Oil and Gas in Algeria: State of Play
Algeria holds a leading position in global hydrocarbons, especially in Africa. It is the continent's second-largest liquid fuels producer and its largest natural gas producer.
By the editorial teamPetrole.Africa
Introduction: Algeria, a Regional and Global Energy Pillar
Algeria holds a strategic and leading position in the global hydrocarbons market, particularly in Africa. The country is recognized as the second-largest producer of liquid fuels and the largest producer of natural gas on the African continent, according to EIA estimates for 2024. This standing is reinforced by its membership in OPEC. At the heart of this energy power is Sonatrach, the national hydrocarbons company. It is not only the largest company in Africa but also ranks 12th worldwide among oil companies. Sonatrach is also the world's second-largest exporter of liquefied natural gas (LNG) and liquefied petroleum gas (LPG), and the third-largest exporter of natural gas.
The hydrocarbons sector is the essential engine of the Algerian economy. Its contribution is fundamental to the country's financial health, having accounted for 14% of Gross Domestic Product (GDP), 86% of exports and 47% of budget revenue between 2019 and 2023. This structural dependence highlights the sector's crucial role in financing national development projects and maintaining economic stability. The sector's performance is therefore directly correlated with Algeria's ability to invest in its future and ensure the prosperity of its citizens.
I. Algeria's Hydrocarbon Reserves and Potential
Algeria is endowed with significant hydrocarbon resources, which form the foundation of its energy influence. Recent data confirm the scale of these reserves.
Overview of proven crude oil and natural gas reserves
As regards crude oil, Algeria's proven reserves were estimated at 12.2 billion barrels at the beginning of 2023. This volume places the country among the top 20 holders of oil reserves worldwide in 2023. For natural gas, proven reserves stood at 159 trillion cubic feet (Tcf) in 2023. The National Agency for the Valorization of Hydrocarbon Resources (ALNAFT) has also reported significant reserves, including 330 billion cubic meters of gas.
The main fields underpinning these reserves are pillars of Algerian production. The Hassi Messaoud field is the country's largest oil field, discovered in 1956. It holds estimated reserves of 3.9 billion barrels of oil and contributes 19% of total national production. Current forecasts indicate that production from this field should continue until 2056. For gas, the Hassi R'Mel field is the main source of the country's natural gas production. The second-largest gas field, Rhourde Nouss, has proven reserves of 370 billion cubic meters and recorded production of 4.83 million cubic meters per day in 2022. Its production is also expected to continue until 2056.
Untapped potential, notably in shale gas
Beyond conventional reserves, Algeria holds considerable shale gas potential. The country ranks third in the world for technically recoverable shale gas reserves, estimated at around 707 Tcf in 2020, behind China and Argentina. This potential represents a long-term strategic opportunity for the country. Although the potential is immense, the available information does not indicate large-scale development or production of these shale reserves at present. This suggests that, despite the resource, technical, environmental or economic obstacles, such as water scarcity in desert regions or high development costs, may be holding back its exploitation. Nevertheless, this untapped resource constitutes a future strategic reserve, offering additional supply security and export capacity should conventional reserves decline or global energy demand evolve.
Impact of recent discoveries on reserve prospects
Recent exploration efforts have paid off, strengthening Algeria's reserve outlook. The national company Sonatrach has announced eight major new oil and gas discoveries since January 2024. These discoveries, which include potential of 48 to 150 million barrels in the Algerian Sahara , are of crucial importance for replenishing existing reserves and supporting the country's ambitious production growth targets. Continued exploration success is essential because it ensures Algeria's long-term viability as a major hydrocarbon supplier, which in turn strengthens its appeal to foreign investment and its geopolitical position in energy markets. These new discoveries directly contribute to consolidating the country's resource base, a decisive factor in achieving its production targets.
