Introduction
As Europe seeks to diversify its gas supplies away from Russia amid the Ukraine war and in the context of increasing global strategic competition, little attention has been given to how it will simultaneously pursue its objectives of lowering global methane emissions. A recently-announced initiative to cooperate with Algeria around reducing the environmentally-harmful practice of flaring and venting of gas—a “win-win” opportunity that helps Algeria capture and commercialize otherwise wasted gas[i], including exporting some volumes to Europe—could represent a potential step forward. Despite the attractiveness of the scheme, its success remains far off.
Background
Since Russia’s invasion of Ukraine in February 2022, the European Union (EU) has taken steps to gradually reduce its heavy dependence on Russian gas—roughly 45% of the bloc’s imports for 2021. In May 2022 the Union launched its REPowerEU Plan[ii], meant to phase out fossil fuel imports from Russia before 2030 while diversifying energy sources and producing clean energy. This includes ensuring that “additional gas supplies from existing and new gas suppliers are coupled with targeted actions to tackle methane leaks”[iii], and address venting—the release of natural gas into the atmosphere—and flaring.[iv] Flaring involves a process by which associated gas, or natural gas that accompanies crude oil extraction, is burned using a flare at the wellhead instead of being captured, treated, and utilized.[v] Gas flaring and venting contribute to the release of methane emissions as a major contributing factor to global warming.
To address methane emissions in the energy sector, the RePowerEU plan declares the bloc’s readiness to offer technical assistance to companies outside the EU through a scheme called “You Collect, We Buy.” The scheme incentivizes companies to “capture and commercialize gas that would otherwise go to waste through venting and flaring.”[vi] During last year’s COP28 conference in Dubai, European Commission President Ursula von der Leyen announced that the EU would be piloting the program together with Algeria.
Opportunities
These flows are central to the gas security of some EU member states, and have increased since the Ukraine war began.
In 2022, Algeria ranked fourth among the world’s top flaring countries[vii]; its volumes of flared gas according to World Bank data stood at 8.5/8.6 bcm, below only those of Iran, Iraq, and Russia. Algeria’s gas exports are mainly bound for Europe, accounting for around 14% of the EU’s total gas imports.[viii] These flows are central to the gas security of some EU member states, and have increased since the Ukraine war began[ix], including Italy and Spain which share two separate gas pipelines with their southern neighbor. Meanwhile, France—the EU’s top importer of Russian LNG—has been eyeing Algeria for extra LNG cargoes. Earlier this year, Algeria’s national oil company, Sonatrach, and France’s TotalEnergies agreed to extend their LNG cooperation until 2025[x] whereby the North African country will supply two million tonnes of LNG to Total.
Algeria thus appears a natural choice for Europe both to find new alternative suppliers to Russian gas and to support in reducing methane emissions. By jointly working to reduce flaring at Algerian oilfields, the EU and Algeria will not only theoretically mitigate global warming; they will also free up additional gas for export.
Algeria’s rising domestic gas consumption, particularly in the power generation sector (which is dependent on fossil fuels)[xi], also presents an opportunity. As Sonatrach looks for ways to free up gas for export while still meeting domestic demand, there are some indications that Algerian authorities are taking initial (albeit limited) steps to engage in the reduction of flaring practices. In 2022 Sonatrach signed agreements with Eni, Oxy, and TotalEnergies[xii] that include extensive investments in flare reduction at key fields such as Ain Salah. Eni in particular—which has a long history of engagement in Algeria—is cooperating closely with Sonatrach on work around measuring and reducing methane emissions. This relationship, and Italy’s political willingness for engaging North Africa more broadly[xiii], also made Algeria an attractive candidate to pilot the scheme.
Additionally, in December 2023, Energy Minister Mohamed Arkab announced Sonatrach’s five-year investment plan (2023-2027) of $42 billion[xiv], of which “close to” $0.5 billion would be spent on “projects relating to environmental protection such as the recovery of flared gas.” However, according to the Middle East Energy Survey (MEES)[xv], this compares unfavorably with Sonatrach’s national and international peers, which have dedicated much higher proportions of their planned spending for the same time period to seeking opportunities for lowering emissions.
Algeria's [...] engagement is still constrained by the country’s traditional insistence on limiting foreign influence, including foreign financing.
Algeria’s efforts under current president Abdelmajid Tebboune to enhance its stature on the world stage may also be contributing to such efforts, including efforts to engage more with international initiatives to combat global warming. However, such engagement is still constrained by the country’s traditional insistence on limiting foreign influence, including foreign financing. Algeria’s more active outward engagement has also led to diplomatic and other initiatives that may be less palatable for Europe, such as Algeria’s bid to join the BRICS (Brazil, Russia, India, China, South Africa) grouping last year.
