstream operations, said Wednesday in an interview in Algiers. The planned Hassi Messaoud refinery will have an annual processing capacity of 5 million tons of oil, he said, or the equivalent of about 100,000 barrels a day.

Algeria depends heavily on oil and gas sales and is seeking to strengthen an economy squeezed by falling crude revenue. The OPEC nation’s oil production dropped to 1.03 million barrels a day by the end of last year from 1.27 million barrels a day in January 2012, according to data compiled by Bloomberg. Algeria is the ninth-biggest producer among the 14-member Organization of Petroleum Exporting Countries.

Italy Refinery

Sonatrach selected Vitol, the world’s largest independent oil trader, from among five companies that participated in a tender to ship its crude outside the country and have it sent back as refined fuel, Chief Executive Officer Abdelmoumen Ould Kaddour told reporters on Tuesday. Officials signed the agreement on Monday, he said. A Vitol media official in London declined to comment.

The North African nation will start by shipping a 1 million-barrel cargo through Vitol to a refinery in Italy in February, according to a person familiar with the situation, who asked not to be identified because the information hasn’t been made public. The amount of future shipments will vary according to Algeria’s needs, the person said.

“We don’t want to continue to import $2 billion of fuel per year,” Ould Kaddour told reporters. Separately, the North African country is also looking to buy a stake in a refinery overseas, he said, without giving more details.

Algeria’s gas exports were unchanged last year at 55 billion cubic meters, Ould Kaddour said. The country will focus on boosting gas output as OPEC countries pursue a strategy, along with other global suppliers, to limit crude production to counter a global glut, he said in September.

(Updates with details on deal and new refinery in second paragraph.)

To contact the reporters on this story: Salah Slimani in Algiers at sslimani2@bloomberg.net, Salma El Wardany in Cairo at selwardany@bloomberg.net.

To contact the editors responsible for this story: Nayla Razzouk at nrazzouk2@bloomberg.net, Bruce Stanley, Amanda Jordan

©2018 Bloomberg L.P.

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