Strengthening EU-Algeria energy cooperation


Security of energy supply, and in particular of natural gas, is the first dimension of the Energy Union. Secure supplies of affordable energy to European citizens and companies require diversification of sources, suppliers and routes to ensure effective competition on the EU market. To achieve this diversification, it is important to establish new strategic partnerships with diverse energy producing and transit countries and regions.

The main priorities to increase our energy security and reduce our dependence on a single supplier are namely: redoubling our effort on the southern gas corridor, developing the LNG market in Europe and establishing a Mediterranean gas hub by relaunching the Euro-Mediterranean energy partnership.

Pushing ahead with this plan, the European climate action and energy Commissioner, Miguel Arias Cañete, visited Algiers last May to launch a new high-level political dialogue on energy matters, together with the Minister for energy and mines of Algeria Yousef Yousfia. The meeting intended to enhance bilateral energy cooperation, in particular through the creation of two groups of experts, dealing with natural gas and with electricity, renewables and energy efficiency respectively. Indeed, since natural gas currently represents the most important area of energy cooperation, the area of improvement concerns energy efficiency and renewable energy.

For Algeria, natural gas represents a vital sector of the economy, accounting for about 20 % of tax revenues and 40 % of export earnings. According to British Petroleum, the  country owns the tenth largest proven natural gas reserves in the world (4.5 trillion cubic metres). These reserves might increase still further, considering that the Energy Information Administration (EIA) estimates that Algeria owns the third largest technically recoverable shale gas resources (about 20 trillion cubic metres) in the world, after China and Argentina.

Meanwhile, the country’s natural gas consumption has progressively grown over recent decades, to reach an all-time-high of 32 bcm in 2013. Consequently, exports have declined substantially, to 43 bcm in 2013. Under these circumstances, the well-established natural gas infrastructure connecting Algeria and Europe has been increasingly under-utilised.

In 2013 Algeria exported 25 bcm of natural gas via pipeline (out of an export capacity of 54 bcm) and exported 15 bcm of LNG (out of an export capacity of 40 bcm). The magnitude of the 54 bcm of unused capacity is impressive if compared with, for example, the southern gas corridor, a major EU natural gas supply diversification project, which is expected to deliver only 10 bcm/y to the EU by 2020.

Domestic natural gas consumption in Algeria grew constantly over recent decades, largely because of the country’s booming electricity demand, which quadrupled from 16 terawatt-hours (TWh) in 1990 to 58 TWh in 2012, while Algeria’s electricity generation mix continued to be largely based on natural gas (92 per cent). Algeria’s primary energy intensity (the indicator measuring the total amount of energy necessary to generate one unit of GDP) increased from 2000 to 2013, albeit within a structurally low band.

In the same period, average primary energy intensity substantially decreased not only for the EU and the world as a whole, but also in several countries with a comparable GDP. Qatar is an exception to this trend, being one of the most energy-intense countries in the world.

If this negative trend continues, it will require a further expansion of domestic energy infrastructure and also imply lower energy exports to Europe. Therefore energy efficiency should be considered as a key tool to secure the viability of future exports of natural gas from Algeria to Europe.

So the infrastructure and geological preconditions seem to be in place for a significant enhancement of the cooperation between Algeria and the EU in the natural gas sector. The problem is that there is not a great deal that the EU can do to help Algeria improve the sector. The major bottlenecks are caused by the internal regulatory framework, which is deeply rooted in the political economy of the country. Universal energy subsidies and rent-seeking behaviour by various parts of the public sector are the major barriers to foreign investments.

As this is a highly politicised area, the EU could only contribute by sharing best practice through different channels such as the newly established EU-Algeria group of experts on natural gas and the Association of Mediterranean Energy Regulators (MEDREG).

The second target of a new cooperation scheme should be renewable energy. The natural gas-based electricity generation mix of Algeria appears unusual, given the huge renewable energy potential of the country. Algeria estimated to have considerable photovoltaic (PV) and wind energy potential. Renewables will become competitive as increasing electricity demand will require additional gas turbines while the cost of renewable energy technologies are expected to decline further.

The EU stands ready to support Algeria in implementing its national strategy for renewable energy and energy efficiency. The Commission, whose objective is to make Europe the world leaders in renewable energy, will work with its Algerian partners to identify needs and possible cooperation projects.

In the medium term, the exploitation of renewable energy resources could generate consistent economic benefits for Algeria. This could free up large volumes of natural gas currently used for domestic electricity generation for additional exports to Europe. Considering the underutilised export infrastructure, this would translate into immediate economic returns for the country.

The situation in the Mediterranean region is worrying Europe. The EU should reaffirm its support for Algeria, which plays a key role in discussions aimed at the resolution of the Libyan crisis and the Malian conflict. These conflicts are a source of instability and are reflected in particular by an increase in terrorist threats. By strengthening our relations with Algeria, a major military power in North Africa, we can seek lasting political solutions to bring stability and security.

The EU and Algeria must also continue their cooperation in the energy sector. EU Member States suffer from energy dependence and the launch of the EU-Algeria high-level energy dialogue reflects a real willingness to strengthen our partnership in this area.

Cooperation in the electricity, energy efficiency and renewable energy area could therefore be highly beneficial for both the EU and Algeria. The Mediterranean region has undergone major changes in recent years. A fresh boost to Euro-Mediterranean relations, both bilaterally and multilaterally, is urgently needed. Algeria is one of the key players in the region and we must enhance our partnership with the country for the stability of Algeria and for future of the European Energy Union.

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