© Photo by Darren Hillman via Flickr
Algeria, because of its population, geography and hydrocarbon revenues, is a geopolitical power in the Maghreb region. Despite these immense resources, however, Algeria has seen its hydrocarbon sector go through fluctuations, alternating good times and periods of crises. This irregularity has led to changes and ruptures in the institutional system that governs it without affecting its strategic character.
Today, its oil and gas sector is in decline, and it faces major structural problems that it will have to resolve if it is to continue to utilise hydrocarbons as the backbone of its economy and the basis of its economic development. However, the outbreak of war in Ukraine and the paradigm shift regarding gas access for the European continent may change this situation.
Resources present in the country
Algeria ranks fifteenth among countries with the largest proven oil reserves, with 12.2 billion barrels, and more than 150 trillion cubic feet (Bcf) of natural gas. It also has extensive undeveloped shale resources in seven basins containing approximately 3419 Tcf (trillion cubic feet) of gas potential, of which 707 Tcf are recoverable with current technology. In addition, six of these basins contain 121 billion barrels of condensed shale oil, with 5700 million barrels technically recoverable. All this makes Algeria the fourth largest reserve in the world after the United States, China and Argentina.[1]
By 2019, hydrocarbon exploitation would have made Algeria the world’s sixteenth largest oil producer, the third largest oil producer in Africa (after Nigeria and Angola) and the eleventh largest oil exporter, as well as the fifth largest producer and seventh largest exporter of natural gas in the world.[2]
Europe is Algeria’s main hydrocarbon export market, with the country accounting for 70% (in 2017) of Europe’s total needs, followed by the USA (15%), Asia (9%), Africa (5%) and the Middle East (1%). Of that 70%, seventy-four per cent of the gas is exported through pipelines with the remaining 26 per cent as liquefied gas (LNG).[3] It is not surprising that Algeria once cherished the dream of becoming the Maghreb alternative for European hydrocarbon imports instead of Russia. For transport to Europe, Algeria already has an extensive network of pipelines: the Transmed, which connects Algeria to Italy (Mazara del Vallo) via Tunisia; the Galsi, which connects Kudiet Draoucha to Italy (Sardinia); the Maghreb-Europe, which connects Algeria to Spain via Morocco; and finally, the Medgaz, which directly connects Algeria to the Spanish coast.[4]
Source: Algerian embassy in the US
Algerian resources as a geopolitical tool
Algeria’s absolute dependence on oil and gas has resulted in an economic model that has been influenced by the volatility of hydrocarbon prices on international markets, which in turn has had dramatic consequences for the country’s internal situation. This was the case during the 1986 oil crisis, a situation in which the state’s external indebtedness and the fall in oil sales forced Algeria to adopt a harsh structural adjustment plan (1994-98) under the supervision of the International Monetary Fund and the World Bank.[5]
The oil shock[6] can be considered a key moment in the deterioration process of the Algerian economic situation. The impact on society, as a whole, was enormous and resulted in the so-called Berber spring of 1988[7], the subsequent emergence of terrorist groups, notably the Armed Islamic Group (GIA), the forerunner of today’s Al Qaeda in the Islamic Maghreb (AQIM), and the “décennie noire”[8] which lasted from 1991 to 2000 and resulted in the death of more than 200 000 Algerian citizens.[9]
It was only from 2000 onwards that the economic indicators began to stabilise, boosted by the rise in hydrocarbon prices, as well as the launch of the “Plan de soutien à la relance économique” (PSRE) by President Bouteflika during his first term in office in April 2001, which allowed budget revenues to increase from 950.5 to 5957.5 million dinars between 1999 and 2013.[10]
In August 2021, in the midst of soaring energy prices, Algerian Foreign Minister Ramtane Lamamra announced the severance of diplomatic relations with Morocco after several weeks of rising tensions between the two countries. Just three days later, the first practical consequence of the bilateral crisis between the two Maghreb powers took shape: the Algerian Energy Minister, Mohamed Arkab, hinted in public statements that his government, after two years of negotiations, would not renew the 25-year-old agreement which allows Algerian gas to reach the Iberian Peninsula via the Maghreb-Europe gas pipeline (GME).
