Algeria’s Sonatrach has signed several agreements this year with foreign investors to help boost the state-owned company’s oil and natural gas output under a plan introduced last year.
The company has entered several memorandums of understanding (MOU) this year, including with Eni SpA and Equinor ASA to further explore the In Salah and In Amenas region in Algeria’s southwest. Additionally, Sonatrach and TotalEnergies SE signed an MOU to develop gas resources in Algeria’s northeast Timimoun region.
TotalEnergies also extended its existing 2 million metric tons/year (mmty) supply agreement with Sonatrach through 2025 to deliver LNG to the Fos Cavaou terminal near Marseille, France.
Algeria’s 20.8 mmty Arzew and the 4.5 mmty Skida liquefaction facilities are reportedly operating at less than 60% capacity, but despite production and capacity issues, Sonatrach is committed to continuing exports of the super-chilled fuel.
Energy Aspects estimates liquefied natural gas exports for 2024 at 16.4 billion cubic meters (Bcm,) a year-on-year decrease of 1.3 Bcm, with a further decline to 8.5 Bcm by 2028, although higher export volumes are forecast during 2024-2026, driven by elevated prices.
Sonatrach recently completed a deep-water jetty at the Skikda LNG facility to maximize production to enable Algeria to load larger vessels for non-European exports, a capability previously exclusive to the Arzew export facility.
After Norway, Algeria is the second largest pipeline gas supplier to Europe. Algeria has three pipelines running to Italy and Spain, and a fourth pipeline proposed from Nigeria. It is the top gas supplier to Spain and Italy. A 2022 agreement between Eni and Sonatrach will eventually deliver up to 9 Bcm of piped gas to Italy by 2026.
Pipeline gas exports to Italy are expected to reach 22.5 Bcm in 2024, with a projected decrease to 20.4 Bcm by 2028, staying within the annual contract quantity, according to Energy Aspects. Exports to Spain are forecasted at 9.4 Bcm in 2024, with a gradual reduction to 8.3 Bcm by 2028. Exports to Morocco are anticipated to remain consistent year-over-year.
Sonatrach signed a second pipeline deal to supply gas to Germany-based VNG Handel & Vertrieb GmbH. The volume and timing of that deal were not confirmed.
Algeria sends 85% of its gas exports to Europe, making it the continent’s third largest supplier. The country is working to strengthen its role as a pipeline and LNG exporter, particularly to Europe, by investing $50 billion through 2028.
Under new CEO Rachid Hachichi, Sonatrach has allocated up to $8.8 billion for 2024, with the majority to be devoted to gas exploration and production.
Despite Algeria holding an estimated 159 Tcf of proved natural gas reserves, plans to increase pipeline and LNG exports have been challenged by the lack of investment over the last decade in exploration, production and infrastructure.
Algeria’s gross gas production has entered a terminal decline, but reduced gas reinjections and efficiency savings from lower flaring will support net production throughout 2028 to help sustain both pipeline and LNG exports, according to Energy Aspects.
“Gross production is forecast to be 185.9 Bcm in 2024 (net 102.5 Bcm),” EnergyAspects analyst Tom Purdie told NGI. “By 2028, a decrease of 30 Bcm in gross production is forecast to 155.3 Bcm, while net production is expected to decrease less steeply.”
Another risk to export volumes is the country’s domestic demand growth. Despite Algeria’s potential for renewables, domestic gas consumption increased by 5% in 2022 compared to 2021, a major problem for the government when nearly 55% of the country’s gas production is needed to meet industrial and residential demand.
