At a time, when important issues are being raised and out of the ordinary tensions are taking place concerning gas fields, Algeria faces geostrategic gas tensions in the Mediterranean. It is, in particular, the tensions between Greece and Turkey, challenging it where its primary gas market is, in Europe, and whose hydrocarbons with derivatives provide 98% of foreign exchange revenues in 2019, where the price of gas disposal has fallen by more than 75% in 10 years and providing 33% of its SONATRACH’s revenues. Here is an analysis of options for this unprecedented east Mediterranean situation as seen from Algeria.
Between 2018/2019, according to the IEA we have the following distribution 33.1% of oil, 27.0% coal, 24.2% natural gas, 4.3% nuclear and 11.5% renewable energy (hydropower 6.5%, wind 2.2%, biomass and geothermal 1.0%, solar 1.1%, agrofuels 0.7%).
Natural gas pockets lie beneath the Earth’s surface and consist mainly of methane and other hydrocarbons. It is mainly used for electricity generation, heating and as cooking. Gas can also be used for air conditioning, lighting and as an alternative fuel for vehicles. It is considered one of the cleanest fossil fuels because it emits less carbon (about 50% less than coal) and other pollutants such as sulphur oxides and nitrogen. We have two types of natural gas on the market: natural gas and liquefied natural gas.
Natural gas is derived from fossil fuels and is made up of decomposing organic matter that has been released into the soil for millions of years and is routed through pipes. We have liquefied natural gas as far as it is a natural gas that has been changed to a liquid state so that it can be transported and stored more easily. Because natural gas deposits are often far removed from many consumers of this energy, transporting it in a gaseous state is risky and expensive.
Also and by cooling it, it is possible to transform it into liquid natural gas, There are two main markets on which the world’s natural gas is traded. The most important is the NYMEX or New York Mercantile Exchange located in the United States, and the second, the NBP or National Balancing Point of the International Petroleum Exchange located in London. There are other smaller markets such as the FTT in the Netherlands or The Zeebrugge in Belgium. Between 2018/2019, before the coronavirus outbreak, according to Cedigaz, demand increased, strengthening its place in the energy mix. In 2018, international LNG represented a provisionally estimated volume of 311 Mt, according to Cedigaz, up 8.5% from 2017. LNG now accounts for more than a third of gas trade, with growth in LNG imports concentrated in Northeast Asia (China and South Korea), where gas plays an increased role in electricity generation and heating. China contributes the most to the growth in global LNG demand, with more than 60% of the total increase in trade.
Proven world reserves on a total of 197.394 billion cubic meters of gas (data from 2018/2019) we have in descending order: Russia 47,800 billion cubic meters, Iran 33,500, Qatar 24,300, USA 8,714, Saudi Arabia 8,602, Turkmenistan 6061, Venezuela 5702, Nigeria 5,284, and China 5,194 and for Algeria between 2500 and 3000 according to the statement of the current Minister of Energy before his appointment and the communiqué of the Council of Ministers of 2014, the data of 4500 being those of BP of the years 2000. The top 10 countries producing natural gas in descending order are. Russia alone accounts for 20% of world natural gas production. It is also the largest exporter, second with the shale gas revolution becoming an exporter in Europe, the United States of America, followed by Canada (third place) and Qatar fourth, with Iran downgraded following US sanctions, followed by Norway, China, Saudi Arabia, and Algeria, which ranked ninth. These data should be interpreted with caution because thousands of deposits can be discovered, but not profitable according to financial standards depending on operating costs and the evolution of the international price itself depending on the demand and competition of substitutable energies As for some experts who speak of an OPEC gas market in the image of OPEC oil, it should be stressed that the gas market is not in this month of August 2020, a global market but a market segmented by geographical areas while the oil market is homogeneous, due to the preponderance of pipelines, being impossible to meet the same criteria, the solution being cooperation within the FPEG which consists of 11 member countries (5 in Africa (Algeria , Egypt, Equatorial Guinea, Libya, Nigeria) – 2 in the Middle East (Iran, Qatar); – 3 in South America (Bolivia, Trinidad and Tobago, Venezuela) and Russia, 9 non-member countries with observer status: Angola, Azerbaijan, the United Arab Emirates, Iraq, Kazakhstan, Malaysia, Norway, Oman and Peru, the United States, one of the world’s leading gas producers, are not part of the FPEG.. To one day reach a gas market that meets oil market standards (daily listing), the share of LNG would have to increase from 30% to more than 80%. Until then, because investments are hefty, everything will depend on the evolution between 2020/2030/2040, on-demand for LNG which will depend on the new global energy consumption model that is moving towards the digital and energy transition with an increase in the share of renewables, energy efficiency and between 2030/2040 hydrogen which risks degrading a large part of the transition energy.
What about the current tensions in the eastern Mediterranean regarding the energy sector which is not immune to OPEC’s action, but indirectly affecting the price of energy and the market share of Algeria towards Europe its principal customer, recalling that there is a gas organisation independent of that of OPEC.
