Hands on the valve: How this former colony can now control Europe

Algiers is now playing an increasingly important role in ensuring EU energy security and is itself moving toward economic sovereignty

In the spring of 2022, at the height of the Russia-Ukraine conflict, the EU began thinking about abandoning Russian gas supplies and reducing energy consumption as much as possible. EU countries began looking elsewhere, and one of the places they focused their attention on was Algeria.

Now, two years later, Algeria is the largest pipeline gas supplier to the EU and continues to occupy the leading position in Africa in natural gas production and exports. But its position in a number of international issues is now posing a threat to supplies to Europe, and the countries of the European Mediterranean have to compromise in their foreign policy in order not to lose such an important source of energy.

In early June, Spanish energy company Enagas announced that Algeria had been Spain’s largest gas supplier for six months in a row, ahead of the former leader, the United States.

According to Enagas, Algeria exported a total of 10,267 gigawatt hours (about 973 million cubic meters) to Spain last May – 36.3% of the total gas imports into the country. Russia and the United States come next at 22.7% and 13.8%, respectively. This proportion has generally remained stable since the beginning of this year. Imports of American LNG to Spain dropped to third place, halving compared to the spring of 2023.

Gas for Europe

Algeria remains the most important gas supplier for the whole of Europe, especially the Mediterranean part. In 2023, it overtook Russia to become the second-largest supplier of pipeline gas to the EU after Norway. This has further strengthened the role of the African country in boosting European energy security.

Algeria sends 85% of its gas exports to Europe and is working to reinforce its role as a pipeline exporter by investing $50 billion in this industry by 2028. For 2024, its government has allocated up to $8.8 billion, most of which is directed to gas exploration and production.

Algeria has three pipelines going to Italy and Spain, one of which is currently inactive, and there is also a project to build a fourth from Nigeria. Algeria is the largest gas supplier for Italy, as well as Spain. An agreement concluded in 2022 between the Italian Eni and Algeria’s state oil and gas company, Sonatrach, is expected to deliver up to 9 billion cubic meters of pipeline gas to Italy by 2026.

The headquarters of Sonatrach

Loans no longer needed

In April 2024, the International Monetary Fund (IMF) put Algeria in third place on a list of the most important African economies, after South Africa and Egypt. Algeria overtook Nigeria, which took fourth place in the IBF rankings this time. According to the report, Algeria’s GDP this year amounted to approximately $266.78 billion, and the IMF expects growth rates of about 3.8% in the coming months.

In early May, the country’s president, Abdelmadjid Tebboune, said Algeria, which is practically free of foreign debt, is not going to borrow from international organizations. He noted that the Algerian economy’s growth rate had ranged from 4.1% to 4.2% last year, with Algeria’s GDP reaching $260 billion at the end of 2023. The government aims to increase this to $400 billion by 2026 and 2027.

FILE PHOTO: Algeria’s President Abdelmadjid Tebboune.

Tebboune also said the Algerian dinar had grown by 4.5% compared to hard foreign currency, and “this is just the beginning.” The country’s foreign exchange reserves have increased to $70 billion, which frees the country from the need to obtain new foreign loans.

It is worth noting that, when Tebboune came to power in 2019, foreign exchange reserves amounted to $42 billion, and import costs exceeded $60 billion. Moreover, the president noted that Algeria is determined to diversify its sources of income, moving away from a ‘rentier economy’ based on oil and gas exports.

“In 2022, for the first time in 40 years, Algeria saw a record volume of non-primary exports in the amount of $7 billion, whereas previously this figure did not exceed $1.5 billion,” Tebboune added.

First place in Africa

The report of the Organization of Arab Petroleum Exporting Countries (OAPEC) for 2023 says Algeria has taken first place for LNG exports from Africa for the first time since 2010, overtaking Nigeria, which had held this position for more than a decade. The volume of LNG supplies from Algeria abroad is the highest in the Arab world.

The report indicates that Algeria achieved its highest figures in 2023, when its total volume of LNG exports amounted to approximately 13 million tons, which is 26.1% more than in 2022.

New fields and plants

According to a recent statement by Algerian Energy Minister Mohamed Arkab, Sonatrach discovered eight important oil and gas fields in the country between January and May 2024. All are new undeveloped sites, and most are located in Bechar Province in southwestern Algeria, Salah Province in the central part of the country, and Illizi, Djanet, and Ouargla Provinces in the southeast. Without disclosing the figures, Arkab noted that these deposits “will be a significant addition to proven national hydrocarbons reserves, especially natural gas.”

FILE PHOTO. Inauguration of the new liquefied industrial gas production plant of the private company Calgaz in southern Algeria.

The minister noted that the law on hydrocarbons adopted in 2019 includes global measures that have borne fruit through the conclusion of large contracts with major companies like Italian Eni, Norwegian Equinor, and American Occidental Petroleum (OXY). In recent weeks, Algeria has also signed contracts with US energy giants ExxonMobil and Chevron to develop several oil and gas fields.

In May, Sonatrach signed a contract with Italian and American companies to build three gas processing plants to increase production at the giant Hassi R’Mel Gas Field located 550km south of the capital of Algeria. The aim of the project is to continue gas production at the largest gas site in the country and on the African continent.

“Algeria is a reliable country in terms of contracts, as well as large volumes of supplies to the European market,” Arkab stressed.

