Algeria is going through tumultuous times. Citizens have taken the streets to demand a change of government. This new episode highlights the country’s stability and casts a shadow of doubt on its capacity to maintain its significant hydrocarbon exports to Europe. The nation is one of Europe’s main energy allies. The conflict is far from over and a possible armed clash between civilians could entail an energy disaster for the Old Continent.
Political, economic, and social instability have been constant throughout the history of Algeria. The country’s most recent rise of conflict is still in full force. Since February, millions have taken the streets to demand a change of government and, most of all, a change in the country’s political system. Abdelaziz Bouteflika, who was on the path to becoming the nation’s president for life, was forced to resign after 20 years in power. The now-former president has been chair-bound since having a spinal stroke in 2013.
Nonetheless, Bouteflika’s resignation did nothing to calm the sandstorm. As president of the upper house in Parliament, Abdelkader Bensalah was his successor and called for elections on July 4. But this did not seem to de-escalate the conflict either. The protests continue and the streets still burn.
This scenario is raising alarms all over the European Community and especially in Spain, given that Algeria is one of the continent’s main energy allies. Spain is one of Algeria’s main allies in the European Continent. The Iberian country is the second-largest buyer of Algerian gas, only behind Italy.
Similarly, it imports half the gas it consumes from this Maghreb country. Spain’s Corporation of Strategic Reserves of Petroleum Products (Cores) indicated that in 2008 the country imported 51% of the gas it consumed from Algeria. Dependence on Algerian gas has been even higher: in 2015, 62% of the gas consumed in Spain came from Algeria.
Major Spanish companies have a presence in Algeria, but this is mostly the case with large utilities. Repsol stands out among these companies with five oil fields that generate 18,000 barrels per day. Additionally, the firm operates two exploration perimeters and participates in the Reganne North macro project, which produces eight million cubic meters of gas in six fields (Azrafil Sud-Est, Kahlouche, Kahlouche Sud, Tiouliline, Sali, and Reggane), the equivalent to 10% of the country’s gas demand. Cepsa was also granted important licenses. The Spanish firm is producing both oil and gas and participates at the rich Timimoun field and exploring the Rhourde er Rouni II field.
Despite the political crisis and social unrest, short-term gas supplies to Europe seems to be guaranteed
Meanwhile, energy and gas company Naturgy is also taking part in Algeria’s exploration structure, as the nation is also its main natural gas supplier.
The ties between both nations extend beyond oil and gas trade. Other relevant deals in transport, water, and trade elevate their business relationship. With regards to water, several Spanish companies have installed desalination plants in Algerian costs. FCC, for instance, was granted the administration of the desalination plants in the coast of Mostaganem through Aqualia. Abengoa will manage the Ténès desalination plant for 25 years, while Acciona will manage the one in Fouka.
As to the transportation sector, CAF has agreed to supply 17 trains for regional services and 14 units for the Algiers subway system. Both nations connect by sea through companies Balearia and Transmediterranea, and by air through airlines Iberia and Vueling, which have flights directly to Algiers and Oran.
On the commercial side, various Spanish franchises of all types are operating in Algerian cities. In the case of banks, for example, Caixabank and Sabadell both have offices in the capital. According to the Algerian customs administration, 12.5% of the nation’s exports were sold to Spain, becoming its second-largest buyer, behind Italy.
Similarly, 7.6% of its imports came from Spain, standing as Algeria’s fourth-largest supplier. Spain’s Ministry of Industry, Commerce, and Tourism said that in 2018 sales to Algeria amounted to €3,384 million. Gas accounts for 94.6% of Spain’s imports from Algeria, with the rest being inorganic chemical products and fertilizer.
Gas as a geopolitical weapon
It is crucial that the EU compensates its dangerous energy dependence on Russia with reliance on its Maghreb allies. Historically, Algeria has been the top gas exporter from Africa to Europe. Russia’s tense relations with its European peers are becoming increasingly apparent. Furthermore, the Russian state has used its energy resources – mainly gas – to have a fixed and strong stance when it comes to negotiating with the EU in critical times, such as the crisis in Ukraine.
