New threats to Algeria's energy sector
Exploit gas and hydrocarbons "intelligently" and boost renewables, Attar advises
Not many countries have seen the Russian invasion of Ukraine as an economic and commercial opportunity, but the Algerian Republic is undoubtedly one of the few countries on this short list. For years relegated to a position of near international isolationism, Algeria's gradual opening-up since the early 2000s - with a large part of its international relations based on the hydrocarbon trade - has led to its gradual integration on the world stage. However, since the Russian offensive of 24 February last year shook the energy supply (gas and oil) of a European Union that is deeply dependent on Moscow, Algeria has become one of the countries on which many international attention is focused.
As an underdeveloped oil and gas producing country on the southern doorstep of the European continent, Algiers' newfound popularity - which has seized the opportunity to draw closer to Western powers - seems to be the result not so much of a deeply planned diplomatic and commercial strategy, but of specific circumstances. Since the beginning of the year, the North African country has seen its exports by pipeline grow by 54%, and by sea of Liquefied Natural Gas (LNG) by 13%.
In this scenario, the former Minister of Energy and CEO of Sonatrach (the country's state-owned production company), and current international specialist in the energy sector, Abdelmadjid Attar, has criticised Algeria's strategy in terms of hydrocarbon and gas management, and has stated that, if the country's domestic consumption continues to grow, while the government does not measure its export plans or accelerate its renewable energy projects, the country's production could reach a point of bankruptcy before 2050.
In fact, according to the ObservAlgerie web portal, other studies have dated the limit of bankruptcy much earlier; in the year 2028.
Over the last few decades, Algerian energy consumption has been growing exponentially. This could be justified by the country's weak and very gradual development, since, as Antonio Valero, professor at the Centro Politécnico Superior de Zaragoza and director of the Centro de Investigación del Rendimiento de Centrales Eléctricas (CIRCE), explains in his article on energy and social development, undeveloped or developing countries "have, in general, less efficient technology and this implies greater energy expenditure to obtain the same services. Electricity production plants, cement plants, infrastructure development, industry in general, are less automated, more labour-intensive and less efficient". "They take on a raw materials processing industry with high environmental impacts, but in exchange, they enter the development wheel," Valero adds.
However, according to Attar's report published in Energy Magazine, it is currently the non-producing sectors, such as households and common services, which have experienced the greatest growth in energy demand, and already in 2019, domestic consumption figures reached almost 67 billion tonnes of oil equivalent. This is 43% of total production, a far cry from the 21.8% consumed in 2007.
Thus, almost 80% of domestic electricity consumption and 69% of gas consumption is in sectors that are not producers, and almost 70% of fuel consumption is in road transport by individuals or families that have no further economic or commercial impact.
With these figures on the table, the former Algerian energy minister warned that, by 2033, gas and hydrocarbon reserves and high domestic consumption will not allow Algiers to export, for example, more than 10% of its natural gas production. These figures contrast sharply with the 58% exported in 2019, or 80% in 1980. "Estimates show that from 2028, or 2030 at the latest, a choice will have to be made between domestic consumption and exports, and that from 2035, or 2040 at the latest, domestic gas production will no longer be sufficient," said Attar.
On the other hand, in addition to the problems that may arise from rising, highly subsidised domestic consumption, there is also the decline in hydrocarbon reserves, which have not grown significantly since the mid-2000s. Abdelmadjid Attar's advice to the Algerian government in 2020 was that the remaining gas resources should be "exploited intelligently". If Algeria's strategy for cleaning up its accounts is to rely on energy exports to countries that until now depended on Russia, Attar argues that the country should abandon its exclusive reliance on hydrocarbons and gas, and turn more strongly towards renewable energies.
While Sonatrach's director general, Toufik Hakkar, declared that "energy production increased by 70% during the first five months of this year, and revenues from the sector are estimated at more than 21 billion dollars", which made the government's interest in this sector clear, Attar reiterated the "vulnerability" of this dependence on hydrocarbon and gas exports, which now account for 98 % of total exports.