Table 1: Proven Oil and Natural Gas Reserves in Algeria (2023-2025)
| Resource Type | Volume | Reference Year | Source | Key Notes |
|---|---|---|---|---|
| Proven crude oil | 12.2 billion barrels | Early 2023 | EIA/IEA | Places Algeria in the global top 20. |
| Proven natural gas | 159 Tcf | 2023 | EIA | - |
| Technically recoverable shale gas | 707 Tcf | 2020 | EIA | 3rd largest in the world. |
| New discoveries | 8 major fields | Since Jan 2024 | Sonatrach | Includes potential of 48 to 150 million barrels. |
II. Production Dynamics: Oil and Natural Gas
Hydrocarbon production in Algeria is characterized by distinct trajectories for oil and natural gas, shaped by internal and external factors.
Current and historical crude oil production, including OPEC+ targets and constraints
Algeria's crude oil production stood at 895,000 barrels per day (bpd) in January 2025, a slight decrease from the 903,000 bpd recorded in December 2024. Historically, average production between January 2002 and January 2025 was 1,126,000 bpd, with a notable peak of 1,408,000 bpd in April 2008. In 2024, Algerian output was around 900,000 bpd, in line with the production targets set by OPEC+. An additional voluntary cut of 48,000 bpd, in effect since May 2023, is expected to be extended through the end of 2025. Despite these constraints, production reached 906,000 bpd in June 2024, approaching the 908,000 bpd ceiling set for the third quarter of 2024.
Oil production is currently limited by OPEC+ agreements and voluntary cuts. Current production figures are below historical highs, and total liquid fuels production has declined over the past decade, from 1.7 million bpd in 2014 to about 1.4 million bpd in 2023. In 2023, gas production offset successive crude oil quota cuts. However, Algeria has the ambition of reaching a production capacity of 1.155 million bpd by 2025. A rebound in the oil sector is expected in 2025, with projected growth of between +2% and +3%, the extent of which will depend directly on the easing of OPEC+ production quotas. This indicates a proactive strategy by the country to take advantage of any future flexibility in OPEC+ agreements.
Natural gas production: volumes, growth and national ambitions through 2030
In contrast to oil, natural gas is Algeria's priority growth engine and a major geopolitical asset. Marketed natural gas production reached 104,275 million cubic meters in December 2023. According to Sonatrach data, total natural gas production stood at about 137 billion cubic meters in 2023.
Algeria has set an ambitious target of increasing its annual natural gas production to 200 billion cubic meters by 2030, an increase of nearly 50% over its current capacity. This target is backed by significant investments in exploration and in strengthening gas infrastructure. Dry natural gas production reached a record 3.7 Tcf in 2023. This robust growth is attributable to upstream investments that enabled the commissioning of new projects and the expansion of existing fields, notably Hassi R'Mel. In addition, a reduced need for gas reinjection into oil fields, resulting from oil production cuts, freed up more gas for domestic consumption and export. This aggressive gas expansion strategy, combined with Algeria's position as the largest gas producer in Africa, positions it as a crucial and reliable alternative supplier in the global energy landscape, particularly in response to recent geopolitical dynamics.
Overview of the main producing fields (Hassi Messaoud, Hassi R'Mel, Rhourde Nouss)
The main producing fields are essential to achieving these targets:
- Hassi Messaoud: This field is the country's largest oil field, discovered in 1956. It accounts for 19% of total national production and holds estimated reserves of 3.9 billion barrels. Its production is expected to be sustained until 2056.
- Hassi R'Mel: This field is Algeria's largest gas field and the main source of the country's natural gas production.
- Rhourde Nouss: As the second-largest gas field, it has proven reserves of 370 billion cubic meters. Its production reached 4.83 million cubic meters per day in 2022, and its operation is planned until 2056.