Challenges
Despite these potential advantages, the You Collect, We Buy initiative has been facing major challenges in Algeria, with no implementation on the ground thus far.
Current production and export constraints in Algeria are one obstacle. Italy and Spain import seaborne Algerian LNG, as well as piped gas from the North African country via two operating lines: the TransMed that runs via Tunisia to Italy, Algeria’s main export market, and the Medgaz pipeline to Spain. However, it remains unclear whether Algeria has enough spare capacity in its export infrastructure to boost gas supplies to Europe.[xvi] The country’s domestic demand is another challenge as it may have contributed to a fall in export volumes again during the first quarter of 2024.[xvii] Meanwhile, despite holding some of Africa’s largest gas reserves, Algeria has struggled in recent years to successfully exploit its natural resources due to its weak investment environment (see below).
Because the regime heavily subsidizes hydrocarbons for its growing population, domestic demand is unlikely to decline anytime soon.
Algeria’s flexibility around freeing up gas for export is also hampered by political concerns. Because the regime heavily subsidizes hydrocarbons for its growing population, domestic demand is unlikely to decline anytime soon. High domestic spending on social programs also limits available capital for investment in the energy industry[xviii], particularly in improving production capacity. Although President Tebboune’s likely reelection in September could theoretically provide an opportunity to lift or reform subsidies or social spending under a renewed mandate, this is highly unlikely given the dynamics of Algeria’s political system, which relies on such tools for legitimacy and within which Tebboune is not the only powerbroker.
Moreover, Algeria’s investment climate is inadequate for attracting the necessary foreign investment if it is to truly shift to a more environmentally-friendly energy sector.[xix] Although an updated hydrocarbons law adopted in 2019 improved “fiscal terms and contract flexibility,” the country’s requirement that new energy projects be majority-Algerian owned continues to hamper investment. A new investment law in 2022 has also been criticized for placing unnecessarily burdensome requirements on investors.[xx] Institutionally, Sonatrach lacks autonomy (as well as technical capacity for implementing such projects) and is consistently locked in political struggles with the energy ministry and the National Agency for the Valorization of Hydrocarbon Resources (ALNAFT).[xxi] Most observers expect the major reforms[xxii] that would be required to give Sonatrach more autonomy and allow foreign investors to assume the role they are seeking to play in Algeria’s energy industry are unlikely in the near term.
Algeria’s decision-making processes are also notoriously opaque, leading to widespread frustration among international actors. Irrespective of the small signs at the political level discussed above of an interest in and willingness to cooperate around reducing methane emissions, and despite apparent movement and interest at the technical level, when it comes to concrete commitment, progress has consistently stalled. An example is Algeria’s indication within the past year of a willingness to join the Oil and Gas Methane Partnership, the United Nations Environment Programme’s measurement-based reporting framework on methane emissions. Western actors initially saw this move as an encouraging sign, but their Algerian counterparts have since gone silent on the topic.
In general, when it comes to curbing methane emissions in the hydrocarbons sector, Algeria still doesn’t have a comprehensive plan for addressing environmental concerns.
This does not fit particularly well with Europe’s regulatory push to impose limits on “methane intensity values”[xxiii] on its fossil fuel importers by 2030.
European governments are bound by ethical obligations as they transition both from fossil fuels and from Russian gas.
Additionally, analysts note that it may be hard for Europe to sustain programs that legitimize authoritarian governments such as the one in Algiers.[xxiv] According to this logic, European governments are bound by ethical obligations as they transition both from fossil fuels and from Russian gas—in other words, they must ensure that any investments in renewable energies do not come at the cost of human rights. Conversely, the Algerian regime may be reluctant to embrace any project that public opinion perceives as “merely instruments for European environmental (and political) priorities.” Suspicion and hostility among Algerians toward Europe and the West are already running high due to the Ukraine and Gaza wars.[xxv] Some reports indicate that Russian news outlet are making more inroads into the Algerian media space than Western ones, potentially exacerbating this problem.[xxvi] Thus, combined with an eventual need to remove fuel subsidies, initiatives such as You Collect, We Buy that are centered around energy transitions will be a hard sell politically.
Conclusions
As it continues to gradually reduce Russian gas supplies, the EU will need to find reliable alternative sources, also in order to deal with unexpected events such as severe winters or geopolitical developments that impact supply. While Europe managed to rely mostly on the United States (for LNG) and Norway (for piped gas) after Moscow cut off supplies following the invasion of Ukraine, this has not necessarily shielded Europe from supply disruptions. The recent unplanned outage at a key Norwegian gas facility[xxvii] is a case in point.