In the mid-1990s, Algeria saw the renewal of a large part of its reserves, especially oil reserves, but since the turn of the century, the North African country has not recorded any significant new crude oil deposits. The situation is similar for gas and other hydrocarbons. A study on hydrocarbon deposits carried out in 2015 estimated potential and proven reserves at 4.5 billion tonnes of oil equivalent (toe), including 1.7 billion toe in proven and potential liquid hydrocarbon deposits, and 2.5 billion toe in natural gas (equivalent to more than 2,800 billion cubic metres of natural gas). These are not insignificant figures, which also include the very recent discovery of the WOEN-2 well, to the north of the Hassi Messaoud field (estimated to produce more than 5,000 barrels of oil and 185,000 cubic metres of gas per day); and the OSC-1 well, in the city of Al Bayadh (925 barrels of oil and more than 6,400 cubic metres of gas).
But as long as the internal consumption curve continues to grow at the current rate, without any kind of energy savings, and as long as renewable energies do not strengthen their production to satisfy both the increase in internal and external demand, Algeria will continue to walk under the looming threat of energy insufficiency as an economic livelihood. This was underlined by Abdelmadjid Attar, who warned that the demand for natural gas - domestic and international - will reach 6 billion toe (more than 6,000,000,000 million cubic metres) by 2050.
However, the country's commercial oil and gas initiatives continue. The reactivation of the TSGP project - a trans-Saharan gas pipeline that will connect Algeria with Niger and Nigeria - is a good example of this. This pipeline, which is more than 4,000 kilometres long and has an annual capacity of up to 30 billion cubic metres, would connect some of the region's most important gas fields and could even connect other countries such as Chad and Mali.
On the other hand, while Attar's warnings are struggling to gain a voice in the Algerian energy sector, new news is coming in about the decisions of the oil and gas company Sonatrach, formerly headed by the former minister: the price of gas for export is being increased. "The revision of the price of gas exported by Algeria is being carried out with all its partners in the face of the increase in world gas prices," said the president of the Algerian company, Toufik Hakkar, less than a week ago.
This measure, which will initially affect all of Sonatrach's international clients, will have a particular impact on Spain - one of the main buyers of Algerian gas through the Medgaz pipeline - and will do so shortly after the unilateral suspension of the Friendship Treaty between Algeria and Spain by the North African country. Both Italy and Germany have taken advantage of this conflict to try to strengthen their cooperation with Algiers.
In addition to the signing of an agreement with the Italian oil company ENI, Hakkar announced the negotiation of "other agreements with both partners", as well as the interest of new Eastern European partners that are "currently being studied".
According to the former Algerian minister, from 2030 onwards, it will be green energy, combined with natural gas reserves, that will guarantee the country's energy security. But the delay in the development of renewable energy plans has been holding the country back almost since the beginning of the 2010s.
As Attar explained in an interview with Energy Magazine, the agreements on the start of the energy transition were negotiated in 2011, and included more than 22,000 megawatts to be obtained through solar photovoltaic, solar thermal and wind sources by 2030. Algeria has significant potential in this area. In fact, according to a report published by the World Bank's International Finance Corporation, the country is one of the territories with the greatest wind energy potential on the entire African continent. "But, as the price of a barrel of oil was growing, and oil revenues were, at the time, at a more than satisfactory level, the decision was taken to 'be patient'," the former minister said.
"If you add to this the oil crisis of 2014 after the fall of the barrel and, consequently, of the financial means to maintain the programmes, then one can understand the reasons for the delay," Abdelmadjid Attar added. "The government, or at least the energy actors involved, such as Sonatrach and Sonelgaz, should have taken more initiative, especially given the 'future' challenges that we are already beginning to face."
Algeria's main energy transition projects aim to double renewable energy production by 2030, and the Algerian government is in the process of implementing new initiatives through international market tenders (Power Purchase Agreements or PPAs), and to this end established the Ministry of Energy Transition and Renewable Energy (METRE) in June 2020. But as long as the distribution of electricity production remains 96% to 4% between natural gas and the mix of oil, hydropower, solar and wind, Algeria will continue to walk, warns Attar, towards energy insufficiency.
