Algeria warned of gas shortage

Algeria needs to take measures to tackle a possible gas supply shortage due to strong demand and the absence of new gas discoveries, according to an official study.

Concerns over depletion of natural gas reserves have begun to be felt in Algeria, with policy makers scrambling to address them, said the study by the Saudi-based Arab Petroleum Investment Corporation (Apicorp).

The study, sent to Emirates 24/7, noted that the February 2013 revision of the Algerian hydrocarbon law has introduced significant and most needed changes.

The first offers new incentives to revive exploration and development and attract interest in unconventional gas while the second prioritizes the principle of “domestic market obligation” and commits to remunerate the state-run Sonatrach’s foreign partners on an export‐based opportunity cost, should their share of gas be requested.

But the study argued that this potentially strong supply response, which comes on top of increased emphasis on the promotion of new and renewable energies, contrasts sharply with a relatively weak demand policy adjustment particularly for natural gas.

“There is a strong evidence of a significant and unsettling shift in the supply and demand of natural gas in Algeria…this means there is an urgent need to address domestic pricing and subsidy reforms,” said the study, authored by Ali Aissaoui, senior consultant at Apicorp, an affiliate of the 10-nation OAPEC.

“Our overall findings suggest three main policy implications and recommendations. The first is to avoid the ‘Egypt gas syndrome’. After a long period of denial, the Egyptian government suddenly woke up to the stark reality that production could no longer keep up with fast‐growing demand fueled by massive and unaffordable subsidies.”

Aissaoui said he believes policy makers in Algeria realize that policy changes are slow and incremental while domestic demand growth is exponential and unrelenting.

“The snowball effect that is created eventually leads to adverse outcomes, not the least shrinking export volumes and lesser government budget. A demand response deserves as much attention and focus as the supply response.,” said Aissaoui, an Algerian.

“Following from this, the second implication is that domestic pricing must be tackled at both the design and implementation levels. Notwithstanding occasional assertions about the need to rationalize consumption, abnormally low – and below cost – domestic prices have continued to act as a disincentive to reining in fast growing demand.”

But Aissaoui stressed that while dealing with gas prices is necessary as a matter of urgency, it is not sufficient. He said building on that action, policy makers need to ensure that a broader framework is in place to tackle energy price and subsidy reforms in a coordinated and coherent manner.

“To this end, the third implication is that the changing political economy and social contexts must be factored in…..reviving old frameworks such as the national ‘energy consumption pattern’ (ECP), which is regarded by some as still capable of providing a sound rationale for employing the energy resources available in the most economically and socially efficient manner, is not the best option.”

The study noted ECP was devised in the early 1980s, in a context of single political party rule, mild social climate, and centralized top‐down policy‐making.

“In today’s would‐be participatory environment, policy makers need to inform public debate and shape a more holistic, consensual vision to guide and support a fundamental energy paradigm shift that would guarantee long‐term security of supply and contribute to economic stability and sustainability.”

Aissaoui did not mention Algeria’s gas resources but according to OAPEC, they are estimated at around 4.5 trillion cubic metres, the fourth largest in the Arab world after those in Qatar, Saudi Arabia and the UAE.

His figures showed domestic gas demand would surge from around 30.9 billion cubic metres (bcm) in 2012 to 47.5 bcm in 2020 and 70 bcm in 2030.

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