Europe turns to Algerian gas during Ukraine crisis
Europe seeks to boost energy cooperation with Algeria, especially in natural gas. Spain made the first move on April 12th when the visiting Spanish Foreign Minister Jose Manuel Garcia-Margallo told reporters upon his arrival in Algeria that “Spain has decided to import more natural gas from Algeria to curb its dependency on Russian gas supply amid the controversial crisis in Ukraine.”
UKRAINE CRISIS
The crisis between Ukraine and Russia has once more showed the dependence of Europe on Russian natural gas. As happened in 2006 and 2009, European countries are discussing what they can do in terms of energy cooperation with North African suppliers. However, Russia’s energy company Gazprom has penetrated the Algerian natural gas market last year. Algerian gas supply would also need to overcome the risk of Algeria's growing domestic energy demand when it comes to increasing its gas export to Europe.
Algeria has Africa’s second biggest gas reserves,trumped only by Nigeria. Algerian natural gas is estimated at 4.2 trillion cubic meters and the country produces 152 billion cubic meters of natural gas annually--only one third of which, 60 billion cubic meters, is actually exported. Algeria supplies 14 percent of European Union member countries’ natural gas demand. The North African energy giant has two gas pipelines running to Europe, one to Spain and another to Italy, and the two together can carry 50 billion cubic meters of gas per year. Spain’s energy ties with Algeria constitute 45 percent of its natural gas imports.
Algeria will raise its capacity to export the fuel by 17 percent this year, with expansions at two liquefaction plants. According to state-owned energy company Sonatrach, Algeria expects to expand liquefaction plants at Arzew in the western region, and Skikda in the eastern region, lifting the nation’s annual shipment capacity by 16 billion cubic meters to 60 billion cubic meters. Technically, Algeria could appear to be a reliable alternative to Russian gas supply, though some limits persist.
ALGERIA’S BUSINESS ENVIRONMENT
The first limit is the country’s business environment The World Bank ranks the country 152nd in its global index of business friendliness. To overcome this setback, in 2012 Algeria began to revise the hydrocarbon law in an attempt to attract foreign investors to new projects, with Parliament approving the amendments in January 2013.
The second limit is growing domestic energy consumption in Algeria. Discovered reserves have remained unchanged for the past decade, while domestic consumption is growing. The gas supply to Europe fell 18.5 percent in 2013 to 37.9 billion cubic meters. So, if Algeria decides to sign on for more export obligations, it needs investment in exploration and an increase in its resource base and extraction as well as improved production effectiveness.
GAZPROM IS INVITED TO ALGERIA
Moreover, if one joins the Algerian market to avoid Russian monopoly, this will be a failure because Russia’s oil and natural gas state monopoly, Gazprom, is the first foreign company to be invited to work in the country. Gazprom has offered joint venture exploration projects to Sonatrach. In 2014 Gazprom participated in an international tender for the exploration and development of more than 30 prospective hydrocarbon deposits, amounting to an estimated 20 percent of Algeria’s territory. Gazprom’s overseas branch, Gazprom International, is already operating in Algeria, developing the al-Assel oil and gas field in the east in cooperation with Algeria’s state monopoly for hydrocarbon exports, Sonatrach.
Algeria is an OPEC member, Africa’s largest natural gas producer and its second largest oil producer after Nigeria. Algeria is currently, like the Russian Federation, heavily reliant on its hydrocarbon sector, which accounted for almost 70 percent of government budget revenue and grants and about 98 percent of export earnings in 2011. There is no doubt that developing the hydrocarbon industry to help increase gas export to Europe should be among the country’s priorities. However Russian penetration in the country should be taken into account by European consumers.
Olgu Okumus
olgu.okumus@sciences-po.fr