Advertisements

But,  for which Energy strategies ?

The meeting of May 24th, 2016 between the EU and Algeria on energy strategies, should be beyond the strict framework of Energy as evidenced by the recent visit this May 2016 of the current Commissioner to the area.  Prior to this Algeria EU Meeting of May 24th 2016, Algeria has always been for both its European and American partners, a key player in regional stability and any destabilization could impact the whole Euro-Mediterranean and African region.

It is noteworthy to remind that the EU-Algeria Association Agreement was signed in 2002 and entered into force on 1 September 2005.   It replaces the 1976 Co-operation Agreements.

This paper traces the global axes on energy policy and recall the most urgent measures to be taken if Algeria wants to quickly pass the necessary energy transition and become a key partner for the European Union, that is its natural market and the largest in the world.

  1. The Association Agreement is as far as Algeria is concerned, a regional agreement on several components that are economic, political and cultural, whilst the agreement with the World Trade Organization (WTO) is more of a global agreement that is primarily focused on the economic and financial aspects.

The foundations of this Agreement in addition to its political aspects (commitment to move towards democracy and promotion of freedom of press, etc.) are based on Articles 32, 37, 39 and 54.   The European Union (EU) notes that it is for Algeria a guarantee for stability, and an encouragement of the development of freedoms in all political, economic, social and cultural, therefore leading to the establishment of state mechanisms law and internal democratization.   On the international political conjecture, Algeria invited by the EU to join the Conventions open to all developing countries, so as to perhaps encourage these to begin a bilateral dialogue on migration, mobility, human trafficking and smuggling, admission, readmission and voluntary return.   Regional cooperation in border management, treatment of mixed flows of migrants and international protection of those in needs, as well as with the improved contribution of Algerian citizens residing in Europe towards the development of Algeria.

On the issue of climate change, at the COP21 in Paris in December, Algeria’s willingness. part of the crucial challenge for the Mediterranean area, was welcome to submit useful data on climate change on the country’s Intended Nationally Determined Contributions (INDC) before the month of October and finalize its national plan on climate change before the end of 2015, stating its readiness to assist Algeria.

The EU must take into account in its neighbourhood policies, Algeria’s assets, in terms of regional security presence that is actively provided through its struggle against terrorism.

Algeria should be acknowledged as helping with pacification of the Sahel-Saharan facade through the various mediations and for its economic strength to include the reliable supply of gas to Europe for several decades and on a strict commercial basis.

From the Algerian standpoint, promoting the movement of people, ideas and protection of all countries nationals legally resident in the EU, must be taken into account in the new European Neighbourhood Policy (ENP) so as to contribute to the realisation of Algerian priorities of economic diversification that are synonymous with promoting non-oil exports, food security, human capacity building, institutional, political, economic and social governance.

Any cooperation between Algeria and Europe both vertical and horizontal should be based on a win / win partnership for shared prosperity away from any spirit of domination.   In 2015, according to the government official statistics the countries of the EU remain key partners with 49.21% of imports and 68.28% of exports.

Regarding the revision of certain clauses of the Association Agreement, which does not affect the overall framework but a reorganization of certain articles for a win / win partnership, for according to the European Commission, it cannot in any way force investors but rather facilitate any potential partnership.   On this, the Algerian Minister of Foreign Affairs was quoted as saying: “the evaluation process claimed by Algeria was not meant for undermining the Agreement, but, rather, to fully use it through a positive interpretation of its provisions, allowing some rebalancing of cooperation ties.”   On the European side, “constructive” discussions are mentioned.

For the European side of the bilateral relationship, whether in the energy or in business, trade has still unexplored potential, that seem somehow burdened by red tape and persisting political decisions.   In the EU, however, Algeria’s situation remains dependent on the evolution of oil markets, with sales from which the country derives most of its revenues, noting that energy cooperation, based on a specific protocol, is central cooperation with the EU.

  1. With regards to the meeting of May 24th, 2016, the statement jointly signed by the European Union and Algeria, the meeting on energy strategies, bringing together the policy makers, leaders of the European and Algerian public and private companies and industrial organizations, is part of a memorandum of understanding (MoU) on the establishment of a strategic partnership in the energy field, signed in July 2013 between Algeria and the European Union. An MoU that should expand the area of cooperation on renewable energy and energy efficiency.

Discussions will also focus on ways to promote the Algerian mining sector, promoting partnerships in the gas upstream in Algeria, and to provide opportunities for the Algerian gas in the European market, allowing the European Union to ensure some degree of diversify in its natural gas supplies.   In this context, the organizers insist on the European Union as being a key partner of Algeria, mainly in the field of energy, should show its ambition, through this meeting, and confirm its position as an actor and a global leader in renewable technologies and energy efficiency.   In the field of natural gas, Algeria being the third largest supplier to the European Union has also huge untapped resources with the advantage of geographical proximity and the availability of transport infrastructure, are intended to promote this country as a reliable supplier to the European Union.   A position that is Algeria’s despite the increasingly difficult international market.   Energy strategies with the objectives of intensifying cooperation in the energy sector will be discussed in a context of strong competition, particularly as Algeria’s medium to long term gas supply contracts’ would in their majority expire between 2018 and 2019.   This follows the different meetings in both Brussels as well as in the Algerian capital, orientations of Ministers in Council of February 22nd, 2016, a small board devoted to national policy in the field gas and posing the problem of the energy transition was set up.

