Algeria commands international attention both for its importance in oil and gas markets and for its role in U.S. national security issues. As a major natural gas supplier to Europe, Algeria has been the subject of much discussion amid fears that Russia could attempt to use its sizable natural gas exports as political leverage against its European buyers. If Algeria is able to use new technologies to ramp up its production in the coming years, it could become a viable alternative energy source for the Continent.
An OPEC member since 1969, Algeria has consistently produced meaningful volumes of both oil and natural gas (some 1.14 million barrels of oil per day in November 2014). It has abundant conventional oil and gas reserves, and it might have the third-largest shale reserves in the world. Algeria bases a significant amount of its national budget on oil and gas revenues, which account for about 30% of the country’s gross domestic product (GDP), more than 95% of export earnings and 60% of budget revenues. Algeria is also the second-largest natural gas supplier to Europe and the largest supplier of natural gas to the African continent.
Algerian energy exports have declined in recent years because of constant delays to new projects. Algeria’s fiscal breakeven point in 2014 was $136 per barrel, though world prices dropped near $40 per barrel, making it difficult for Algeria to provide a level of social services to the Algerian people necessary to maintain domestic stability. The Algerian government “may have to rein back many of the policies it has held dear over many years. Generous subsidies, for one, may have to be scaled back despite the potential risk of social unrest in the North African country.”1
Since such a large part of the country’s economy relies on oil and gas revenues, the steep decline in oil prices seen in recent months significantly hurt the Algerian economy, leading Prime Minister Abdelmalek Sellal to announce across-the-board social spending cuts and a hiring freeze throughout the government in January 2015, although the energy, health and education sectors were exempted from the freeze. Despite Algeria’s challenges, the government has continued to pursue foreign investments into Algeria, including pilot projects to produce energy resources via fracking. Security risks, however, have complicated Algerian exploration and production efforts.
Over the medium term, if Algeria can expand its production of oil and gas, whether derived from its conventional or unconventional prospects, it may become an even more important supplier to Western Europe, especially of natural gas. Expanding Algerian gas exports to Europe, and perhaps reducing Europe’s dependence on imports from Russia via pipeline, would require investment in both Algeria’s energy industry and its pipeline infrastructure.
Of the North African countries, Algeria does not attract the most attention from U.S. security professionals, but it is well worth monitoring. Algeria remained relatively stable throughout the Arab Spring, even as neighboring Libya descended into chaos. Nevertheless, Islamist militants have a long history of activity in Algeria, including in a bloody civil war primarily in the 1990s, and in January 2013, al Qaeda-linked militants attacked the Ain Amenas natural gas facility. But overall, Algeria’s role in global security derives more from concerns about terrorism in general (and from the country’s participation in counterterrorism efforts) than from specific energy concerns. So far, the Shale Revolution has not significantly changed the United States’ security interests in Algeria.
On the other hand, if Algeria can use the diffusion of new production technologies to significantly increase its energy production, and if its production diversifies Europe’s sources of energy imports, Algeria could play an important role in increasing European energy security. As a follow-on effect, such supply diversity might change the perception that Europe’s foreign policy decisions are affected by its high level of natural gas imports from Russia — whether or not that perception is true. The U.S. government has publicly expressed concern about its European allies’ energy dependence on Russia since the 1980s, when Europe built the pipelines needed to import Russian oil and gas.