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Chronicle of the Middle East and North Africa

Algeria: A Reserve Unit amidst the Energy War

Algeria: A Reserve Unit
A picture taken on January 16, 2018 at Amenas gas plant, 1,300 kilometres (800 miles) southeast of Algiers, where workers were riding bikes. RYAD KRAMDI / AFP

Hussein Al Zoubi

When US President Joe Biden decided to ban Russian oil and gas imports, The energy war imposed by Russia’s invasion of Ukraine has entered a critical stage.

Russian President Vladimir Putin issued a ban on importing and exporting products and raw materials to and from Russia in 2022.

While it is not yet clear whether Putin’s decision includes Russian gas, Europe, which depends on Russia for a third of its gas needs, will not follow Washington’s lead, as confirmed by the European Union’s foreign policy commissioner.

European concerns about energy supplies, especially gas, began to surface more openly as the war carried on. Several sides began to discuss the alternatives available to secure Europe’s gas needs should the flow of Russian supplies be interrupted, as Europe imports about 40 per cent of Russian gas exports.

Given that it ranks 10th in terms of gas reserves, geography made Algeria one of the possible alternatives due to its proximity to Europe. In this context, the United States took the initiative to meet with Eni, Total Energies and other energy companies operating in Algeria to explore the possibility of bringing more natural gas to Europe.

Technical and Legal Obstacles

Algeria can cover a good portion of a possible shortage in both stock and production. But several reasons make it difficult for Algeria to replace Russia, the biggest exporter of gas globally, according to statements by the Algerian economic expert and oil market specialist Abd al-Malek Saray.

According to Saray, one of the reasons is Algeria’s limited gas production compared to Russia’s, not to mention its lack of modern efficient transportation technologies and agreements with the European Union which limit its market manoeuvrability.

In his interview with Al-Hurra TV, Saray stressed the difficulties Algeria is facing in transporting gas to the other side of the Mediterranean. He also believes that European countries must assist Algeria in that perspective so that Algerian gas can reach a wider spread of the continent.

Algeria is the third-largest gas supplier to the EU after Russia and Norway. However, Algeria’s capacity is limited to only three majorly underutilised pipelines, which extend across the Mediterranean.

The Algerian government is working on several projects that are expected to boost production and stabilise the flow of gas exports to Europe. However, these projects are still in a work-in-progress phase, which means they are not ready to fill the European gas deficit.

The legal aspect is one factor that impedes the export of gas to Europe. Algeria had previously signed an agreement with the EU that prevents it from selling gas directly to European countries. According to Saray, it is required that the EU amends the terms of the agreement to ensure Algeria’s ability to provide the alternative of the Russian gas.

Under the EU-Algeria Agreement, Algeria is not allowed to store and promote gas in Europe. Also, Algeria cannot sell gas directly under all current and future contracts between any firm from the European Union and the Algerian state-owned Sonatrach.

In 2007, Algeria had renegotiated some of the restrictive clauses in this agreement with the European side. However, the EU still imposes restrictions on marketing Algerian gas, which Brussels needs to reconsider since it wants to reduce dependence on Russian gas.

Economic and Political Consideration

Algeria: A Reserve Unit
Jean-Pascal Clemencon (L), director of Total Algeria shakes hands with Toufik Hakar (R), Sonatrach’s vice president of business, development, and marketing, during the signing of a contract between their companies on January 17, 2019. RYAD KRAMDI / AFP

Algeria, the leading supplier of gas to Italy and Spain and the largest energy source to the EU after Russia and Norway, can provide a solution to this crisis, which would in turn reflect positively on the Algerian economy.

But it will not stop here, as this would also upset the relations with Russia.

According to Bloomberg, Cyril Widdershoven, an energy analyst and founder of risk consultancy Verocy, says it is “a Catch-22 situation” for Algeria. As per Widdershoven, Algeria’s desire to be a significant energy exporter “intersects with European interests in this aspect, but this would mean undermining plans to establish a deeper relationship with Moscow.”

In September 2021, Russian energy mogul Gazprom agreed with Algeria to produce and transport gas.

Algeria’s state newspaper El Moudjahid described the meeting as “a partnership between two giants.” Sonatrach announced that the original gas field that it is working on with Gazprom will start production in 2025.