Despite the challenges Algeria has been facing in boosting gas production and exports, it remains a supplier to Europe, and some Western companies see potential for more flows. Just last month, U.S. oilfield technology firm Baker Hughes and Italy’s Maire Tecnimont were awarded a contract from Sonatrach[xxviii] to implement a project that would “boost and stabilize the pressure of natural gas and increase production”[xxix] at Algeria’s largest gas field, Hassi R’Mel. In 2022, an analysis of satellite data showed that Hassi R’Mel had been leaking methane for nearly four decades[xxx] from a compressor station that reportedly plays a role in transferring gas to Europe and other areas, and it is not clear that Baker Hughes’ and Maire’s engagement at Hassi R’Mel will do anything to mitigate this. This situation will require the European Union to strike a balance between its need for Algerian gas and its commitment to methane emissions reduction.
Meanwhile, Algeria’s potential for production of renewable energy resources along with its long-standing relationship with Russia[xxxi] demand that Western partners continue to engage the country if it is to become part of global efforts led by the West to combat climate change.
[i] European Commission (2023). “EU announces EUR157m financial support to reduce methane emissions at COP28”, 2 December 2023, retrieved from: https://ec.europa.eu/commission/presscorner/detail/en/ip_23_6057.
[ii] European Commission (2022). “REPowerEU”, retrieved from: https://commission.europa.eu/strategy-and-policy/priorities-2019-2024/european-green-deal/repowereu-affordable-secure-and-sustainable-energy-europe_en.
|[iii] European Commission (2022). “In focus: Engaging with energy partners in a changing world”, 14 June 2022, retrieved from: https://commission.europa.eu/news/focus-engaging-energy-partners-changing-world-2022-06-14_en.
[iv] U.S. Energy Information Administration (2020). “Natural gas venting and flaring in North Dakota and Texas increased in 2019, 8 December 2020, retrieved from: https://www.eia.gov/todayinenergy/detail.php?id=46176.
[v] Ibid.
[vi] European Commission “EU announces EUR157m financial support to reduce methane emissions at COP28”.
[vii] World Bank Group (2023). “Global Flaring and Methane Reduction Partnership (GFMR)”, retrieved from: https://www.worldbank.org/en/programs/gasflaringreduction/global-flaring-data.
[viii] Sorge, P. and Azevedo Rocha, P. (2024). “German Utility VNG Inks Country’s First Deal With Algeria for Pipeline Gas”, BNN Bloomberg, 7 February 2024, retrieved from: https://www.bnnbloomberg.ca/german-utility-vng-inks-country-s-first-deal-with-algeria-for-pipeline-gas-1.2032140.
[ix] Wall Street Journal (2024). “EU hits Russia with first sanctions on LNG shipments”, 24 June 2024, retrieved from: https://www.wsj.com/world/europe/eu-hits-russia-with-first-sanctions-on-lng-shipments-4d1ee507#:~:text=The%20measure%20is%20aimed%20at,Russian%20fossil%20fuels%20by%202027.
[x] TotalEnergies (2024). “Algeria: TotalEnergies expands its partnership with SONATRACH in Timmoun region and in the marketing of LNG”, 8 April 2024, retrieved from: https://totalenergies.com/news/press-releases/algeria-totalenergies-expands-its-partnership-sonatrach-timimoun-region-and.
[xi] U.S. Energy Information Administration (2021). “Algeria”, 2 March 2021, retrieved from: https://www.eia.gov/international/analysis/country/DZA.
[xii] The World Bank Group (2023). “Global Gas Flaring Tracker Report”, March 2023, retrieved from: https://thedocs.worldbank.org/en/doc/5d5c5c8b0f451b472e858ceb97624a18-0400072023/original/2023-Global-Gas-Flaring-Tracker-Report.pdf.
[xiii] Pavia, A. (2024). “Italy’s Mediterranean Pivot: What’s Driving Meloni’s Ambitious Plan with Africa”, Atlantic Council, 5 February 2024, retrieved from: https://www.atlanticcouncil.org/blogs/new-atlanticist/italys-mediterranean-pivot-whats-driving-melonis-ambitious-plan-with-africa/.
[xiv] Mikkelsen, D. (2023). “Algeria invests in energy expansion: Minister Arkab unveils $42B plan”, Oil&Gas, 13 December 2023, retrieved from: https://www.oilandgasmiddleeast.com/news/algeria-invests-in-energy-expansion-minister-arkab-unveils-42b-plan.
