Algeria: A strategic gas partner for Europe

by Francis Ghiles

Russia's abuse of its energy muscle is not good news for its citizens, it is not good news for its neighbours and it is not good news for the world. The masters of Gazprom, Russia's state owned gas giant have made no bones of their desire to keep big energy projects in the family and do not shy from making life difficult for those who, domestically might seek to challenge them.
Loutish behaviour also characterises Russia's behaviour towards its near abroad, Ukraine, Georgia and Belarus although the latter are far from blameless. Russia's government is of course not the only one to try and achieve a larger share of the takings as oil and gas prices ride high but its current behaviour towards foreign companies working in Russia could well backfire if the price of oil and gas drops substantially.

Most comments since the interruption of Gazprom supplies through Ukraine, first in 2006 and then again in January 2009, have focused on the European Union's dependence on Russian gas. In 2007 Norway which accounts for 27 % of all gas imported into the European Union (EU-27) gave a pledge as a "reliable energy supplier", a theme which has been at the heart of that country's thinking ever since it started exporting gas.
The creation of a Norwegian energy powerhouse, the consequence of the $ 30 bn (EUR 22.8 bn) merger of Statoil with Norsk Hydro offers comfort to European buyers but gas production from Norway is expected to increase only until 2013 and then plateau.

Little is heard publicly or written about Europe's third largest supplier of gas, Algeria, which accounts for 20 % of the continent's imports. Yet Algerian exports of gas have doubled since 1994 to 60bcm the bulk of which go to Europe. By 2010 Algerian exports will probably reach 85bcm. Europe will remain, as it will for the foreseeable future by far, the largest customer of Algeria's state company Sonatrach.
The context in which such a rise is occurring is summed up by two figures: the European Union projects thatgas imports will increase to 80 %-90 % of EU-27 demand by 2030 while the International Energy Agency predicts that OECD European gas dependence on gas imports will increase to 65 % by the same date.

Some fears were expressed about the potential threat of domestic terrorism on supplies of Algerian gas to Europe when the country was engulfed in violence in the mid 1990s but such threats failed to materialize: true one incident due to a "terrorist" explosion did cut the flow of gas to Italy for a few days in 1997 but no terrorist group ever got near the exporting facilities in Arzew and Skikda or into a compressor station on the gas pipelines.
Today however, as a result of the tensions which have arisen with Russia, some hard questions are being asked about the policy of North Africa's largest country, 97 % of whose foreign income is derived from the export of oil and gas. Such questions focus on its overall hydrocarbons' policy and more particularly on it gas policy, its broader foreign policy, its overall domestic policy and how the oil and gas sectors are managed internally.