Table 2: Crude Oil and Natural Gas Production in Algeria (2023-2025)
| Indicator | Volume/Value | Period/Year | Source | Key Notes |
|---|---|---|---|---|
| Crude oil production | 895,000 bpd | Jan 2025 | CEIC Data | Slight decline from Dec 2024 (903,000 bpd). |
| Crude oil production | 906,000 bpd | June 2024 | Twala | Near the OPEC+ ceiling of 908,000 bpd for Q3 2024. |
| Crude oil production (average) | 1,126,000 bpd | Jan 2002 - Jan 2025 | CEIC Data | All-time peak: 1,408,000 bpd (April 2008). |
| Crude oil production (target) | 1,155,000 bpd | 2025 | EIA | Targeted production capacity. |
| Marketed natural gas production | 104,275 million m³ | Dec 2023 | CEIC Data | - |
| Natural gas production | 137 billion m³ | 2023 | Sonatrach | - |
| Natural gas production (target) | 200 billion m³ | By 2030 | EnergyNews | Nearly 50% above current capacity. |
| Hassi Messaoud (Oil) | 3.9 billion barrels (reserves); 19% of national prod. | - | Algerie360 | Largest oil field. |
| Rhourde Nouss (Gas) | 370 billion m³ (proven reserves); 4.83 million m³/day (2022 prod.) | - | Algerie360 | Second-largest gas field. |
III. Strategic Infrastructure and Operational Capacity
Algeria's energy infrastructure is essential for the production, processing and export of its hydrocarbon resources. The country has invested in a complex network of pipelines, LNG terminals and refineries to support its role as an energy supplier.
Transport network: oil pipelines and export gas pipelines (TransMed, Medgaz, MEG)
Algeria exports its natural gas mainly to Europe through three strategic pipelines: the Trans-Mediterranean Pipeline (TransMed), Medgaz and the Maghreb-Europe Pipeline (MEG). The capacity of the Medgaz pipeline was increased in late 2021, considerably improving its delivery capabilities to Spain. Sonatrach and Spanish company Naturgy took joint control of Medgaz, with Sonatrach holding a 51% stake. A project for a second parallel line for Medgaz is under way, aiming to more than double the pipeline's existing capacity. Despite temporary disruptions in 2021, MEG operations resumed normally in 2022.
Algeria prioritizes flexibility and diversification of its gas export routes. Active efforts to maintain and expand existing pipelines, along with the exploration of new large-scale projects such as the Trans-Saharan Gas Pipeline (which would connect Nigeria to Europe via Algeria) and GALSI (considered for the potential transport of green hydrogen to Italy), demonstrate a strategic orientation aimed at securing robust, diverse and sustainable export routes for its gas. This approach reduces dependence on a single route or a single market, thereby strengthening Algeria's reliability as an energy partner for Europe and allowing it to adapt to geopolitical shifts. The consideration of pipelines for green hydrogen also signals an early, forward-looking integration of the energy transition into infrastructure planning. In addition, a $364 million contract was signed in March 2022 for the construction of a 424 km LPG pipeline between Arzew and Chlef, with a capacity of 1.2 million tonnes per year, with construction expected to take 48 months.
LNG liquefaction capacity: Arzew and Skikda terminals
Algeria has LNG liquefaction complexes located at Arzew and Skikda. In 2023, 22.5 billion cubic meters of gas were delivered to these complexes for LNG. The Skikda LNG terminal (GL1K) is operational with a capacity of 4.5 million tonnes per annum (mtpa) in 2025. It is important to note that this capacity is significantly reduced compared with its historical capacity, following past incidents that put several trains out of service in 2004. The new M3 jetty at Skikda received its first large LNG carrier in March 2024.
The Arzew terminals include GL1Z Bethioua, commissioned in 1978 with a separation capacity of 17.56 million m3 of LNG per year, and GL2Z Bethioua, operational since 1981 with a liquefaction capacity of 17.8 million m3 of LNG per year. Although Algeria took first place in LNG transactions in May 2024, with Sonatrach exploring new markets, as shown by a first cargo of Algerian LNG delivered to Croatia from the Arzew terminal , LNG potential is significant but appears constrained by historical capacity limitations. Current operating capacity, notably at Skikda, is modest relative to overall gas production and to global leaders. This suggests that, while Algeria is optimizing its existing capacity and using spot markets, a major increase in LNG export volumes would require substantial investment in new liquefaction infrastructure, which is not detailed as a major ongoing project in the available information. The predominance of pipeline exports indicates that LNG, despite its flexibility, is not yet the main vehicle for Algeria's ambitious gas production growth.
Oil refining infrastructure
Algeria has a total refining capacity of 671,000 bpd, spread across several refineries: Adrar, Algiers (Sidi Rezine), Arzew, Hassi Messaoud, Skikda I and Skikda II. A new refinery has been under construction in Hassi Messaoud since February 2025, with start-up planned for 2027. However, proposals for the Biskra and Tiaret refineries are currently stalled.
