Europe’s natural gas situation is far from bleak if politicians are to be believed. With storage levels, hovering between 91-100% full, some sighs of relief are heard in NW European gas markets. The upcoming winter season no longer looks like a doomsday scenario, especially not as long as LNG vessels are floating in front of European ports, waiting to unload their cargoes.
The reality, however, is looking a bit bleaker, even with current high storage levels and Russian gas still entering European markets. Supply-side constraints could be a bigger headache than expected. Russian gas supplies will be hit when the EU puts in place its December 5 sanctions regime on Moscow’s oil and petroleum products, but also on the other side of the continent.
Southern European countries have been very active to secure new supplies in the last few months, delegations have been sent to Egypt and Algeria to ask for additional volumes and long-term contracts. Egypt’s LNG exports are booming, with more to come the next year. Cairo has even ordered lower domestic energy consumption rates to support additional LNG export capacity.
Algeria, Europe’s largest North African gas exporter, is also taking advantage. One after the other long-term gas agreement is being presented, as Spain, Italy and even Slovenia are signing up. Optimism is great, but Algerian internal politics seem to be a major stumble-block again. As Arabic energy news site Attaqa reported on November 17, the expected long-term Algerian-French gas deal has again been challenged by political infighting. Sources have stated to Attaqa that Algiers has informed Paris that the current deal has been postponed indefinitely. France was hoping to sign the deal before the end of 2022, countering the loss of Russian gas supplies. With this agreement, Paris expected to increase its current Algerian gas imports by around 50%. Officially Algiers has postponed the negotiations until 2023. Insiders have reiterated that one of the main reasons for the delay of the deal is internal Algerian pressure to force France to pay for its reluctance to be more flexible in its visa regime for Algerians, to recognize and pay up for its colonial past in Algeria and to recognize its wrongdoings in the past.
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In August, Algerian president Abdelmadjid Tebboune and his French counterpart Emmanuel Macron signed the "Algiers Declaration for a Renewed Partnership between Algeria and France". However, the commemoration of the 60th anniversary of Algeria’s independence has caused again political friction, as both sides emphasized their own position strongly. France’s influence in Algeria has been waning and is now standing behind countries such as Turkey and Italy. The influence of Russia and China (Algiers's largest partner) is much larger even.
For France, the continuation of its spat with Algeria comes at the wrong time. Europe’s future gas supplies are very insecure, so any additional pressure on normal import volumes is considered very critical. At present, French energy company ENGIE is still continuing its talks with Algerian government-owned Sonatrach with regard to additional LNG and pipeline volumes, as stated in June 2022. The negotiations now seem to be hitting a snag, as differences exist over the Algerian side's refusal to increase the duration of the contract (2024) while also price differences still exist.
Other European countries also are expecting extra Algerian supplies. On November 18 Italian oil and gas major ENI stated that it expects gas flows from Algeria to be doubled by 2024. Lucia Calvosa (Chairman of the Board ENI) stated that “replacing Russian gas will largely come from Algeria, whose supplies to Eni will double from about 9 billion cubic meters per year to about 18 billion cubic meters by 2024. Of these additional 9 billion, a part has already arrived and the other will arrive progressively during 2023 ".
Another message comes from Spain. Even as Spanish energy company ENAGAS said that at present Algeria supplied 21.2% of gas through the Medgaz pipeline, which is 20% of total Spanish consumption, no real extra volumes have been received. Since the end of 2021, Spain and Algeria are in a political conflict, linked to Morocco and Polisario, a liberation movement claiming Western Sahara. Any strengthening of Algeria’s gas export position in the Spanish market is only caused by the fact that other suppliers have reduced their volumes to the Iberian Peninsula.
The optimism of some European countries is based on expectations, which are not yet materializing. Without additional supply, Europe could struggle to secure sufficient gas in 2023. Algeria may not bring the much-needed stability EU gas markets, and may not even stick to normal supply levels. During the last couple of months, it became evident that Algerian promises and new contracts are not a strong basis for secure supply. In the first nine months of 2022, Algerian exports fell 12% year on year, hitting a level of only 36.2bcm.
Some are even more worried about the coming months, as the influence of Moscow in the North African country is still growing. A potential direct result of the upcoming EU oil sanctions on Russia could be a much more recalcitrant Algiers. Increasing domestic political pressure and “expected” technical mishaps are possible scenarios. Last week, Russia and Algeria held joint military exercises in the Mediterranean, and Moscow is also Algeria’s largest weapons supplier. For now, it looks like Algiers is looking to play both sides of the fence.
By Cyril Widdershoven for Oilprice.com
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The maximum the amount of gas and LNG that Algeria can supply to the EU is estimated at 40-43 billion cubic metres (bcm). The reason is that out of a production of 100 bcm, domestic consumption takes more than half and this consumption is on the rise.
Moreover, Algeria is a very close ally of Russia meaning that it will never undermine Russia’s position vis-à-vis the EU.
The EU is wasting its time looking for alternatives to Russian gas supplies. Instead, it is being milked by its great ally the United States for the LNG it provided to it.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert