16-07-08 With stability returning to Algeria and UN sanctions lifted from Libya, European energy giants are vying with each other to tap new sources of natural gas and oil in these North African countries. Their hope is to reduce what many fear is an overreliance on Russia -- and beat the United States to the punch.
Gazprom, the state-owned Russian energy monopoly, which supplies more than a quarter of European natural gas needs, is also in the region, trying to reach long-term contracts to diversify its own energy sources. But Gazprom, which opened an office in Algeria in June, is facing tough competition.

The powerful Norwegian company, StatoilHydro, is helping Sonatrach, Algeria's state-owned energy monopoly, enter the North American market for liquefied natural gas. And now Germany is joining the scramble.
The German chancellor, Angela Merkel, started a two-day state visit to Algeria, bringing with her a dozen German companies, including E.ON Ruhrgas, which is one of the largest European energy groups, and RWE, the electricity giant. Germany imports 26 % of its natural gas from Russia and a quarter from Norway. But companies such as E.ON Ruhrgas are eager to diversify into liquefied natural gas to increase European energy security. In June the company opened an office in Algeria.

"In future, LNG is to supplement our traditional gas supply portfolio," said Jochen Weise, who is responsible for E.ON Ruhrgas's gas supply and trading. "Algeria is a strategically important partner in this respect."
E.ON Ruhrgas is already planning liquefied natural gas projects in Equatorial Guinea and Nigeria and intends to open an office in Libya, where Gazprom is also competing to win contracts.

Sonatrach, the Algerian company, agreed in March with StatoilHydro to start supplying about 3 bn cm of liquefied natural gas a year to the Dominion Cove Point liquefied natural gas terminal on Chesapeake Bay in Maryland, starting next year.
Also this year, Sonatrach negotiated long-term contracts to sell liquefied natural gas to Gaz de France and Distrigas of Belgium, thus diversifying its customer base. For years, Sonatrach has been concentrated in Spain and Italy, which are served by pipelines under the Mediterranean Sea.

Algeria supplies 10 % of the European Union's total natural gas supplies, after Norway and Russia. It is, however, already the largest supplier of liquefied natural gas to the 27-member block. And European energy companies are increasingly looking at buying this kind of gas to diversify their imports without expensive new pipelines.
"Algerian supplies are very important for Europe," said Kevin McNamara, natural gas analyst at the International Energy Agency in Paris. The European Commission, the executive arm of the EU, also has been courting Algeria as it seeks to reduce the block's growing dependence on Russian gas. The fear is that the Kremlin could turn off the taps when it wants to apply political pressure. And with energy consumption expected to grow across the EU, companies want to find alternative sources as well.

With so much interest now focused on Algeria and Libya, analysts were cautious about European companies relying too much on Algerian liquefied natural gas.
"The big question is the price and the availability of cargoes to transport the gas," said Jonathan Stern, director of the Oxford Institute for Energy Studies. "This kind of gas is not going to come cheap, especially since there is so much demand from Asia for the stuff."

Then there is Sonatrach's own production timetable. Its gas exports amounted to 64 bn cm last year and were expected to increase to 85 bn cm in 2010 and 144 bn cm by 2030. But these goals have since been revised. This was because of an explosion at its Skikda plant in January 2004, which caused delays in producing liquefied natural gas.
And last year, after a dispute over pricing and delivery levels, Sonatrach cancelled a contract with its Spanish partners, Repsol and Gas Natural, to develop its Gassi Touil plant. Due to these delaysin liquefied natural gas projects, Sonatrach said its export target of reaching 85 bn cm a year by 2010 would not be met until 2012.

German and other European companies are involved in Libya as well. There, the Italian energy giant, ENI, is involved in gas exploration, with the aim of diversifying its energy sources, in cooperation with Gazprom. By cooperating with ENI, Gazprom will be able to establish a much stronger foothold in southern European energy markets. The Russian company's announcement this month that it intended to buy all of Libya's gas has been pooh-poohed as unrealistic by energy analysts and companies.
"Gazprom wants to be a global energy player and wants to enter as many markets as possible," Stern of Oxford said. "But Libya is interested in competition among the big energy players, too."