The political changes needed to transform Algeria's economy and its dominant oil and gas industry remain dormant amid the country's mass protest movement, which is entering its seventh month without showing any sign of weakening, according to Mostefa Ouki, a senior research fellow of Oxford Energy, an independent research center of Oxford University, on Tuesday.
Ouki, in his latest report, Algerian Gas in Transition, said that, surprisingly, no adverse impact has arisen in the operations of Algeria’s hydrocarbon industry despite several months of ongoing political tension.
The report, which focused on natural gas, said this segment has been facing increasing difficulties for a long time and its fundamental problems intensified following the 2014-drop in oil prices.
"Today, the structural challenges of Algeria’s natural gas balance continue to persist in a politically turbulent climate and in an economy with much reduced financial resources and margin of maneuver," Ouki noted.
Nonetheless, he said that these issues are becoming more and more difficult to ignore.
Ouki underlined that on the supply side, Algeria’s declining or stagnant natural gas production trend is ongoing. He reiterated the urgent need to resume upstream investments with international partners through an enabling framework.
"New gas supply projects, like the South West gas projects, are finally coming on stream. But these additional volumes of gas will not be sufficient to significantly improve Algeria’s natural gas balance," he warned.
The expert said to get the industry back on track; it will require, most importantly, the fast-tracking of the promulgation and implementation of revised hydrocarbons law to streamline permits for hydrocarbon projects.
"It will also necessitate the launching of a multi-faceted program to overhaul the country’s daunting bureaucratic system that significantly delays all permitting and approval processes to develop and implement projects," he said.
"There is hope that this overhaul and fight against bureaucracy and bad governance could materialize with the advent of a new governance system that could emerge following the country’s current political transition."
Ouki outlined that this comprehensive program is much needed as domestic gas demand is set to increase in Algeria over the next ten years.
- Competitive gas pricing and flexible conditions needed
According to Ouki, the fragility of Algeria’s natural gas balance continues to raise concerns locally and internationally about the country’s ability to maintain its current gas export commitments and potentially develop new export opportunities.
"However, the series of gas export contract renewals that have been signed since summer 2018 is an encouraging sign for Sonatrach [Algeria's state oil company] and Algeria. The key challenge, though, remains the issue of future gas supply availability.
"Furthermore, under much fiercer international competition, Algerian gas needs to be not only cost-competitive, but also its gas export terms and conditions have to be as flexible as its competitors," he said.
Ouki explained that over the last two decades, Algeria’s natural gas balance has undergone some fundamental changes. With the reduction of gas export revenue, the government responded by introducing the revised hydrocarbon laws and a national renewable energy program.
In 2015, Algeria launched a national program for the development of renewable energy to increase renewable energy capacity to 22,000 megawatts by 2030, equivalent to around 27% of total forecast energy provision, up from 2% at present.
He noted that the country's new gas export potential to the year 2030 could become limited, even after implementing some of the reform measures. He said this is because actions to address the issue of subsidized domestic electricity and gas prices remain absent, at least publicly.
However, he said there is hope that this subsidy issue that has lasted for decades at a very high financial cost could be addressed gradually. He explained that the reason for a potentially fundamental policy change is mainly the fact that the Algerian economy can no longer afford this heavy financial burden of price subsidies and the ongoing political transformation.
Ouki said that Algerians are likely to give new credible, legitimate and accountable policymakers the opportunity and time to address difficult and unavoidable economic reform tasks, such as the reform of the price subsidy system.
According to the Algerian Ministry of Energy, the country exported a total of 51.4 billion cubic meters (bcm) of natural gas in 2018.
Of this volume, 74% was exported through cross-border gas pipelines and 26% as LNG. Two southern European countries (Italy and Spain) accounted for two-thirds of these exports while Turkey is also a long-term LNG customer of Algeria.
Algeria has been in turmoil since President Abdelaziz Bouteflika stepped down on April 2 after 20 years in power, under pressure from mass protests demanding the removal of the ruling elite and the prosecution of people suspected of corruption.
On Sept. 15, Algeria's interim president Abdelkader Bensalah said the country would hold a presidential election on Dec. 12.
By Murat Temizer