Despite this, Widdershoven says that Algeria can increase its Liquefied Natural Gas supplies to Europe, but the quantities available will not fill the gap caused by the interruption of Russian supplies.

However, Spain, which is closest to Algeria, intends to transport quantities of Algerian gas over the next two months to secure the French market needs.

Economía Digital, a Spanish website specialising in economic and energy news, pointed out that Spain is in great comfort compared to other European countries concerning gas supplies, noting that the pipeline that transports Algerian gas is operating as usual. Expansion works are underway to raise its capabilities.

It is noteworthy that the French authorities have objected since the 1980s to linking it to Spain via gas pipelines coming from Algeria.

The Spanish website, quoting Minister of Ecological Transition Teresa Ribera, expressed Madrid’s intention to purchase additional LNG from Algeria via ships. Ribera pointed out her country’s intention to transfer Algerian gas to other European countries should a shortage of supplies occur due to the war in Ukraine.

Italy’s gas consumption data in 2021 indicates a doubling of Algerian gas supplies. The quantities of Algerian gas consumed in Italy increased from 12 billion cubic metres in 2020 to 21.16 billion cubic metres in 2021, which constitutes 28.4 per cent of the total Italian gas consumption, compared to 29.06 billion cubic metres of Russian gas exports, which amounted to 37.8 per cent.

But the monthly consumption data in January 2022 shows that Algeria has surpassed Russia as the first gas supplier to Italy. Algerian exports amounted to 1.5 billion cubic metres, compared to 1.2 billion cubic metres of Russian gas exports.

Long-term contracts

Professor of economics at the University of Algiers, Alawah Belkhabat, disagreed with Widdershoven regarding Algeria’s relations with Russia. In an interview with Al-Ain al-Ikhbariyya, Belkhabat attributed his stance to Algeria’s commitment to long- and medium-term contracts with its European partners, stressing that no one has the right to prevent Algeria from providing Europeans with gas.

He believes that relations with Russia are purely political, which in turn prompt Algeria to abstain from voting in favour of a resolution condemning Russian interference in Ukraine, hence assuming a neutral stance in this conflict.

Algeria’s relations with Moscow or the European Union are based on shared interests. So, Algeria has no debts to any party, which would consequently grant it a form of immunity from being pressured, especially since it is in a financial situation that relieves it from accepting any restrictive conditions.

Regarding gas supply contracts linking Algeria to the European Union, Algeria does not have, according to Belkhabat, a significant ability to increase its production on the short run, which leaves the idea of ​​replacing the Russian gas “out of the question.”

Thus, Algeria will only be able to supply Europe with what it is contractually committed to providing. In the same context, replacing Russian gas requires enormous investments that must be implemented on the longer run.

The Trans-Saharan Gas Pipeline

The energy crisis has renewed an old Algerian-Nigerian project to transport gas to Europe, known as the Trans-Saharan gas pipeline.

The pipeline that passes through the jungles of Africa towards Europe appeared for the first time about 20 years ago through the Nigeria-Algeria gas pipeline project, along with implementing a trans-Saharan road project, starting from Algiers to Lagos stretching for around 4,600 kilometres.

In 2002, Sonatrach signed the first memorandum of understanding to implement the project with the Nigerian National Petroleum Corporation. The agreement stipulated the construction of a pipeline from the gas fields in southern Nigeria, through Niger to Algeria. The project’s initial cost was estimated at $13 billion, noting that the project aims to transport 30 billion cubic metres of natural gas annually to Europe.

The pipeline’s length on the Algerian side is about 2,300 kilometres. The gas that reaches those areas in northern Algeria is transported to Europe through three pipelines, one towards Italy and two towards Spain.

The project was delayed for more than two decades, not because of its high cost, but due to the lack of buyers, according to previous statements by former Algerian Energy Minister Chakib Khelil in 2007.

Now that the Ukrainian crisis is sounding the alarms in the EU, this project may acquire more attention and acceptance. However, this attention does not mean meeting European energy needs on the short run, mainly since this project is still being studied in terms of the feasibility of investing in it, according to Sonatrach CEO Toufik Hakkar.

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