Table 3: Key Oil and Gas Infrastructure Capacities in Algeria (2023-2025)
| Infrastructure Type | Capacity / Description | Status / Key Notes | Source |
|---|---|---|---|
| Oil refining (Total) | 671,000 bpd | Operational (Adrar, Algiers, Arzew, Hassi Messaoud, Skikda I & II) | EIA |
| Hassi Messaoud refinery (new) | - | Under construction (since Feb 2025), operational in 2027 | EIA |
| LNG liquefaction (Skikda GL1K) | 4.5 mtpa | Operational (capacity reduced after 2004 accident) | GEM Wiki |
| LNG liquefaction (Arzew GL1Z Bethioua) | 17.56 million m³/year | Operational (since 1978) | L'Expression DZ |
| LNG liquefaction (Arzew GL2Z Bethioua) | 17.8 million m³/year | Operational (since 1981) | L'Expression DZ |
| Trans-Mediterranean gas pipeline (TransMed) | - | Operational, exports to Europe | EIA |
| Medgaz gas pipeline | - | Capacity increased in late 2021; capacity-doubling project | Sonatrach |
| Maghreb-Europe gas pipeline (MEG) | - | Operations resumed in 2022 after disruptions | EIA |
| Arzew-Chlef LPG pipeline | 1.2 million tonnes/year | Under construction (since March 2022, 48 months) | Sonatrach |
| Future projects (Trans-Saharan, GALSI) | - | Under consideration for gas and green hydrogen | EIA |
IV. Exports and Trade Partnerships
Hydrocarbon exports are the cornerstone of the Algerian economy, shaping its trade relations and its position on the global energy stage.
Volumes and main destinations of natural gas and LNG exports
In 2023, Algeria ranked 7th in the world among natural gas exporters, with 52 billion cubic meters exported. The country is a crucial supplier for Europe, contributing about 14% of the European Union's total pipeline gas and LNG imports. Nearly 75% of Algerian gas exports go to the EU.
Italy and Spain are key partners. In 2022, Algeria was Italy's top natural gas supplier and Spain's second. A contract with Italian company Eni aims to increase gas deliveries to Italy via the Trans-Mediterranean pipeline, with a target of 9 billion cubic meters per year in 2023-2024. The agreement with Spain's Naturgy covers 30% of Spain's pipeline natural gas imports. Regarding LNG, Algeria was the second-largest supplier to Turkey and Greece in 2022 , with Turkey importing 50% of exported Algerian LNG. Algeria also supplies Portugal and France.
Gas is the pillar of Algeria's export strategy and a major geopolitical lever toward Europe. The country's position as an essential natural gas supplier for Europe strengthened after the Russia-Ukraine conflict in 2022. This dynamic is not merely commercial; it is also geopolitical, with Algeria using its gas resources to increase its international influence. This strategic orientation toward Europe suggests that gas is seen as a key asset for economic stability and diplomacy, with a potential preference for pipeline gas because of the stability of long-term contracts.
However, Algeria's position as an LNG exporter in Africa has shown some volatility. After being the African leader in 2023, Algerian LNG exports declined in the second quarter of 2024 (3.27 million tonnes) and the third quarter of 2024 (2.63 million tonnes), allowing Nigeria to retake first place in Africa. This fluctuation indicates that Algeria's leadership in the African LNG market is not firmly established and is subject to competition and quarterly variations in production or export capacity. Unlike pipeline gas, where long-term contracts and fixed infrastructure provide stability, LNG markets can be more dynamic, underscoring the need for sustained investment in liquefaction capacity to maintain or regain market share.
Volumes and main destinations of crude oil exports
Between 2015 and 2024, Algeria exported an average of 532,000 bpd of crude oil. However, these exports fell by 196,000 bpd over that period, owing to the decline in overall production. In 2024, the country exported about 402,000 bpd of crude oil and condensate. Europe was the main destination, receiving 295,000 bpd, while Asia-Pacific imported about 72,000 bpd.
