The Ukrainian crisis has the international community in suspense. In addition to the possibility of an armed confrontation, disturbances are feared on the world market for certain raw materials, notably gas and wheat. Algeria is therefore directly affected by the repercussions of the ongoing showdown between Russians and Westerners.
Concerns are expressed in particular about the continuation of Russian gas deliveries to Europe, which largely transits through Ukraine. As a pressure card, the United States also threatened to sanction the consortium responsible for operating the Russian mega-gas pipeline Nord Stream 2, the construction of which was decided to circumvent Ukraine and to double deliveries in particular to Germany. Its cost is 11 billion dollars.
Even if it is difficult for the Russians to take the initiative to cut off deliveries in view of the importance for their economy of the revenues from the gas supplied to Europe and the difficulty of finding a new market of this size, this episode shows the strategic interest for Europeans to further diversify their gas suppliers.
Russia is in fact Europe’s leading supplier with 41% of the market share. It is followed by Norway with 16%. The other suppliers are Algeria, Qatar, Nigeria, and the United States, in particular.
The Europeans buy 2/3 of its gas exports from Algeria, but Algeria’s share in this market is only 6%. The situation is more than favorable for raising this quota, especially since in comparison with the other producers aspiring to take over the shares that Russia will eventually leave, Algeria has a major asset, its geographical proximity which allows the transport by pipeline, therefore safe, fast and less expensive deliveries.
Experts are beginning to identify alternatives to at least reduce Europe’s dependence on Russia for gas. There is of course the American shale, which former President Donald Trump tried to substitute for Russian gas, in vain in the face of the reluctance of certain major countries of the European Union, including Germany. A godsend for Americans. President Joe Biden has already planned to dedicate 80 LNG carriers to transport gas to certain European countries.
Algeria, a serious option
But American gas has a double drawback. It is transported exclusively by LNG carriers, which affects its cost. Moreover, American suppliers are only reliable in the context of rising energy prices. Their shale gas is only profitable from a certain price level (more than 60 dollars for American oil WTI), which is currently the case where Brent is around 90 dollars a barrel and WTI above $87 a barrel and dips often cause wells to shut down.
Other alternatives have been put forward, but all have their drawbacks: Nigeria, Azerbaijan, and Qatar are too far away, Egypt could become an importer again from 2023 and Libya is unstable.
Algeria remains the most serious option, not to replace Russia on the European gas market, but to take a larger share than the 6% it currently provides.
Algeria is ranked 11th in the world for proven reserves (more than 4,000 billion cubic meters) in more than 150 years of unconventional gas consumption and is only 200 kilometers from the Spanish coast.
This proximity has enabled it to have gas pipelines linking the Iberian Peninsula but also Italy. It has also proven its reliability for decades by ensuring its commitments in all circumstances.
At the height of the security crisis of the 1990s, oil and gas facilities were secured and exports were never affected. Just as the country has continued to respect its commitments to Spain after the closure of the Maghreb Europe gas pipeline ( GME ) which crosses Morocco last November.
Algeria’s room for maneuver is nevertheless reduced in the current state of affairs, due to limited production due to the difficulties in attracting foreign investors and internal needs growing from year to year.
“The situation should encourage Algerian officials to attract more foreign investment in the hydrocarbons sector, in particular in the gas sector,” said an Algerian expert, recalling that, unlike oil, gas, which is also a fossil fuel but less polluting, will still have its place in advanced economies resolutely turned towards ecological policies.
A new law on hydrocarbons was adopted in an emergency during the transition period between the start of the Hirak in February 2019 and the presidential election of the same year. Considered more flexible, the text aims to attract more foreign capital to boost declining production. But its entry into force depends on the development of implementing texts.
The other repercussion of the Ukrainian crisis for Algeria concerns wheat. Algeria is one of the world’s largest importers of this cereal and it so happens that since last year, it has started to turn to Russian wheat.
Moreover, Russia and Ukraine are among the main suppliers to the world market and a possible worsening of the crisis could have repercussions on supplies, and therefore on prices, which are already very high.
Russian deliveries have already fallen by 20% and price increases directly linked to the showdown are reported.
For Algeria, this is certainly bad news, but it could also serve as an opportunity to develop its cereal sector, which has immense room for improvement, whether in terms of yield or areas to be exploited. This is also one of the points discussed this week during the meeting of the Council of Ministers. During this meeting, President Abdelmadjid Tebboune described agricultural production as “a crucial issue for the nation”.
It is a “matter of national dignity, and that we have all the potential to meet the challenge, highlighting a decline in cereal production figures”, he said, according to the press release from the presidency of the Republic.
Algeria saw its cereal production drop sharply during the 2020-2021 season to 13 million quintals against 39 million the previous campaign.
To reduce Algeria’s dependence on imports, President Tebboune asked the government to “multiply cereal production by redirecting efforts in the agricultural sector, particularly in the South.