Vladimir Putin has been clear regarding his intentions with the former Socialist Soviet Republic. After taking Crimea, the Black Sea territorial waters, and promoting civil war in the east side of the country, Russia is playing the gas card at leisure.
Gazprom, the state-owned Russian giant, has become a sort of weapon for Russia to carry forward its strategies and achieve its geopolitical objectives in the region.
Moscow has used Gazprom has an energy arm in Georgia, Belarus, and Ukraine. The latest Ukraine episode is the best example of using gas as a geopolitical weapon when, during the most critical moments of the conflict over Crimea and other territories, the company decided to halt natural gas shipments through its “ally” in Kiev, Naftogaz, in spite of the fact the Stockholm courts ruled in favor of the Ukrainian company.
It is crucial that the EU compensates its dangerous energy dependence on Russia with reliance on its Maghreb allies
If Europe continues down the path of Russian dependence, it could face similar situations. According to Eurostat, 95% of gas imports to the European Union come from just four countries: Russia, Norway, Algeria, and Qatar. Norway has been the bloc’s most reliable supplier. With a sustained oil and gas production and enviable political stability, the Nordic country stands as the top EU energy ally. However, Norway’s gas production does not suffice to cover Russia’s market share since it currently stands at 38.8% of the bloc’s gas imports, compared with Russia’s 40.6%.
Meanwhile, Qatar accounts for just 4.9% of the gas supplied to the continent. The distance between both constitutes an obstacle to increasing the reliance on the Arabian nation, especially when compared with the proximity of the other three suppliers. Moreover, political issues make this small nation an unstable place with complaints denouncing that Qatar sponsors the Islamic State, which has put it in a tight spot with the main powers combatting jihadism in the zone. Algeria currently supplies 10.7% of the gas consumed in the EU. The figures indicate that Algerian gas exports to the continent have seen a steady rise and doubled since 1994. Similarly, the EU expects energy imports will increase to meet the rising demand. In this sense, gas purchases could account for 80% to 90% of Europe’s demand in 2030.
Therefore, energy dependence in the European continent is an undeniable reality. The bloc must safeguard the future and sustainability of gas demand in the continent, but likewise, it must keep in mind the geopolitical factors that force the EU to set its sight on the south, toward North Africa.
Will the crisis in Algeria jeopardize gas supplies?
This new episode of instability in Algeria has brought back concern and doubts about the stability of gas supplies to Europe.
Nevertheless, history indicates that numerous episodes of violence, war, and riots have not been an obstacle for safe and constant gas supplies to Spain and other countries in the European Union. Since the bloody war for independence, where Algeria’s National Liberation Front abolished French Colonialism, it has had Europe’s unconditional support.
The African nation even went through a tortuous civil war in which rebel Islamic fundamentalism faced the secular State, a conflict that began in 1991 and lasted for ten years. Those years were marked by brutal attacks against civilians and numerous clashes between the rebels and the state, but the energy industry never dwindled and O&G production and exports never stopped. On the contrary, European oil giants like British BP, French Total, and Spain’s Repsol continued to invest in large projects in Algerian territory. In fact, investments grew to the point that in 1996, in the midst of the civil conflict, the nations built the Maghreb- Europe pipeline, which crosses the Mediterranean and connects directly to Spain, one of the pioneering projects in the relationship between Algeria and the Old Continent.
Therefore, stable supply seems guaranteed in the short term. However, it is necessary for the country to have leadership and a coherent institutional situation so that hydrocarbons production and exports are fully guaranteed and free of concerns for transnational companies and European nations. On an institutional level, Sonatrach, an Algerian state-owned company in charge of managing all things related to crude and gas exploration, production, and exports has had six CEOs over the past nine years. If we add the country’s weak democracy and the recent crisis that stems from a clear lack of leadership, foreign investor’s trust could be affected.
Spain, for its part, can relax. As of now, gas supplies have not been disrupted or are expected to be. History indicates the priority for both European countries and Algeria is to maintain a constant flow of gas and crude, for the sake of all parties involved.
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