Algeria and the European Union want to work together to attract increased upstream gas investment to secure reliable supplies to Europe in the future, senior officials said late Monday, ahead of a key forum on Algerian-EU business ties taking place Tuesday in Algiers.
Concerns have been expressed over Algeria's ability to raise gas output in order to both meet European import demand and growing domestic consumption.
Algeria's total exports by pipeline were estimated at around 27 Bcm in 2015, equal to more than 6% of the EU's total gas demand. For its main customers -- Italy, Spain and Portugal -- it represents more than a quarter of their consumption.
LNG exports to global markets in 2015 were an additional 16.4 Bcm, down 8% on the previous year.
"For the EU, Algeria is a reliable partner in the sector of energy and we want to work together to develop our strategic partnership," European Commissioner for Climate Action and Energy, Miguel Arias Canete, was quoted as saying by Algerian state news agency APS.
"We know the common challenges to be improved," Canete said, including increasing upstream gas investments.
This will help Algeria to "strengthen its position among Europe's main suppliers."
In 2016, Algerian pipeline exports to Europe are considerably higher than last year, while LNG supplies have been slightly up on 2015 so far.
According to data from S&P Global Platts analytics unit Eclipse Energy, pipeline flows to Italy and Spain have averaged 82 million cu m/d in the year to date.
This compares with an average rate of 58 million cu m/d for the same period last year and 62 million cu m/d for the whole of 2015.
Algeria's energy minister Salah Khebri welcomed the EU's backing. "We are interested in all the requests and we will try to address the constraints and obstacles," Khebri said.
'SERIOUS CHALLENGES'
The forum comes as leading gas analysts at the Oxford Institute for Energy Studies (OIES) warned that Algeria is facing "serious challenges" in its gas sector.
"Confronting these challenges requires more aggressive policy responses to both supply and demand," they said in a paper published this week.
"As far as the supply side is concerned, we have established that declining (at best stagnating) gas production is, under prevailing conditions, an incontrovertible trend."
Algeria's commercial gas production slipped around the start of this decade, and fell again slightly in 2015 to 82.5 Bcm, according to official data from the Algerian energy ministry.
The OIES also said gas demand growth in Algeria was a major problem, calling the government's response "tardy."
Algerian President Abdelaziz Bouteflika in February issued a new national gas policy that calls for the rationalization of domestic gas consumption.
Bouteflika said the country needed to increase its focus on renewable energy to allow more gas to be made available for the lucrative export market.
But the OIES said the country's renewables targets seemed "ambitious."
"To be realizable, it needs to be underpinned by more effective policy tools, particularly in the form of incentive schemes that are both transparent and easily accessible to investors," it said.
Canete said the EU supports measures taken by Algeria in terms of energy efficiency, including investment in renewable energy to reduce the consumption of gas for power generation.
PARTNERSHIPS
The institute recommended that Algeria and its state-owned energy company Sonatrach shift tack toward new partnerships with stakeholders to better monetize the country's vast gas resources.
"Sonatrach and its governing policymakers should create ground for new win-win situations and partnerships in all areas of hydrocarbon development activities," the OIES said.
"Such a course of action may stand a better chance of success in reversing the troubling trends and creating more diversified value for Algeria's future."
It said that the structural and cyclical shifts in international oil and gas markets have ended up undermining Sonatrach's marketing strategies.
These include moves by gas buyers to look to shorten their long-term contracts, increase the flexibility of quantities they purchase and adjust pricing formulas to reflect competitive market conditions.
The institute warned that gas production would stagnate "at best" and that with domestic demand growth Algeria could be left with only 15 Bcm/year to export by 2030.
"In a lower production or high demand scenarios, it will cease exporting all together, therefore importing gas beyond any such a point," it warned.
"With this conceivable perspective, policymakers should consider shifting their focus away from commodity trade, as the foremost way to monetize Algeria's gas resources and ponder a different energy/industrial strategy."
