Growing Domestic Demand Puts Gas Exports Under Pressure
BMI View: We maintain our outlook for Algeria where we see gas production and consumption increasing steadily in the coming years. We see it as likely that Algeria will endeavour to direct more gas toward LNG export rather than pipelines in order to be less dependent on Europe , where the outlook for growth in demand is muted.
Despite being Africa's largest gas producer, Algeria will not be immune to volatility in the energy sector . W e see several issues that could affect the country's gas trade. Production started to decline in 2005 with several key fields, such as Hass R'Mel, entering in their final depletion phase. H owever , we believe that Algeria holds scope for a ramp-up in production in the coming years with output capable of reach ing new peaks.
We see production hitting 100 bn cubic meters (bcm) per annum from 2018, on the back of several projects set to come online in the next few years. These include among numerous others the Petroceltic 's Ain Tsila project, Repsol 's North Reggane project and Total 's and CEPSA 's Timimoun project.
|Algeria Gas Production, Consumption And Exports|
Algeria's consumption however is set to increase quite rapidly over our forecast period, with 34.1bcm estimated in 2013, we could see a nearly 50% rise over the next seven years with demand exceeding 50bcm in 2020. This will be supported by a robust real annual GDP growth of 3% to 4% over the same period. While even at this elevated consumption level Algeria will retain significant export capacity , we note considerable downside risks stem from potential delays which could see the supply-demand balance tighten more than expected.
What To Do With What Is Left?
The country's key issue will be to determine whether gas will be exported through Europe via pipeline or LNG. Over recent month s we have observed a progressive decline in oil linked pipeline contracts to Europe an countries , with the slump in Italy particularly notable . Total pipeline exports to the Italian peninsula are reported to be about half of what they were a year ago with Sonatrach issuing tenders for LNG short-term commitments or spot market sales to distribute the gas left-over.
|Putting Gas Under Pressure|
|LHC: Algeria 's Gas Production By Use, bcm, RHC: Committed LNG Exports By Country *, bcm|
We expect that Algeria will continue this trend of increasing LNG exports over the coming years , a development which we expect will remain more profitable in the short to medium term. However we believe the country will make increase used of the spot market and non-oil linked contracts. This will offer Algeria more flexibility in and security in terms of finding a suitable buyer for its gas, reducing reliance on the European market where the demand outlook looks weak.