This dual approach not only supports the growth of local industries but also addresses domestic energy needs, thereby fostering energy security and sustainability.
By integrating LNG into its domestic energy mix, Algeria has taken significant steps to reduce reliance on traditional fossil fuels and promote a cleaner, more environmentally friendly energy landscape.
Expanding Infrastructure Development
Algeria’s gas success has been supported by substantial investments in infrastructure.
Strategically located in close proximity to high-demand European markets, the country prioritized the development of pipelines, LNG facilities and export terminals to get gas to international markets more effectively.
Algeria currently exports gas to Europe through the Medgaz pipeline (linking Algeria to Spain) and the TransMed pipeline (linking Algeria to Sicily via Tunisia), both of which are supported by a robust domestic pipeline network. These pipelines have proven crucial for the efficient extraction, transportation and distribution of gas while enabling the country to diversify its markets beyond its national borders. In 2022, Algeria’s gas exports averaged 56 billion cubic meters, earning the country $50 billion in revenue.
Export infrastructure has not only incentivized further investment in Algerian gas, with energy majors such as Italy’s Eni eager to maintain LNG flows to the country, but have enabled the North African country to kickstart the development of various other economic sectors on the back of revenue generated from LNG.
This strategy can serve as a blueprint for other African nations. Mozambique and Tanzania, with their geographical proximity to Asian markets, and Senegal and Mauritania, with their proximity to Europe, stand to significantly enhance value addition from gas through infrastructure investments.
Long-Term Planning and Reinvestment
Algeria’s gas strategy has been largely based on long-term planning and investment. The government has been committed to strategic projects, recognizing the importance of sustained efforts to maintain production flows. Earlier this year, Sonatrach announced plans to invest up to $40 billion in exploration, production and refining under efforts to “preserve production capacity,” CEO Toufik Hakkar stated.
The government also implemented its new Hydrocarbon Law in 2019, simplifying fiscal terms to entice investment. In response, global energy majors such as Eni, Chevron and TotalEnergies are accelerating exploration efforts while Sonatrach continues to invest heavily in both existing and new fields.
Algeria is also preparing to launch its next licensing round while Sonatrach is in negotiations with energy majors to advance shale gas exploration. The country holds the third-largest shale reserves worldwide (20 tcf) and plans on utilizing this industry as a catalyst for long-term economic growth. Efforts to invest in exploration, reinvest in existing fields and develop long-term production plans are poised to yield positive results for Algeria’s industry, and other nations in Africa can follow suit.
Much of Algeria’s recent natural gas success is derived from its quick response to global market trends. Leveraging its geographical stronghold, the country rapidly positioned itself as the next best alternative to Russia as global consumers announced plans to reduce their reliance on the Eastern European nation. As such, Algeria increased exports to Italy, France and other European markets in 2022 and 2023.
Strategic decision-making has consolidated the country’s position in global supply chains, enabling Algeria to advance its own gas agenda on the back of new collaborations. Countries like Mozambique – already a major power exporter to the Southern African community – can leverage its new gas resources to tap into regional energy-starved markets. The same can be said for Senegal and Mauritania, both of which border major importing markets in West Africa.
Prioritizing Domestic Value Addition
The majority of Algeria’s gas is consumed locally, with investment in gas-to-power infrastructure and downstream facilities advancing job creation and socioeconomic growth. Power plants consume 44% of domestic gas while building consume 25% and industry consumes 20%.
Now, Algeria has an access to electricity rate of 99.8% and continues to witness the rapid growth of various other economic sectors such as agriculture, manufacturing and more. By prioritizing downstream investments and domestic market tie-in, countries across Africa can stimulate local consumption, thereby using gas as driver of socioeconomic growth.
Developing Local Capacity
Notwithstanding the role of global E&P players, Algeria’s efforts to strengthen local capacity has reduced reliance on foreign personnel. Focus on local content has advanced human capital development while priority is placed on local employees, suppliers and contractors. The Gas Exporting Countries Forum also chose Algeria as the host of its world-class Gas Research Institute. These efforts continue to accelerate economic growth while strengthening Algeria’s domestic market capacity. For other African nations, Algeria is a testament to the role capacity building plays in developing a thriving gas market.