A friend, the polytechnician Jean Pierre Hauet of KP Intelligence, France rightly notes that the energy scene comes alive in the Mediterranean with at least two significant fields of manoeuvring which it is interesting to try to understand the ins and outs that explain the current tensions, especially in the eastern Mediterranean. The first theatre is that of renewable energy (wind, concentrated solar, photovoltaic) which has been characterised by the launch of major initiatives based on the idea that technical progress in direct current transmission lines would allow taking advantage of the complementarity between the electricity needs of the countries of the north and the availability of space and sun of the countries of the South. At the time, we were talking about 400 million euros of investments and the satisfaction of 15% of Europe’s electricity needs. Today, the Desertec project is instead at half-mast, due in particular to the withdrawal of major industrial players, Siemens and Bosch, and the consummate disagreement between the Desertec Foundation and its industrial arm the Desertec Industrial Initiative (Dii). Dii continues its ambitions to integrate European, North African and Middle Eastern networks, while the Desertec Foundation now seems to favour bilateral initiatives in Cameroon, Senegal and Saudi Arabia. The second theatre of operations is recent: it relates to the discovery from 2009 of deep offshore gas resources in the eastern Mediterranean, which explains the current tensions. Large companies that used to operate other more accessible, profitable fields or near facilities nearby, on land, are now turning to the eastern Mediterranean, off Egypt, Israel, Lebanon, Cyprus and Turkey, all countries that do not necessarily have good neighbourly relations. Because several gas deposits have been discovered off the coast of Egypt, Israel, Lebanon or Cyprus, at the heart of the so-called Levantine basin, it is estimated by the US Geological Survey at 3,452 billion cubic meters (m3). “For the producing or future producing coastal states, this gas resource offers the opportunity to achieve energy independence and a way to bail out their economy through potential exports” according to the Mediterranean Foundation for Strategic Studies in a well-documented report. That is why Turkey is conducting research. Even if Greece and part of the international community accuse it of having entered the Greek maritime space, international law is unclear in this situation which does not delineate borders and geographical boundaries. Gas resources can be found on or offshore limits of a country or in either transboundary or not clearly defined boundaries reservoirs, and the Turkish initiative could be the beginning of a long series of tensions that could transform regional balances. Because geological formations do not know the political borders, oil and gas companies have explored the marine subsea soils of neighbouring countries. This was followed by the uncovering of the Leviathan field (2010) also off the coast of Israel, Zohr (2015) in Egyptian waters, then Aphrodite (2012), Calypso (2018) and Glaucus (2019) around Cyprus. Exploration of Lebanese and Greek waters is not advanced. Athens has already allocated parcels to ExxonMobil, Spain’s Repsol or Total. On February 19, 2018, a historic $15 billion contract between Egypt and Israel provided for the supply of natural gas from the Tamar and Leviathan offshore reservoirs to Egypt, according to a report by the Mediterranean Foundation for Strategic Studies (FMEN). To ease tensions, although the countries of the Mediterranean all face the problem of energy security, it is above all a question of strengthening cooperation especially in the energy field, which can represent a vital link between the north and the South of the Mediterranean.
What is the case for Algeria where according to SONATRACH’s balance sheet in 2019, it makes up about 33% of its revenues, to which must be deducted the costs and the share of partners dependent on natural gas in order to have the net profit? The structure between natural gas exports through the two major Medgaz pipelines via Spain capacity, of 8 billion cubic meters gas and Transmed via Italy between 35/40 billion cubic meters of gas, currently under capacity, represents about 75% of the total towards its primary market Europe. LNG about 25% that provides it with more flexibility, Algeria is strongly competed against between 2020/2025 by the American, Russian, Qatari LNG. The latter has installed large capacity two to three times that of Algeria and for the gas piped by Russia the North Stream (55 billion cubic meters of capacity and the South Stream (capacity of 63 billion cubic meters gas), not forgetting as previously highlighted the discoveries in the Mediterranean. Nigeria and Mozambique are important producers with the latter country having the largest reserves in East African countries, with nearly 5 trillion cubic meters, on two offshore blocks in the province of Cabo Delgado in the far north of the country. By 2025/2030, Mozambique is likely to become the fourth-largest gas exporter in the world behind the USA, Qatar and Australia. In order to export to Asia, it will have to bypass the entire cornice of Africa posing the problem of profitability, in addition to the operating costs is added an exorbitant transport cost, unable to compete with Russia with the Siberian China gas pipeline, called “Power of Siberia”, more than 2000 km at the Chinese border, transporting 38 billion cubic meters of Russian gas to China each year by 2024/2025, a contract, estimated at more than 400 billion dollars over 30 years, signed by Gazprom and the Chinese giant CNPC, signed by Gazprom and the Chinese giant CNPC. Not to mention Iran and Qatar close to Asia. In the end, everything will depend for Algeria to enter the global market of cost requiring new strategic management of Sonatrach whose operating account for several decades depends fundamentally on external factors beyond its internal management, the international vector price, which led the president of the republic to demand an audit of this company. As for the world price between 2007 and September 2020, it fell by more than 75%, much more than for the oil. It has gone from 15/16 dollars for the GLN to 4/5 dollars and $9/10 for natural gas (GN). It has fluctuated between 2019/2020 between $1.7 and $2.5 per MBTU, in the open market. And recently between January 2020 and September 2020, we will have to take into account the dollar/euro rating which has depreciated by more than 11%, due to the uncertainties of the US economy and especially the swelling of the budget deficit bringing it back to the constant price thus having to draw the currency balance
In short, energy is at the heart of the sovereignty of states and their security policies. The world is moving during 2020 through 2030, inevitably towards the digital and energy transition with a new model of energy consumption and knowledge imposing on our leaders a cultural renewal far from the material mentality of the past that cannot lead the country with expensive projects, uncertain profitability to the impasse. Economic dynamics will alter global power relations and affect political recompositions within and regional spaces, hence the importance of understanding geostrategic energy issues and appropriate solutions, far from unrealistic discourses.