Sonatrach’s strategy today is to increase annual production to 200 billion cubic meters of gas within five years. According to the state-owned company’s data from 2023, the current volume of extraction has reached 137 billion cubic meters.

Trans-Saharan gas pipeline

Algeria is currently supplying Europe with gas through two pipelines. The first, TransMed, connects to Italy via the Mediterranean Sea. This route passes through the territory of Tunisia and has a capacity of 32 billion cubic meters per year. The second line, Medgaz, connects the port of Beni Saf on Algeria’s west coast with the city of Almeria in southern Spain. It is capable of transporting up to 10 billion cubic meters annually.

In 2009, an agreement was also signed between Algeria, Niger, and Nigeria on the construction of an ambitious Trans-Saharan gas pipeline, NIGAL, which will allow gas to be supplied from south of Nigeria to Spain and Portugal through Niger and Algeria. However, this plan remains extremely fragile. In early 2024, it emerged that the project had been put on hold due to the political situation in Niger, where a military coup took place in the summer of 2023. Nevertheless, in March, Energy Minister Muhammad Arkab said an agreement had been reached struck between Algeria and Nigeria to resume construction.

The Trans-Saharan gas pipeline, with a total length of 4,128km, should connect the Nigerian capital of Abuja with the coast of Algeria. The cost of this project is estimated at between $13 billion and $15 billion, including the cost of building the pipeline and collection centers. At a press conference following the seventh Gas Exporting Countries Forum (GECF) held in Algeria from February 29 to March 2 this year, Arkab noted that Nigeria has almost completed its part of the project, and only 1,000km remain to Niger. In turn, Algeria has completed the construction of 700km of the gas pipeline, and about 1,800km remain to its border with Niger.

It is worth noting that Nigeria is considering other options for supplying its gas to Europe. In particular, the Nigeria Morocco Gas Pipeline (NMGP), which will be laid along the coast of West Africa on the bottom of the Atlantic Ocean, has been under development since 2016. When completed, it is expected to be the world’s longest underwater line with a length of 5,660km.

For both Morocco and Nigeria, this pipeline presents an opportunity to boost their economies and raise the standard of living for their populations. However, for Algeria, it poses competition in the race to be the leading gas exporter.

Supplies to Spain: Rising tensions

Gas exports from Morocco to Spain have only recently returned to normal. In previous years, there have been many events that have brought it to the brink of complete cessation. The threat to supplies is primarily posed by Algeria’s international policy and its relations with its neighbors, especially Morocco, with which it has a long-standing dispute over the status of the territory of Western Sahara.

On August 24, 2021, Algeria officially announced the severance of diplomatic relations with Morocco, accusing the country of “hostile actions,” which consisted of support for rebel Algerian groups and assistance in setting forests in Algeria ablaze. Soon after, Moroccan military and civilian aircraft were banned from using Algerian airspace, and on October 31, a decision was announced not to renew a contract for the supply of gas to Spain via the Maghreb-Europe Pipeline (MEG), which passes through Morocco. Instead, LNG was to be delivered directly via the Medgaz highway. A little later, Algeria banned Spain from reselling gas supplied to the kingdom from its territory. This decision has put both Madrid and Rabat in a difficult position, especially in light of the looming energy crisis in the EU.

On June 9, 2022, Algeria stopped all export and import operations with Spain, with the exception of gas supplies, after it suspended its Treaty of Friendship, Good-Neighborliness, and Cooperation concluded with Madrid in 2002 over a change in Spain’s position with regard to Western Sahara, to which Morocco lays claim. The tension in relations with Madrid was prompted by a letter from Spanish Prime Minister Pedro Sanchez, sent to King Muhammad VI of Morocco in March 2022, in which he voiced his support for the Moroccan initiative to grant autonomy to Western Sahara.

In July 2024, Sonatrach announced the suspension of gas supplies to Spain due to damage to the Medgaz main pipeline, asserting that the failure had occurred “on the Spanish side.” At the same time, tensions continue between Madrid and Algeria over reexport of gas to Morocco. Algeria has repeatedly opposed the reverse flow of gas to the neighboring kingdom via the MEG pipeline, while Madrid has argued that the fuel supplied to Morocco comes from third countries.

FILE PHOTO. The Algerian Minister of Energy and Mines, Mohamed Arkab

Gas supplies from Algeria to Spain have currently stabilized, but now face a new threat. Last May, Algeria announced that it would stop supplying gas to the Spanish company Naturgy if it decides to sell its shares. Such a statement might seem strange if you do not take into account the fact that Naturgy is negotiating with the Abu Dhabi National Energy Company (TAQA), and Algeria and the UAE have been waging an unspoken war of hints for several months, accusing each other of hostility. The UAE’s normalization of relations with Israel, whose statehood Algeria does not recognize, remains the main cause of tension between the two countries.

A month earlier, TAQA said it was in talks with Naturgy’s three largest shareholders, which could lead to a purchase of shares and a full takeover of Spain’s largest gas company. Having signed contracts with Sonatrach, Naturgy owns a stake in a large gas pipeline between Spain and Algeria. Naturgy officials deny the possibility of selling their shares, and on June 11, TAQA announced that it had failed to acquire shares in the Spanish gas company.

View of Algiers coast.

Thus, guided by its own interests, Algeria cannot guarantee the EU complete energy security and independence from Russian supplies. So a former colony can now speak with Europe on equal terms, dictate conditions, and develop its economy while protecting its own interests.