This was later confirmed, on 31 October 2021, when Algeria’s President Abdelmayid Tebún officially stated that the contract with Morocco would not be renewed. Instead, Morocco and Spain signed a new contract on 3 February 2022 in which Spanish gas grid operator, Enagas, started providing gas to Morocco by reversing the flow of the Maghreb-Europe pipeline. Nevertheless, these supplies do not come from Algerian sources due to the rejection of Algerian authorities, but from other European sources.[11]
The Moroccan government, as an attempt to cope with gas supply problems following the Algerian gas shortages, is also contemplating (after the failed Gas to Power project) the possibility of building a floating unit to store and re-gasify liquefied natural gas. The Moroccan Ministry of Energy Transition recently launched a call for tenders to propose a system for receiving, storing and regasifying the fuel, whose infrastructure could be located in one of the following ports: Nador West Med, Kenitra Atlantique, Mohammedia or Jorf Lasfar. This project should respond to market needs with an estimated 1.1 billion cubic metres (bcm), of which 0.6 bcm will be destined for the industry by 2025.[12]
Spain, for its part, loses stability, flexibility and security of supply as its pipeline supply capacity is more than halved (losing up to 13.5 bcm out of a maximum total capacity of 21.5 bcm) after the Moroccan-Algerian diplomatic row. It will thus depend on a single pipeline and will lose an alternative route in the event of a possible technical problem in the Medgaz. The loss of supply capacity by submarine and land routes could be partially compensated by LNG imports. Specifically, assuming the extension of Medgaz and its entry into operation on time, Spain would have to import an additional 4 bcm of LNG to maintain the annual level of Algerian gas supply. The way to transfer these four million cubic metres that Spain would still need to cover current demand would be in the form of liquefied natural gas (LNG) via LNG tankers. Specifically, some 48 ships would be needed to transport the remaining 4 bcm (each bcm lost is equivalent to about 12 LNG carriers). The problem is that LNG is a more expensive product and belongs to a highly contested market at present.
Algeria’s energy sector crisis
Since 2014, Algeria’s energy sector has been in crisis. The sharp drop in oil prices that occurred in that year caused oil and gas exports to fall by 9% in quantity and 42% in value in the period between the first half of 2014 and 2015 (i.e. from USD 33.21 billion to USD 19.28 billion) (Cobo 2021). Although the situation improved slightly in the following years, the coronavirus crisis has had a strong impact on a sector undergoing a serious structural crisis. Algeria was one of the countries most affected by Saudi Arabia’s decision in early March 2020 to launch a price war, a measure that aggravated the collapse in demand caused by COVID-19 by pushing Brent and Saharan Blend oil prices from $70 and $65 per barrel respectively in January 2020 to $19 and $15 in April 2020.
However, it is not just a matter of falling hydrocarbon prices; in Algeria, as in other African oil-exporting countries, population growth and increasing urbanisation are leading to higher domestic energy demand which, since 2007, has risen by more than 50%, while oil production has fallen by 25%.
This particularly difficult situation for Algerian hydrocarbon exports has been aggravated by the loss of share in such important markets as Spain, where Algeria is no longer the leading supplier of natural gas as it had been for the past 30 years, having now been displaced by the United States as of 2020. In February 2020, US natural gas accounted for 27% of Spanish imports, while Algerian supplies only accounted for 22.6% of the total natural gas imports during that period, which is a 38.4% drop when compared to the same period in 2019, where they accounted for 48.5%.[13]
Nor is this difficult situation helped by the Algerian authorities’ unwillingness to address the politically thorny issue of subsidies in a country where, gas and electricity alone, account for roughly $8 billion or, in other words, just over 4% of the national GDP. Moreover, the low electricity prices of Algerian consumers (approximately 30% of their production cost) are one of the main factors that demonstrate the rapid increase in domestic electricity consumption and the dangerous reduction in hydrocarbon exports, which are increasingly consumed locally instead of being exported. All this has contributed to jeopardising export capacity with a consequent negative impact on the external balance.[14]
All this has accentuated the country’s economic decline, causing oil and gas export revenues to reach only USD 23 billion in 2020, a decrease of USD 10 billion when compared to the previous year, and USD 18 billion when compared to 2018. Even with the very competitive cost of oil which can reach less than $3 per barrel,[15] Algeria needs a minimum price of $100 per barrel to balance its budget.
War in Ukraine as a new opportunity for Algeria
Europe is one of the world’s most important natural gas-consuming markets, and as the war in Ukraine continues, a significant increase in energy supply prices is creating serious concerns. This gas shortage in the EU presents a unique opportunity for Algeria to expand its presence and consolidate its position as the most reliable gas supplier, taking advantage of its geographical proximity to Europe. Algeria, the world’s eighth largest gas producer, has an estimated 3% of the world’s reserves, but its territory is virtually unexplored and could contain large undiscovered natural gas deposits.[16]
Among the European countries with the greatest interest in this new venture is Spain, as it could supply the rest of Europe with gas through the two gas pipelines that link it with Algeria: the Durán Farell and Medgaz pipelines. Likewise, the BarMar pipeline, a project agreed upon in the middle of this year to connect Barcelona and Marseille with a gas pipeline, will enable Spain to become a hub country. In this sense, there are more than 300 Spanish companies present in various sectors and dozens of projects in Algeria. The two countries have to overcome other tensions that have arisen in recent years, but if they do, they can aspire to build a strategic neighbourhood relationship: economic cooperation is the prelude to political rapprochement.[17]
Algeria now has the opportunity to improve its economy and its geopolitical situation. However, only time will tell whether they will finally be able to seize this opportunity or not.