  1. This Council of Ministers at its February 22nd, 2016 meeting stressed the continuation and intensification of exploration of natural gas resources, compliance with production schedules for productivity boosting and gearing all renewable energy development programmes as adopted by the Ministers in Council in May 2015 and, finally, to pursue all efforts towards rationalising energy consumption. As a matter of fact and as acknowledged by all, Algeria is facing the prospect of depletion of its reserves. The communiqué of the Council of Ministers, dated October 6th, 2015 provided an alarming state of affairs.   Hydrocarbon production, which was capped in 2007 at 233 million tonnes of oil equivalent (TOE), has subsequently been weakened continuously to reach 187 million TOE in 2012, before a slight increase the next year.   on the other hand, the national consumption of energy products has almost doubled between 2000 and 2014 (it reached 51 million TOE), and oil reserves amount to 4.533 million TOE (or 44% of the initial recoverable reserves), including 1.387 million of tons of oil and 2.745 billion cubic meters of natural gas.   It is useful to recall that hydrocarbon exports generated some $800 billion of foreign exchange earnings between 2000 and 2015 and allowed imports to exceed $650 billion.   This windfall has allowed Algeria to pay off all its external debt, decrease (artificially) domestic debt, dispose of sizable foreign exchange reserves and make huge investments in infrastructure, which absorbed over 70% of investments but with exorbitant costs.
  1. What should Algeria do in order to move towards an energy transition that is not only desirable but also necessary?

The first stream is to improve energy efficiency.  This refers to a new consumer behaviour and, above all, to a new policy, including industry and housing development, as well as targeted price ( to sell gas on the domestic market is about a tenth of international prices).   A recent UNDP study that used data from the International Energy Agency (IEA), Algeria is among the MENA countries that subsidizes the most its energy products, with $10.59 billion annually of which electricity accounts for $2.13 billion. Fuels’ real price, according to the Ministry of Energy and Mines, is expected to fluctuate between DA60 and DA80 a litre.   Regarding electricity prices capped, SONELGAZ, suggests that the rate is revalued by 11% per year in order to finance its investments, induced by the increase in production capacity, with a loss of over DZD80 billion.

The second stream would be upstream investment to achieve new discoveries but by targeting profitable deposits.   Algeria is experiencing a regression in physical production volume.   It lost market share (13/14% for gas on the European market in 2007-2008 but only 8% in 2015).

The third area is the development of renewable energy made as a national priority by the government and accordingly, Algeria has received in mid-July 2011 the hybrid power plant in Hassi R’Mel, with a total capacity of 150 MW, including 30 MW from combined gas and solar.   Interestingly, the combination of 20% of conventional gas and 80% solar seems to be a key focus for reducing costs and control technology.   The Electricity Regulation Commission and Gas (CREG) has announced measures to accompany the implementation of the Algerian programme of renewable energy development.   The obligation for producers to connect their facilities to the interconnected national electricity grid is the main condition of this new plant, the establishment meets the need for a new incentive mechanism for renewable energy production.   These are advantages from photovoltaic and thermal solar, wind, geothermal, small hydro, biomass, waste recovery and cogeneration facilities, the establishment of a guarantee of origin certificate equipment and renewable source of electricity facilities, the establishment of a new mechanism that will benefit all eligible producers of guaranteed purchase prices, the electricity producer to sell only energy distribution companies dependent SONELGAZ and respecting preferential rates, the threshold is set by the Ministry of Energy on the proposal of the CREG. Incentives are provided for a proactive policy through grants to cover the additional costs incurred in the national electric system and setting up .in a national energy efficiency funds (FNME) to ensure the financing of these projects and grant unpaid loans and guarantees for borrowings from banks and financial institutions.   The Algerian programme was initially to install a renewable power nearly 22,000 MW of which 12,000 MW per year dedicated to cover the national demand for electricity and 10,000 MW for export.   By 2030, approximately 30 to 40% of electricity production for domestic consumption would be from renewable sources.  The amount of public investment by Algeria in achieving its renewable energy development programme for the 2030 deadline, which was initially set at $60 billion, will amount, according to the Ministry of Energy, to $100 billion, bringing the capacity to 36,000 megawatts.

The problem is however, would Algeria have the financial capacity and the technological expertise to avoid the usual additional costs ?

  1. In summary, it must be recognized that the strategic objective of Algeria is to diversify its economy. Through a substitution policy to imports, development of agriculture, tourism, SMI / SME in order to densify the Algerian industrial fabric as well as  of everyday services, including R&D in new technologies, but realistically as required by globalization.   Adaptation is the key to survival and pragmatism an eminently modern tool for relationship management with others, Algeria whose fate is in the Euro-Mediterranean and African areas must do as dictated by reason and its interests both in the field of energy policy as security.

Written by Dr. Abderrahmane Mebtoul, University Professor, Expert International, ademmebtoul@gmail.com

(1) Research Professor Abderrahmane Mebtoul, published at the French Institute for International Relations (IFRI Paris France November 2011) – “Cooperation Maghreb / Europe and the geostrategic issues” – – “For a new strategic management Sonatrach” – review international HEC Montreal Canada (2010) – international Conference ADAPes / French parliament in November 2013- “the new global energy change” – “the gas strategy of Algeria face of global changes” international journal of today gas (Paris France – January 2016).

Advertisements