Skip to content Skip to Search
Skip navigation

Algeria’s gas in demand as Europe looks beyond Russia

Sonatrach in Algeria Creative Commons
In 2021 Sonatrach was the seventh largest gas company in the world
  • EU countries look for alternative suppliers following Ukraine invasion
  • State-owned Sonatrach signs deal with Italy’s oil major, Eni
  • New law offers better terms to international oil companies

Recent legal changes to woo international oil companies and new projects by state-owned Sonatrach should help Algeria maintain record natural gas production and raise exports to the European Union, industry experts predict. 

EU countries have scrambled to find alternative gas suppliers following Russia’s invasion of Ukraine in February.

In 2020 Russia provided 43 percent of EU gas imports, followed by Norway (21 percent), Algeria (eight percent) and Qatar (five percent).

In April Italian oil major Eni and Sonatrach signed an agreement to increase gas imports from Algeria to Italy as part of a long-term gas supply contract that would start in autumn 2022 and eventually provide an additional nine billion cubic metres (bcm) of gas annually in 2023-24, according to a statement accompanying the deal

Algeria, which is Africa’s No 1 gas producer and No 3 oil producer, will increase its gas exports to Italy by 20 percent to about 25.2 bcm this year, Sonatrach’s CEO, Toufik Hakkar, told Bloomberg this week.

Of this, 21.6 bcm will be under long-term contracts while the remainder (3.6 billion bcm) will be through spot transactions, Hakkar said. 

Prior to the Ukraine invasion, Russia supplied 45 percent of Italy’s gas, according to Eni, with Algeria providing 32 percent, Libya eight percent and the Netherlands five percent. 

“Italy has turned to Algeria and made a real effort to secure supplies,” said Penny Leake, research analyst, Europe Gas Short-Term, at Wood Mackenzie.

“Algeria should emerge as the dominant supply source for Italy, with some of the Algerian gas imported to Italy finding its way further north.

“We see Algeria becoming a reliable supplier of gas for Southern Europe for the next couple of years at least.”

Sonatrach’s new projects include LD2 at Hassi R’Mel, which will begin production in late 2022, and Ain Tsila, which will do likewise in the first half of 2023.

Algeria was Spain’s largest gas supplier last year, according to Statista, and had long relied on three pipelines to deliver gas to Europe.

But in October 2021 Algeria halted gas exports to Spain via the Maghreb–Europe pipeline, which passes through Morocco and had a capacity of 12.0 bcm/year, following the expiry of a 25-year contract between the North African neighbours.

Algeria cut diplomatic ties with Morocco last year due to tensions over Western Sahara and Morocco’s normalisation of diplomatic ties with Israel. 

“The prospects of the Maghreb–Europe pipeline restarting in the immediate term are unlikely,” Martijn Murphy, principal analyst for upstream North Africa at Wood Mackenzie, said.

Algeria now relies on the TransMed pipeline to transport gas from Algeria to Italy via Tunisia, which has a capacity of 34.0 bcm per year and is co-owned by Eni and Sonatrach, while the Medgaz pipeline connects Algeria directly with Spain and has a maximum capacity of 10.5 bcm.

“TransMed is the main alternative, providing a direct route to Italy,” Leake said.

“Last year Algeria’s gas exports to Italy hit a record high at around 20 bcm, so there’s considerable spare capacity that can be used to increase exports.”

Positive outlook for the rest of the decade

Algeria’s natural gas exports totalled 100.8 bcm in 2021, up 24.1 percent on 2020’s five-year low of 81.5 bcm, according to the 2022 BP Statistical Review of World Energy.

Annual liquefied natural gas (LNG) exports were 16.1 bcm in 2021, up 10.5 percent year-on-year, BP estimates. 

Although MEES reported that gas exports fell 18 percent year-on-year to 24.7 bcm in the first half of 2022, that appears to be a blip. 

“Production is at high levels currently, in excess of about 10 bcf (billion cubic feet, 283.2 million bcm) a day, which is higher than it’s ever been before,” Murphy said.

“Why this is happening now has a lot to do with the incremental phasing of brownfield developments that Sonatrach has progressed over the last few years. 

“The outlook is pretty good – we see Algeria being able to maintain these production levels for most of this decade at least.

“That’s due a combination of international oil companies (IOC) investment in recent years in southwest Algeria and also Sonatrach’s own projects.”

In July Sonatrach announced a sizeable new gas discovery at its biggest gas field that it said could add around 3.65 bcm to annual production starting from November, Reuters reported. 

Algeria adopted a new hydrocarbons law in January 2020 that offers markedly better terms to IOCs.

A previous law enacted in 2005 levied high taxes and duties on exploration and production, while contract-sharing agreements with Sonatrach were ambiguous, a US government report states.

Consequently, the number of new contracts Algeria signed with foreign energy companies had dwindled. 

Now though, Algeria has awarded several contracts under the new law. 

“These have mostly been for oil projects, but there’s the potential for gas projects too,” Murphy said.

“The award of contracts on the new terms is encouraging for the country, with these involving some big investment commitments from the IOCs.”

Despite being upbeat on the prospects for Algeria’s gas industry, Murphy sees several major challenges. 

“A lot of Algeria’s newer gas is likely to be costlier to produce than gas from its older fields,” he said.

“Some of the fields in the frontier southwest are technically challenging. There’s a higher concentration of CO2 in the gas and reservoirs are often tighter, which makes it all a bit more expensive and tougher to develop.”

Latest articles

EGSH

Dubai launches one-stop hub to streamline government services

People in Dubai can now obtain an Emirates ID, register a company, open a bank account and more under one roof following the opening of the Emirates Government Services Hub (EGSH). Owned by Sheikh Mohammed Bin Maktoum Bin Juma Al Maktoum, a member of the Dubai Royal family, EGSH allows clients to access all essential […]

In association with
Thailand's consul general Kitinai Nutakul visits the Saudi Ministry of Foreign Affairs in Jeddah

Thailand opens investment office in Saudi Arabia

Thailand’s Board of Investment (BOI) is opening its first Middle East office in Saudi Arabia, signaling a deepening of economic ties between the nations after a longstanding diplomatic spat. The office will focus on attracting Saudi investment into Thailand’s targeted industries and supporting Thai entrepreneurs looking to invest in the region, the BOI said in […]

hajj saudi arabia

Saudia reports big rise in international passengers

Saudi Arabia’s national carrier Saudia reported a 24 percent increase in international passengers to 9.1 million in the first half of 2024. There was also a 13 percent rise in the number of flights. The Hajj pilgrimage in June played a large part in the growth.  The number of passengers flying on domestic routes rose […]

Abu Dhabi has published its new whistleblowing framework to 'maintain transparency, accountability and market integrity'

ADGM sets deadline for whistleblowing rules

Companies in the Abu Dhabi Global Market (ADGM) have been given a deadline of May 2025 to implement the latest whistleblowing regulations. The financial authority has published its new whistleblowing framework to ‘maintain transparency, accountability and market integrity’. The framework includes regulations on reporting of protected disclosures, allowing reporting of suspected breaches of ADGM legislation […]