Algeria, which signed a deal on Monday to increase its gas supplies to Italy, which wants to reduce its dependence on Russia, has sizeable reserves but its export capacity is nearing exhaustion.
The North African country, whose proven natural gas reserves total nearly 2.4 trillion m3, supplies around 11% of the gas consumed in Europe, versus 47% for Russia.
Several countries trying to reduce their reliance on Russian supplies since Ukraine’s invasion have turned to Algeria, which is also a Moscow ally, but Algiers has very limited capacity to boost its exports.
Will Algeria be able to comply with the new agreement with Italy?
Few details have been leaked so far on this deal, which was struck during a visit to Algiers by Italian Prime Minister Mario Draghi, but according to a press release from Italian energy group ENI, it is seeing one “Progressive supply with increasing gas volumes from 2022, up to 9 billion cubic meters of gas per year in 2023-24”via the Transmed gas pipeline, which connects the two countries through Tunisia.
Italy is already the first customer of Algerian gas, which accounts for a third of its supplies. According to the official Algerian agency APS, it had imported a total of 6.4 billion cubic meters in the first quarter of 2021, an increase of 109% compared to 2020.
“Questions revolve around the capacity of theAlgeria to increase its exports.said Aydin Calik, an analyst at the Middle East Economic Survey (MEES).
Algeria is the first African exporter of natural gas and seventh in the world, but infrastructure upgrades and an increase in local consumption limit its scope for significantly increasing its supplies abroad.
According to figures compiled by MEES for 2021, the Transmed gas pipeline serving Italy had an unused capacity of around 7.8 billion m3, less than the 9 billion planned in the last Algerian-Italian deal.
According to expert Abdelmajid Attar, former Algerian energy minister, the gas could also be liquefied and transported by LNG tankers, knowing that “the liquefaction plants present in Algeria are only operating at 50/60% of their capacities”.
What impact on prices?
Algerian state-owned hydrocarbons giant Sonatrach said in a statement on Monday that the agreement with ENI “Also allows the two companies to set sales price levels for natural gas according to market conditions for fiscal year 2022-2023 in accordance with contractual price adjustment clauses.”.
According to Mr Calik, this could mean that Sonatrach won the favor of the new agreement “an upward revision” the price of its gas deliveries to Italy.
For Anthony Dworkin, an expert at the European Council on International Relations (ECFR), Algeria is trying to use the current context of the war in Ukraine to increase its supplies to Europe and its revenues.
“It also wants to show that it is a reliable energy partner for Europe”he adds.
What diplomatic implications?
Apparently concerned about not alienating Moscow, a longtime ally, Algeria reiterates that its additional export capacity to Europe is too limited to replace Russian gas.
According to Mr. Dworkin, Algiers “will likely maintain a balanced policy to maintain both its ties with Russia and Europe”.
He notes that Algeria traditionally gets arms from Moscow, but also from European countries like Italy and Germany, and that it has abstained or voted against United Nations resolutions designed to sanction Russia after its invasion of Ukraine.
“But maintaining ties with Russia does not mean this is the caseAlgeria miss out on lucrative business opportunities in export” of his gas, he believes.