[xv] Cockayne, J. (2023). “Sonatrach Hikes Investment Plan as Drilling Nears 5-Year High”, Mees, 15 December 2023, retrieved from: https://www.mees.com/2023/12/15/corporate/sonatrach-hikes-investment-plan-as-drilling-nears-5-year-high/9b9e3270-9b4e-11ee-8161-f5072e9ddccf.
[xvi] Reuters (2022). “Transmed gas pipeline has spare capacity to increase supply to Europe”, 27 February 2022, retrieved from: https://www.reuters.com/article/idUSS8N2TS028/.
[xvii] Cockayne, J. (2024). “Algeria: Maire & Baker Hughes Snag $2.3bn Hassi R’Mel Gas ‘Boosting’ Awards”, Mees, 24 May 2024, retrieved from: https://www.mees.com/2024/5/24/oil-gas/algeria-maire-baker-hughes-snag-23bn-hassi-rmel-gas-boosting-award/d0531410-19d2-11ef-a87f-b572794c66e8.
[xviii] Fakir, I. (2022). “Given capacity constraints, Algeria is not quick fix for Europe’s Russian gas concerns”, Middle East Institute, 8 March 2022, retrieved from: https://www.mei.edu/publications/given-capacity-constraints-algeria-no-quick-fix-europes-russian-gas-concerns.
[xix] U.S. Department of State (2023). “2023 Investment Climate Statements: Algeria”, retrieved from: https://www.state.gov/reports/2023-investment-climate-statements/algeria.
[xx] Care (2022). “What impact do new laws have on investment in Algeria?”, 9 October 2022, retrieved from: https://care.dz/fr/espace-presse/apres-la-promulgation-de-la0nouvelle-loi-quel-impact-pour-linvestissement-en-algerie-art607.
[xxi] Africa Intelligence (Algeria: Tebboune struggles to settle Alnaft-Sonatrach rift”, 11 April 2023, retrieved from: https://www.africaintelligence.com/north-africa/2023/04/11/tebboune-struggles-to-settle-alnaft-sonatrach-rift,109933772-bre.
[xxii] Kepes, G. (2023). “Algeria can achieve energy security and growth, but Sonatrach must change”, Al-Monitor, 2 March 2023, retrieved from: https://www.al-monitor.com/pro/memos/algeria-can-achieve-energy-security-and-growth-sonatrach-must-change.
[xxiii] Reuters (2024). “EU lawmakers adopt law to hit fossil fuel imports with methane emission limit”, 10 April 2024, retrieved from: https://www.reuters.com/world/europe/eu-lawmakers-adopt-law-hit-fossil-fuel-imports-with-methane-emissions-limit-2024-04-10/.
[xxiv] El-Katiri, L. (2023). “sunny side up: Maximizing the European Green Deal’s potential for North Africa and Europe”, ECFR, 9 January 2023, retrieved from: https://ecfr.eu/publication/sunny-side-up-maximising-the-european-green-deals-potential-for-north-africa-and-europe/.
[xxv] Arab Barometer (2022). “Algeria Report”, retrieved from: https://www.arabbarometer.org/wp-content/uploads/ABVII_Algeria_Report-EN.pdf.
[xxvi] Reporters Without Borders (2023). “RT moves its pawns in Africa, opening a bureau in Algeria”, 4 April 2023, retrieved from: https://rsf.org/en/rt-moves-its-pawns-africa-opening-bureau-algeria#:~:text=The%20creation%20of%20an%20RT,a%20local%20source%20told%20RSF.
[xxvii] Yahoo Finance (2024). “European Gas Surges as Norway Fault Exposes Supply Fragility”, 3 June 2024, retrieved from: https://finance.yahoo.com/news/european-gas-jumps-unplanned-norwegian-062732613.html.
[xxviii] Baker Hughes (2024). “Baker Hughes to Support Strategic Gas Project in Algeria to Enhance Italy, Europe’s Energy Security”, 23 May 2024, retrieved from: https://investors.bakerhughes.com/news-releases/news-release-details/baker-hughes-support-strategic-gas-project-algeria-enhance-italy.
[xxix] Ibid.
[xxx] Shankleman, J. and Ainger, J. (2022). “Europe Faces an Old Methane Hotspot in Rush to Exit Russian Gas”, BNN Bloomberg, 30 May 2022, retrieved from: https://www.bnnbloomberg.ca/europe-faces-an-old-methane-hotspot-in-rush-to-exit-russian-gas-1.1772301.
[xxxi] Henneberg, S., Rumley, G. and Yavorsky, E. (2023). “Algeria-Russia Relations After the Ukraine Invasion”, The Washington Institute for Near East Policy, 18 May 2023, retrieved from: https://www.washingtoninstitute.org/policy-analysis/algeria-russia-relations-after-ukraine-invasion.
