Hydrocarbons: War in Iran propels Algeria and Libya as possible alternatives

The damage inflicted on Gulf infrastructure by the war in Iran has turned attention to Algeria and Libya for their gas and oil production, but their room to maneuver is too limited to offer a short-term alternative, according to several experts.

With the escalation of the conflict, many have focused on Algeria, an OPEC member and Africa’s top gas exporter. Unlike Qatar, which exports liquefied natural gas (LNG) by tanker, Algeria relies mainly on pipelines, TransMed to Italy and Medgaz to Spain.

Combining land and underwater sections, these pipelines present “a significant advantage” because “they are out of reach of Iranian and Lebanese Hezbollah drones and missiles,” Moez Ajmi, an expert at EY, told AFP. But designed to serve Algeria’s two main clients — Italy and Spain — these pipelines are already operating at full capacity.

They offer “excellent alternatives in terms of security and insurance premiums,” but have “structural limits,” Geoff Porter of North Africa Risk Consulting told AFP. “TransMed has no additional capacity,” while Medgaz could see its capacity increased “by maybe one billion cubic meters per year,” he said.

Discussions

Since the war in Ukraine in 2022 and the European Union’s decision to stop importing Russian gas, Algeria has become a key supplier to Europe and “an essential pillar of its energy diversification strategy,” Ajmi said. Algeria, whose other major European customers include Germany and France, still has some room to increase its LNG deliveries.

State energy company Sonatrach has undertaken to “maximize the operational capacity of liquefaction plants in order to take advantage of high spot prices” and “could redirect volumes to European and Asian spot markets,” Ajmi said.

Italian Energy Security Minister Gilberto Pichetto Fratin said Friday he is “directly discussing” with Algeria, Azerbaijan and the United States in an attempt to compensate for the loss of LNG deliveries from Qatar, which account for about 20 percent of Italy’s needs.

However, despite vast proven reserves exceeding 4,500 billion cubic meters, Algiers cannot compete with Doha. “Replacing Qatar, whose production is twice that of Algeria — 200 billion cubic meters per year compared to 100, is not realistic in the short term without massive investments,” Ajmi said.

“Algeria does not have sufficient production capacity to be an alternative to the volumes lost from Qatar,” Porter said.

'Major obstacle'

Algiers has launched an ambitious investment plan of $50 billion to $60 billion to strengthen exploration and modernize its energy infrastructure, aiming to double gas production to 200 billion cubic meters by 2030. This effort will also involve exploiting shale gas deposits in the southern desert, “among the largest in the world” and “a major strategic asset,” Ajmi said.

Negotiations are underway with U.S. companies Chevron and ExxonMobil to bring in capital and technological expertise. But according to Porter, the discussions “are not advanced enough,” and it will take “at best four or five years” to see an increase in volumes.

For oil, Algeria exports nearly 1 million barrels per day, but production growth is “dependent on the discovery of new deposits,” Ajmi said. Export ambitions are also constrained by high domestic consumption and OPEC quotas.

In the region, Libya, which has Africa’s largest oil reserves, about 48.4 billion barrels, and significant gas resources, has strong potential. “Libya can increase its production and exports to partially compensate for the drop in the Gulf,” Ajmi said. But “political and security instability remains a major obstacle” and prevents any immediate alternative.

Despite output rising to 1.4 million barrels per day, a record for the past decade, according to Ajmi, it will still take “several years” of investment in infrastructure, drilling and security to reach the official target of 2 million.