The main customers for crude oil between January and October 2024 were France (86,000 bpd), Spain (55,000 bpd), Italy (49,000 bpd), South Korea (35,000 bpd), Portugal (32,000 bpd), India (31,000 bpd) and the United Kingdom (30,000 bpd). Algerian hydrocarbon exports contributed to a 20% increase in bilateral trade with Turkey in 2024, reaching $6 billion. They also account for 96% of Algerian exports to Tunisia.
The diversification of oil customers masks a downward trend in export volumes. Although Algeria maintains a diversified customer base in Europe and Asia , this diversification must be interpreted in the context of an overall decrease in export volumes. This implies that, even though Algeria retains a broad range of partners, individual market shares may be declining or stagnating at lower levels. This trend suggests that Algeria's ability to significantly increase its global market share for crude oil exports is limited by production constraints (partly due to OPEC+ quotas) and aging fields. The strategy of maintaining diversified relationships appears to be more a matter of risk management in a declining market than an expansion strategy.
Algeria's role in Europe's energy supply
Algeria has strengthened its role as an essential natural gas supplier for Europe since the Russia-Ukraine conflict in 2022. This strategic position is reinforced by foreign investment, notably from the United States, China, Italy and France, aimed at increasing natural gas production. This dynamic underscores the recognition of Algeria as a reliable energy partner and a viable alternative amid geopolitical disruptions.
Table 4: Main Destinations of Algerian Hydrocarbon Exports (2024)
| Hydrocarbon Type | Main Destination | Volume / Market Share | Period | Source |
|---|---|---|---|---|
| Crude oil | France | 86,000 bpd | Jan-Oct 2024 | Algerie360 |
| Crude oil | Spain | 55,000 bpd | Jan-Oct 2024 | Algerie360 |
| Crude oil | Italy | 49,000 bpd | Jan-Oct 2024 | Algerie360 |
| Crude oil | South Korea | 35,000 bpd | Jan-Oct 2024 | Algerie360 |
| Crude oil | Portugal | 32,000 bpd | Jan-Oct 2024 | Algerie360 |
| Crude oil | India | 31,000 bpd | Jan-Oct 2024 | Algerie360 |
| Crude oil | United Kingdom | 30,000 bpd | Jan-Oct 2024 | Algerie360 |
| Natural gas / LNG | European Union | ~14% of total pipeline gas and LNG imports | - | EIA |
| Natural gas | Italy | 1st supplier (2022) | 2022 | L'Expression DZ |
| Natural gas | Spain | 2nd supplier (2022); 53% of imports | 2022 | L'Expression DZ , Algerie360 |
| LNG | Turkey | 2nd supplier (2022); 50% of exported Algerian LNG | 2022 | L'Expression DZ , SECO |
| LNG | Greece | 2nd supplier (2022) | 2022 | L'Expression DZ |
| Hydrocarbon exports to Turkey | $6 billion (+20%) | 2024 | SECO | Contributes to bilateral trade. |
| Hydrocarbon exports to Tunisia | 96% of Algerian exports to Tunisia | 2024 | SECO | - |
V. Regulatory Framework and Investment Climate
Algeria's regulatory framework and investment climate are crucial determinants for the development of its hydrocarbons sector, directly influencing its ability to attract the capital and expertise it needs.
Central role of Sonatrach and other national entities
Sonatrach, Algeria's state-owned oil company, is the dominant player in the sector. It is the largest company in Africa, with 154 subsidiaries, and covers the entire hydrocarbons value chain: exploration, production, transportation, processing and marketing. Sonatrach has also diversified into petrochemicals and seawater desalination. The company holds concessions abroad, notably in Libya, Mauritania, Peru, Yemen and Venezuela, and has established strategic joint ventures with international partners such as Italy's Eni and Spain's Naturgy. In parallel, the National Agency for the Valorization of Hydrocarbon Resources (ALNAFT) plays an essential role by launching international bidding rounds for exploration.
Analysis of the impact of the 2022 Hydrocarbons Law and recent reforms
Since 2019, Algeria has undertaken a series of reforms aimed at improving its business climate. These include the removal of the 49/51 rule for non-strategic sectors in 2020, the introduction of a new investment law in 2022, and the partial lifting of import restrictions in late 2023. The 2022 Hydrocarbons Law is specifically credited with relaunching foreign investment in the energy sector after a decade of absence. This law offers significant incentives, such as tax and regulatory facilities, as well as improved profit sharing for investors. These reforms have helped position Algeria as a more attractive and stable investment destination amid growing global energy demand.
