Algeria’s Gas Industry Under Pressure from Russia & US

To compensate for competition from Russian gas and American shale gas, Algeria's state-owned company Sonatrach is forced to fall back on the export of liquefied natural gas. Algerian gas sales volumes to Europe are expected to fall by 25% this year, reports Bloomberg, quoting the vice-president of marketing of the state-owned company Sonatrach. Sonatrach’s European customers “have significantly reduced their demand” for conventional gas, said Ahmed El-Hachemi Mazighi.

Algeria supplies 11% of Europe’s gas. It is the third-largest gas supplier in Europe, after Russia and Norway. Competition from Russia, whose gas prices are more attractive, may partly explain this drop in sales. While Moscow currently supplies about 30% of Europe’s gas, the recent green light given to the completion of the Nord Stream 2 pipeline should double Russia’s export capacity, further complicating things for Algeria. The flooding of the market by American shale gas has also dealt a major blow to the competitiveness of Algerian gas supply contracts, which are mainly dependent on oil prices.

However, Algeria, has not opted for the exploitation of non-conventional hydrocarbons. These were the subject of strong protests in the south of the country in 2015. “In 2019, the trend was completely reversed due to the warm winter in Europe,” adds Mazighi, still quoted by Bloomberg. “2020 is expected to be a difficult year too. If we have a warm winter as last year, we will have to do a lot of spots, too.”

To compensate for the drop in sales, Sonatrach produced more liquefied natural gas (LNG), which the Algerian company sold for cash (immediate delivery and payment). This is the first time that 30% of LNG sales are made on a cash basis,” added Mazighi. LNG sales are expected to reach 5 Bcm this year, a “historical record”. This news comes during a difficult moment for Sonatrach.

On 14 November, its CEO, Rachid Hachichi, was dismissed after only seven months at the head of the Algerian flagship. Hachichi replaced Abdelmoumen Ould Kaddour last April, the latter having left a few days after Abdelaziz Bouteflika’s resignation. The reasons for Hachichi’s dismissal were not disclosed. Algeria is highly dependent on Sonatrach, from which it derives 60% of its budget and 95% of its export earnings.