The break in the provision of Russian natural gas via the Ukraine was the opportunity to shed some light on the current and perhaps future limits on Algerian exports of natural gas to Europe.

 
Maria Van Der Hoeven, Dutch Minister of Economic Affairs.

By Ihsane El Kadi, Algiers

Algeria is unlikely to be able to meet the European Union requirement to reduce Russia’s percentage of its gas imports. The recent crisis between Russia and Ukraine and the interruption of deliveries from Gazprom, the world’s leading natural gas producer, which has been in place for a week now, has made the request from Brussels to Algiers more explicit. “The only case where additional deliveries would be possible disappeared with the accidental destruction of the Skikda liquefaction terminal in 2002. We would have temporarily detoured a few GNL heading to the North American market,” explains Hamid Lamamri, a trader at Sonatrach now en route for the Emirates.

Consumption of Algerian natural gas would double from 2007 to 2015 due to increased demand on the domestic market during that period. Algeria will extract 47 billion m3 per year of its natural gas production and aims at the same time to reach 100 billion m3 in exports 

In a strange turn of events, Maria Van Der Hoeven was in Algiers at the height of the crisis between Moscow and Kiev. At one point, the big idea was to pump more Algerian natural gas on the Central and Northern European markets where the need to diversify sources of natural gas is more urgent. In a joint press conference with his Dutch guest, Chakib Khelil, the Algerian Minister of Energy and Mining, wiped out the possibility of sending additional provisions of Algerian natural gas to continental Europe: “We already have relations with our partners; we have long term contracts which bind us to our various partners in Europe. If partners wish to increase quantities within the contractual framework of our agreements, we will do it if the contract allows it, of course. However, if the contract does not allow for this, we will be unable to increase the amount of our natural gas exports.”

There are serious doubts about the immediate future…

The fact is that Algeria has already been exporting an average of 65 billion m3 of natural gas per year for the last four years. “Sonatrach’s pressing concern at the present time isn’t to sell more natural gas but to respect the new contractual deadlines which will have to be sent starting some time between 2009 and 2010 via the two new pipelines, Medgaz to Spain and Galsi to Sardenia. Considering all that has occurred over the last years, it’s a bet that is far from being won,” warned an Algerian energy executive. One would therefore have to export some 16 billion more m3 of natural gas which the Saharan natural gas fields are no longer certain to deliver as of 2009. Indeed, the immense delay in the development of the Gassi Touil field is depriving Algerian exports of around 4 billion m3 of natural gas per year. The contract to equip the field, removed by Repsol and Gas Natural, was denounced by Sonatrach in September 2007 and the case is currently in international arbitration. Furthermore, very worrying water pockets prevented the giant Hassi R’mel deposit to come to the rescue by increasing its production: “a sign of decay that we expected to occur at a later time.” The hooking-up of the Medgaz marine leg between Beni Saf (Algeria) and Almeria (Spain) was completed in the last week of December. The transport infrastructure will soon be ready but the 8 billion m3 of natural gas, which must transit their starting in 2010, might not be in their totality at the contractual rendezvous. The Galsi pipeline project to Italy had a few delays that one can legitimately believe to be tied to the current difficulties in the Algerian natural gas upstream sector.

…and what will happen after 2010.

Uncertainties about the ability of Algerian exports to reduce a part of Europe’s dependence on Russian natural gas will in fact persist beyond 2009/2011. A provisional report issued by the national electricity and natural gas commission (CNEG) last December sent shockwaves by prognosticating that domestic consumption of Algerian natural gas would double from 2007 to 2015 due to increased demand on the domestic market during that period. Algeria will extract 47 billion m3 per year of its natural gas production and aims at the same time to reach 100 billion m3 in exports (53% more than 2008): “It’s an unrealistic expectation. Arbitration will be necessary,” warned Abdelmadjid Attar, former minister and former CEO of Sonatrach. Facing such an outlook, two operations are assuming significant importance. The first is to resume prospecting in the upstream sector to discover new deposits. Following the opening of folds of 16 research perimeters, the 13th December to ALNAFT, the agency that oversees the mining sector, had mixed results. Only four perimeters were assigned, but the firms – Gazprom, EON Ruhrgaz, ENI and British Gas – which won the research permits are the top players in natural gas. The second operation is of course the transport of Nigerian natural gas (15 billion m3 per year) to the European market via Niger and Algeria with the Trans-Saharan gas line (TSGP), a project facing competition from projects proposed by Shell in the GNL in Nigeria. Chakib Khellil suggested to Ms. Van der Hoeven to associate Shell (the Netherlands) with TSGP as its natural gas is intended for Europe.