Recent reforms have had a tangible positive impact on Algeria's investment appeal. The policy measures put in place have clearly led to renewed interest from foreign investors and to concrete investment commitments. However, the full realization of these benefits will depend on the effective and continued implementation of these reforms. Persistent challenges, such as bureaucratic red tape, lack of transparency and regulatory instability, are still present and may hold back investment. This means that, although the policies are in place, their practical implementation and the ability to overcome bureaucratic obstacles are crucial for sustained investment.
Strategies to attract foreign investment and bidding rounds (e.g., Algeria Bid Round 2024)
Algeria has actively sought to attract foreign investment. ALNAFT has launched international bidding rounds for exploration, such as the "Algeria Bid Round 2024," which was a notable success, with planned investments of at least $936 million. In October 2024, the Algerian government launched a new licensing round for six onshore exploration blocks, with four additional rounds planned each year through 2028. Public and foreign investments, involving in particular entities from the United States, China, Italy and France, are under way in the gas sector.
Major investment projects and their objectives
Algeria's investment strategy is strongly focused on increasing gas production. Sonatrach has announced a massive $50 billion investment plan in the hydrocarbons sector between 2024 and 2028. This substantial financial commitment is directly tied to the ambition of raising gas production to 200 billion cubic meters by 2030. Production sharing agreements have already been signed, such as the one between Sonatrach and Eni, worth $1.35 billion, aimed at extracting 415 million barrels of hydrocarbons in Algeria's Berkine basin. The scale of these investments and the specific focus of the major partnerships (with Eni and Naturgy) confirm that increasing gas production and export capacity are the strategic priorities. This reinforces the idea that Algeria is betting on its gas potential, leveraging its reserves and geographic position to meet European demand, making this sector a pillar of its economic development and international relations.
VI. Economic Contribution and Structural Dependence
The hydrocarbons sector is the foundation of the Algerian economy, but this structural dependence also creates significant vulnerabilities.
Weight of hydrocarbons in GDP, export revenue and the State budget
The hydrocarbons sector is the central pillar of the Algerian economy. Between 2019 and 2023, it accounted for 14% of GDP, 86% of exports and 47% of budget revenue. Other sources point to an even more pronounced dependence, with hydrocarbons contributing more than 90% of exports, about 60% of budget revenue and 40% of GDP. For 2025, hydrocarbon exports are forecast to make up 79% of export revenue and 43% of budget revenue.
GDP growth in 2023, which reached 4.1%, was mainly supported by the hydrocarbons sector, with natural gas production offsetting crude oil quota cuts. However, hydrocarbon GDP is expected to contract slightly in 2024 because of oil quota cuts.
Analysis of economic vulnerability to global price fluctuations
This structural dependence on hydrocarbons is a double-edged sword: it is a major source of revenue but also a source of macroeconomic vulnerability. This "extreme dependence" makes Algeria highly sensitive to fluctuations in global oil and gas prices, threatening economic stability with every energy crisis. In 2024, lower hydrocarbon revenue put renewed pressure on external and fiscal balances. The current account turned to deficit again in 2024 after two years of surpluses.
The budget deficit widened in 2024, reaching 13.9% of GDP, the highest level since 2015. This increase is mainly due to higher public spending and a sharp drop in hydrocarbon revenue. The deficit is expected to narrow to 6.6% of GDP in 2025 if oil prices were to fall. Public debt also rose slightly to 48.5% of GDP in 2024.
Macroeconomic vulnerabilities are not limited to hydrocarbon prices. They also include inflation, banks' exposure to sovereign risk, the crowding-out effect on private sector financing, low productivity, persistent import restrictions, management of social risk (notably youth unemployment), weak competitiveness and insufficient diversification of non-hydrocarbon exports. The "gas and oil rent" generates considerable wealth, but it also creates deep structural problems, such as a lack of economic diversification, that prevent the country from translating this wealth into lasting and widespread prosperity comparable to that of other resource-rich nations. This highlights a fundamental challenge for long-term development.