Juan Carlos Benitez is a researcher in the Platform’s Mediterranean programme and specializes in foreign policy and security in the Middle East and North Africa region and their implications for the international system. He holds a Master’s degree in International Relations from Loyola University Andalusia. He has experience writing for digital platforms covering international relations such as The Geopolitics, Fair Observer and Geopol 21. He previously interned at Oxfam Intermón in Seville and at Jesuit Refugees Service in Malta.
[1] Delmas, B., 2019. La Sonatrach, la boîte noire du pouvoir algérien. Le Point. https://www.lepoint.fr/afrique/la-lettre-du-maghreb-la-sonatrach-la-boite-noire-du-pouvoir-algerien-10-11-2019-2346292_3826.php.
[2] Delmas, B., 2019. La Sonatrach, la boîte noire du pouvoir algérien. Le Point. https://www.lepoint.fr/afrique/la-lettre-du-maghreb-la-sonatrach-la-boite-noire-du-pouvoir-algerien-10-11-2019-2346292_3826.
[3] The North Africa Post. 2017. Moroccan-Nigerian Pipeline Puts Final Nail in Algeria’s Trans-Saharan Gas Project https://northafricapost.com/17999-moroccan-nigerian-pipeline-puts-final-nail-algerias-trans-saharan-gas-project.html.
[4] Cobo, I.F., 2021. Geopolítica de la energía en el Magreb. Auge y declive de dos potencias energéticas. Los casos de Argelia y Libia. In Energía y Geoestrategia 2021. Instituto Español de Estudios Estratégicos. (pp. 243-308).
[5] Mekideche, M., 2009. Le secteur des hydrocarbures en Algérie. Piège structurel ou opportunité encore ouverte pour une croissance durable? Dans Confluences Méditerranée.
[6] The plunge in oil prices meant that 1986 was the first year since Algeria became independent that its economy grew more slowly than its population, which is growing by 3.1 percent a year, one of the highest rates in the world. As a result, per-capita income fell, as it did again in the following years.
[7] The Berber Spring was a period of political protest and civil activism in the 1980’s, claiming recognition of the Berber identity and language in Algeria.
[8] The Algerian Civil War or Black Decade was a civil war between 1991 and 2002 between the Algerian government, with the National People’s Army (ANP), and various Islamist groups.
[9] Cobo, I.F., 2021. Geopolítica de la energía en el Magreb. Auge y declive de dos potencias energéticas. Los casos de Argelia y Libia. In Energía y Geoestrategia 2021. Instituto Español de Estudios Estratégicos. (pp. 243-308).
[10] Cobo, I.F., 2021. Geopolítica de la energía en el Magreb. Auge y declive de dos potencias energéticas. Los casos de Argelia y Libia. In Energía y Geoestrategia 2021. Instituto Español de Estudios Estratégicos. (pp. 243-308).
[11] Reuters. 2022. Spain begins natural gas exports to Morocco following diplomatic row. Retrieved from: https://www.reuters.com/business/energy/spain-begins-natural-gas-exports-morocco-following-diplomatic-row-2022-06-29/.
[12] Cobo, I.F., 2021. Geopolítica de la energía en el Magreb. Auge y declive de dos potencias energéticas. Los casos de Argelia y Libia. In Energía y Geoestrategia 2021. Instituto Español de Estudios Estratégicos. (pp. 243-308).
[13] Schahrazed, I., 2020. L’Algérie perd sa place de principal fournisseur en gaz de l’Espagne. Zairaily. https://www.dzairdaily.com/algerie-premier-fournisseur-gaz-espagne-hydrocarbures/.
[14] Haddoum, S., Bennour, H. and Ahmed Zaïd, T., 2018. Algerian energy policy: Perspectives, barriers, and missed opportunities. Global Challenges, 2(8), p. 1700134.
[15] $3 per barrel is an estimated price for reserves from the Hassi Messaoud oil fields (Zibaoui, 2022).
[16] Zibaoui. A., 2022. Argelia, España, la UE y el gas. La Vanguardia. https://www.lavanguardia.com/economia/20220708/8393146/argelia-espana-gas-ue-guerra-ucrania-rusia.html.
[17] Zibaoui. A., 2022. Argelia, España, la UE y el gas. La Vanguardia. https://www.lavanguardia.com/economia/20220708/8393146/argelia-espana-gas-ue-guerra-ucrania-rusia.html.