What effect could the Algerian events have on natural gas in Europe? In everyday operational terms the effects would be limited, but going forward perhaps Europe has been looking east when concerned about energy security and it’s time to start thinking in new directions: Not only about energy security in the south, but realising the importance of shale gas resources under our feet.
Algeria’s gas industry developed in the 1950’s and led to the first commercialization of world LNG. LNG development allows stranded gas to enter world markets and few places are as stranded as the Algerian Sahara. The area is over 1000 km from the coastal centres of population, literally in the middle of nowhere.
Today, Algeria is a major supplier not only on the LNG side but also via pipeline exports to Spain and Italy. Italy imported 1.57 BCM as LNG for example (BP World Energy 2011 figures) but far more significant was the 21.3 BCM via pipeline, almost a third of consumption and higher than an already significant 15.3 Russian supply.
Spain, until recently the second largest LNG importer after Japan, imported 3.99 BCM as LNG but since the opening of the Medgaz pipeline has used over 9BCM to give Algerian gas a 41% total market share.
With the increasing connectivity of the Italian market to the rest of Europe, flows from, or not from, Algeria could disrupt gas markets throughout Europe as significantly as Russian interruptions in Eastern Europe impacted Western European prices in the past.
Algeria’s top two LNG customers are France at 5.75 BCM and Turkey at 4.03, representing 14 and 10 per cent of total demand in each country. Algerian LNG has rarely showed up in the UK recently, crowded out by Qatar as Algeria also gets better prices for spot cargoes turning up as far away as India and Japan.
For the present, there are no reasons not to assume that Algerian gas will continue to flow, as it always has in times far more dire than these. The Algerian industry started exporting to France and the UK just as it became independent, despite the fact that it was the French colonial power that developed the resource.
The remoteness of the gas producing areas is matched by their contribution to the Algerian economy, where they provide well over 90% of exports and government revenue. This shows that the In Anemas area is at the edge of the gas fields and any cuts in flows could be made up from elsewhere. The key strategic junction is Hass R'Mel where gas comes together before it is exported west to Spain or north east to LNG terminals and Italy.
The immediate post independence era was a challenge that the Algerian gas industry met and it provided vital revenue that transformed the nation at a key time.
The nineteen seventies were in other ways even more challenging. At the same time Cove Point Maryland and Elba Island Georgia were approved to import Algerian LNG in 1972, the only trade the other way seemed to consist of Black Panther hijackings of US airliners to Algiers. Money, as usual, trumped any amount of rhetoric.
The 1990s were known as the lost or black decade, as a very bloody civil war raged in the population centres but was successfully quarantined from gas fields and networks. I’ve known people who worked in the south unaware of the bloodshed taking place in the north, throughout which the pipeline and port infrastructure remained undisturbed.
Put in this context, the past week’s tragic events show that Algeria will both continue to let gas and money flow and will seek to respond forcefully to any future hostage taking.
The significance going forward is how any new projects in Algeria will be seen in a new light which given as this map shows, could mean Algeria’s huge shale gas prospects may find trouble ahead.
This leads to two other important set of consequences. One obviously is that European shale gas resources will be more a more attractive alternative on the energy security front.
The second impact, which can only accelerate the first, is that the Desertec plan to export solar power from the Sahara to Europe via a new generation of power networks will seem even riskier and unworkable than it already is. Similarly, a long mooted Tran Sahara pipeline of Nigerian gas to Europe via Algeria is an idea that surely has missed it's chance.
Europe may yet wake up to the reality that if they want energy, to depend on Russia, North Africa, the Middle East or even US LNG when a large part of the solution to energy security is under both our noses and our feet is not only economically unwise and morally dubious but simply, as the greens would put it, unsustainable energy. European shale gas may not be the locally secure energy source people were predicting, or banking upon, until recently. But suddenly it's even more attractive.