Public spending management and structural reforms are crucial to mitigating this vulnerability. The growing budget deficit in 2024 is explicitly linked to increased public spending, in addition to lower hydrocarbon revenue. The persistent structural problems indicate that, even with high hydrocarbon revenue, the underlying economy struggles to generate sufficient non-hydrocarbon growth or to absorb shocks. This means that Algeria's lasting economic stability depends not only on a favorable global energy market, but also on rigorous fiscal discipline and an acceleration of structural reforms aimed at diversifying the economy and improving productivity, thereby reducing the disproportionate reliance on hydrocarbon revenue.
Table 5: Contribution of the Hydrocarbons Sector to the Algerian Economy (2019-2024)
| Indicator | Contribution (%) | Period/Year | Source | Key Notes |
|---|---|---|---|---|
| GDP | 14% | 2019-2023 | IEA | - |
| GDP | 40% | - | Lodj.ma | - |
| Exports | 86% | 2019-2023 | IEA | - |
| Exports | >90% | - | Lodj.ma | - |
| Budget revenue | 47% | 2019-2023 | IEA | - |
| Budget revenue | ~60% | - | Lodj.ma | - |
| Hydrocarbon exports | 79% (forecast) | 2025 | World Bank | - |
| Hydrocarbon budget revenue | 43% (forecast) | 2025 | World Bank | - |
| Budget deficit | 13.9% of GDP | 2024 | World Bank | Highest level since 2015. |
| Budget deficit | 6.6% of GDP (forecast) | 2025 | World Bank | If oil prices fall. |
| Current account balance | Deficit | 2024 | World Bank | After two years of surpluses. |
VII. Sector Challenges and Future Outlook
Algeria's oil and gas sector, although strategic, faces multidimensional challenges that will shape its future and the country's economic trajectory.
Structural challenges: economic diversification, business climate, inflation
The Algerian economy is grappling with deep structural problems that hinder its development and limit the positive spillovers of its hydrocarbon wealth for the population. These challenges include excessive dependence on hydrocarbons, still embryonic economic diversification, an unfavorable business climate, persistent inflation, a strained social model, an infrastructure deficit and unbalanced budget allocation. Bureaucratic red tape, lack of transparency and regulatory instability continue to discourage investment, particularly foreign investment.
Algeria faces an energy "triple challenge": heavy economic dependence on hydrocarbon revenue, constantly rising domestic electricity consumption (notably due to growing air-conditioning needs ), and the obligation to honor long-term fossil fuel export agreements, on pain of penalties. Youth unemployment and the weak competitiveness of non-hydrocarbon exports are also major obstacles.
Impact of climate change on energy operations and infrastructure
Climate change represents a direct and growing threat to the operational and economic stability of Algeria's hydrocarbons sector. Algeria's energy system is already experiencing significant disruption from extreme weather events such as floods, droughts and heat waves. The country is warming faster than the global average (0.49°C per decade versus 0.37°C).
Future heat waves directly threaten electricity security, as high temperatures reduce the capacity of gas-fired power plants and the transmission capacity of the grid, thereby increasing the risk of outages, particularly during periods of peak demand from increased air-conditioning use. Declining rainfall in the north of the country heightens the risk of droughts and wildfires, threatening power grids, power plants and oil and gas operations. Conversely, desert regions could experience an increase in extreme rainfall events and flooding, which would jeopardize hydrocarbon extraction and refining. The government has allocated 70% of its annual disaster response budget (an average of $255 million per year) to floods over the past 15 years, which underscores the scale of this threat. These effects of climate change are not just environmental concerns but operational and strategic risks that directly affect the activities of the hydrocarbons sector.
Energy transition strategies and renewable energy development
The energy transition is a strategic necessity for Algeria's economic diversification and climate resilience, but its pace is crucial. Algeria is paying growing attention to managing these climate impacts, as shown by initiatives such as the National Adaptation Plan and the 2020-2030 National Climate Plan. The government is accelerating the development of renewable energy under its 2020 Five-Year Development Plan, with a target of 15 GW of installed capacity. This approach aims to diversify the national energy mix and free up more hydrocarbons for export.
