LNG, Natural Gas

September 06, 2024

FEATURE: Algeria's presidential election spells no change for oil, gas policy

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HIGHLIGHTS

President Tebboune set to win new term in Sept 7 poll

OPEC+ voluntary cuts to continue through December

State-owned Sonatrach bolstering role as 'reliable supplier'

Algeria goes to the polls Sept. 7 in a vote almost certain to see incumbent President Abdelmadjid Tebboune elected for a second term, and with it a seamless continuation of the North African producer's current energy strategy prioritizing gas supplies to Europe and participation in the OPEC+ oil production alliance.

“With the elections only likely to run to a single round given the overwhelming prospect of a Tebboune victory, the potential for a meaningful shift in energy policy and trade priorities is minimal,” Catherine Hunter, analyst at S&P Global Commodity Insights, said.

Since becoming president in 2019, the 78-year-old Tebboune has sought to further strengthen Algeria’s standing as a regional energy power, bolstering energy cooperation with Europe in particular.

For natural gas, Russia’s invasion of Ukraine in 2022 drove the EU to seek alternative sources of supply, particularly from “reliable suppliers” in both pipeline gas and LNG. Algeria -- Africa's largest gas exporter -- pledged to increase exports and explore further avenues of energy sector development, including in renewables.

Favored for its proximity, established supply routes and robust export infrastructure, Algeria now ranks as Europe’s second-largest pipeline gas supplier after Norway and accounted for more than 13% of EU gas imports in 2023 despite a slight fall in volumes year on year.

It is the largest single pipeline gas supplier to both Italy and Spain with exports to the former via the Medgaz pipeline totaling 8.53 Bcm last year, slightly lower than the 9.08 Bcm recorded in 2022, while exports via the Transmed pipeline to Italy totaled 21.92 Bcm, down from 22.41 Bcm the year before, according to Commodity Insights data.

LNG has also been a key area of Algeria’s energy development. In 2023, the country’s total LNG exports reached 13.23 million mt (18.2 Bcm), up by more than 23% compared to its 2022 level of 10.48 million mt, Commodity Insights data showed, although still well short of theoretical nameplate capacity of 25 million mt/year.

Algeria has four LNG production facilities -- three at Arzew and one at Skikda -- but Arzew has been operating below capacity due to bottlenecks. Sonatrach has been working to return its two oldest LNG production facilities at Arzew, which started up in 1978 and 1981 respectively, to their design capacity with an upgrade project launched in 2020.

Exports have been steady through 2024 reaching 8.25 million mt as of the start of September, with the majority of cargoes shipped to France and Turkey.

Meanwhile, the expansion of port capacity at Skikda with the commissioning earlier this year of a new jetty capable of receiving larger vessels has broadened its ability to market LNG to more demand centers, notably Asia.

It comes as spot LNG prices remain high. Platts, part of S&P Global Commodity Insights, assessed the DES LNG Mediterranean marker on Sept. 5 at $11.56/MMBtu while the JKM Asian benchmark was assessed at $13.025/MMBtu the same day.

Cooperation agreements

State-owned company Sonatrach has been a key vehicle in establishing closer energy ties with European entities, both in terms of pipeline gas and LNG offtake.

Alongside greater upstream activity, the company has increased its focus on finding new markets. In February 2024, Germany’s VNG -- a subsidiary of German utility EnBW -- became the first German company to import Algerian pipeline gas under a mid-term deal.

In May, Sonatrach also saw its LNG supplied to Croatia’s Krk terminal for the first time, with part of the cargo also being sent onward to Hungary, consolidating its “central role” in the security of Europe’s gas supplies, it said.

The company agreed a new long-term LNG capacity deal at the UK’s Grain LNG terminal in late January, and committed to delivering additional gas supplies to Slovakia’s Geoplin under an existing three-year gas supply deal in May.

“This collaboration not only strengthens Algeria's presence on the international energy scene but also demonstrates its commitment to extending bilateral economic cooperation topics to a more advanced level," Sonatrach said at the time.

OPEC+ constraints

Algeria's crude output has been restricted by its commitments under the OPEC+ accord, which involves a series of production cuts since October 2022.

It produced 900,000 b/d of crude in July, according to the Platts OPEC+ survey by Commodity Insights, below its quota of 910,000 b/d and down from more than 1 million b/d at the beginning of 2023.

The country sits on the OPEC+ alliance’s influential nine-member Joint Ministerial Monitoring Committee, which is tasked with overseeing compliance with the deal and assessing market conditions.

“Algeria is in favor of market stability and has always confirmed its commitment to OPEC+,” said Brahim Oumansour, an associate research fellow at the French Institute for International and Strategic Affairs who studies Algerian geopolitics.

Algeria is one of eight OPEC+ countries implementing an extra round of voluntary cuts since mid-2023. Those cuts were set to gradually unwind from October, but under a deal reached Sept. 5, the tapering has been pushed back to December.

Algeria’s quota is now set to rise by 4,000 b/d each month from December until it hits 959,000 b/d by November 2025.

The Algerian energy ministry and Sonatrach declined to comment on the country’s crude production plans in the fourth quarter.

Algeria also has plans to increase its refining capacity, but progress has been slow in recent years.

Work on a new refinery in Hassi Messaoud has been ongoing since 2017 and was originally due online in 2024, but is now expected to be commissioned by the end of 2027, with officials citing the COVID-19 pandemic for delays.

It has also yet to take final investment decisions on two other new facilities in Biskra and Tiaret.


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