The country's solar capacity increased by nearly 1 GW between 2014 and 2023. Major solar projects are under construction, notably the Hassi Delaa plant (362 MW), which should be operational in late 2025 or early 2026, and five additional projects totaling 780 MW. Algeria has the potential to export renewable energy in the future, which represents an opportunity to offset the potential decline in fossil fuel revenue. Renewable energy development is presented as a dual solution: it addresses climate change risks and offers a path toward economic diversification, reducing dependence on hydrocarbons. Although the commitment to renewable energy is clear, the speed at which this transition takes place is fundamental. Given the deep structural dependence on hydrocarbons and growing domestic energy demand, the speed and scale at which renewables can replace fossil fuels in the domestic market and become a significant source of export revenue will determine Algeria's long-term economic resilience and its ability to succeed in the global energy transition.
Long-term vision for the sector and its international positioning
In the long term, Algeria aspires to position itself as a credible alternative to Russia for Europe's gas supply. Sonatrach's diversification into petrochemicals and seawater desalination is also part of this strategic vision of sustainable development and value added.
Conclusion and Strategic Recommendations
Algeria's oil and gas sector stands at a crossroads, characterized by intrinsic strengths, structural weaknesses, significant opportunities and growing threats.
Summary of strengths, weaknesses, opportunities and threats
- Strengths: Algeria has substantial proven reserves of oil and conventional gas and massive shale gas potential. Its strategic geographic position makes it a key supplier for Europe, a role reinforced by the presence of Sonatrach, a major and integrated player. Recent reforms aim to improve the business climate and attract foreign investment.
- Weaknesses: The Algerian economy is excessively dependent on hydrocarbons, making it vulnerable to global price fluctuations and external shocks. Persistent structural challenges, such as bureaucratic red tape, inflation, youth unemployment and limited refining capacity, hold back economic diversification. The volatility of LNG exports and regional competition are also weak points.
- Opportunities: Increased European demand for gas, notably as an alternative to Russia, offers a strategic window of opportunity. New field discoveries, the vast untapped shale gas potential, and the development of renewable energy (solar, wind, green hydrogen) open avenues for growth and diversification. Expansion into petrochemicals also makes it possible to increase the added value of resources.
- Threats: The growing impact of climate change on energy infrastructure (heat waves, droughts, floods) represents a direct threat to operational stability and energy security. Regional competition, notably from Nigeria in the LNG market, the inherent volatility of hydrocarbon prices, the challenges of effectively implementing reforms and global pressure for decarbonization are threats to be taken into account.
Recommendations to strengthen the sector's resilience and sustainability
To ensure the long-term resilience and sustainability of its energy sector, Algeria should adopt the following strategic recommendations:
- Accelerate economic diversification: It is imperative to reduce dependence on hydrocarbons by stimulating other economic sectors (agriculture, tourism, manufacturing) through incentive policies and targeted investments.
- Step up investment in renewable energy and energy efficiency: Exceeding current renewable energy targets and promoting energy efficiency nationwide will make it possible to meet growing domestic demand without compromising hydrocarbon export volumes, while preparing for the post-fossil future.
- Strengthen the climate resilience of energy infrastructure: Climate risk assessments along the energy value chain and the integration of adaptation measures into infrastructure planning and construction are essential to minimize future disruptions from extreme weather events.
- Pursue and consolidate business climate reforms: Effective and transparent enforcement of investment and hydrocarbons laws is crucial to attract and retain more foreign and private investment, by easing bureaucracy and ensuring regulatory stability.
- Optimize natural gas production and export: Maximize gas revenue in the short and medium term through strategic partnerships and infrastructure expansions, while actively planning the transition to cleaner energy sources.
- Develop refining and petrochemical capacity: Investing in the on-site processing of crude hydrocarbons will increase the added value of exports and create jobs, thereby reducing dependence on imports of refined products.
By adopting these measures, Algeria will be able not only to consolidate its position in the global energy market, but also to build a more diversified, resilient and sustainable economy for future generations.Sources used in the report
Sudan
Uganda