The Relative Importance of Gas

From an energy point of view, 2005 has been a very convulsive year. On an international level, fears that there may be an energy crisis equivalent to that of the seventies of the last century have increased. According to the media, contributing to these fears are the crowing about end of oil and specific factors such as the situation in Iraq; the new crop of leaders in Latin American oil-producing countries, Chávez in particular; the growing demand from China and India; and, in recent months, the concern caused by the situation in Iran. In the case of Europe, this feeling of energy insecurity was intensified, right in the middle of the 2005 Christmas holiday period, due to an extremely brief cut in the supply of Russian gas, which reaches Central and Eastern Europe via Ukraine. A conflict, that in principle should have been read as neighbour motivated – between the two former USSR countries that share a network of gas pipelines -, was interpreted in Europe as a serious threat to our energy security.

Among other consequences, these ingredients have increasingly led the attention to questions relating to natural gas. An energy model based on gas has many features in common with one based on oil, but there are two significant differences that we would like to emphasize: a) the predominance of gas could mean a change in the most important players on the International Energy Scene (IES), especially where producing countries are concerned, and b) the gas market is not technically unified. In the case of gas, geographical proximity does matter and consequently, increases the possibility of creating «regional markets», «controlled» by regional players. In fact, the European Union itself establishes in the technical report for the preparation of the Green Book that there is no world market for natural gas: gas is sold in three separate consumer markets: in the United States, the European Union and Asia. From this affirmation we can deduce that the potential that regional alliances may have as an instrument of energy politics should be highlighted, since gas intrinsically leads to an “obligatory” policy of buying and selling on a regional basis.

European countries consume approximately 16 % of the world’s natural gas. This figure currently represents 24.3 % of the total gross primary energy consumption of the 25 member states of the E.U. In the future, it is estimated that this percentage will increase; just as it is also predicted that the dependence on imported gas will increase, from acquiring half the amount presently consumed from other countries, to importing three quarters of our requirements some time between 2015 and 2020.

European consumption is principally fuelled with gas from three areas: Russia, Norway and Algeria. On average, according to Eurogas, 24 % of the total gas consumed in the 25 EU countries comes from Russia, 59 % from European countries, including Norway, 10 % from Algeria, and the remaining 7 % from other suppliers including Libya and Egypt. These data indicate that for the EU, the situation is quite different to that of oil. When we talk about gas, the focus is on three suppliers, two of which are continental and the other, Mediterranean.

As we move towards the south-west of the continent, by looking at the figures for the Europe of 15 member states rather than the Europe of 25, the influence of Algeria, the Mediterranean supplier, increases to 21 % of total gas consumption; and if we only focus on the two southernmost countries of the EU, Italy and Spain, the Algerian supply is even greater. According to British Petroleum, out of the total gas that enters the continent by gas-pipeline, almost 40 % of that consumed in Italy and 70 % of that used in Spain originates from North Africa. These data are reinforced if we consider that of the gas imports arriving from Algeria to the EU by gas pipeline (86.6 % of the total), 69 % passes through Italy and 23 % through Spain.

The Algerian Deposits in the European Area

If we consider energy relations as dichotomical – there are countries that sell crude and gas and others that buy it -, the isolated figures that we have presented, would lead one to think that, in the Mediterranean area, what exists is an asymmetric relationship of dependence. This idea move us away from a possible scene of energy integration, but this possibility comes up when we consider energy relations as a game, with at least three groups, between the gas of the producing countries, the consumers and those who act as intermediaries in the process; the governments and companies of the sector.

From this point of view, in 2005 there was a significant change in the Mediterranean gas game: the passing in Algeria of Law 05-07 of April 28th relating to hydrocarbons. This leads us to think that the Algerian hydrocarbons will be a constituent piece in the Euro-Mediterranean geoenergy area. In this piece there are two elements indicating that the tapping of Algerian hydrocarbons will be incorporated into the activity of private consortiums of companies, which include those identified as European (Gas Natural, ENI, Total, Fina, Elf,…).

The first element is that with this law, the Algerian State will no longer be a producing State, as it is a law that separates the State – as the owner of the country’s subsoil riches- from SONATRACH, the national Algerian hydrocarbons company. This means that for the State, the export of oil is no longer considered as the privileged means for obtaining national income. For this reason, “Algerian national political” criteria have less and less influence on the quantities of crude-oil and gas that are exported. Evidence of this is that, even in the case of oil, sources close to the Algerian authorities have already stated their intention to abandon the Organization of the Petroleum Exporting Countries (OPEC)quota discipline.

The second is that this same law converts SONATRACH into an exclusively commercial company, while at the same time limiting its participation in international consortiums that exploit Algerian hydrocarbons. This can only reinforce the tendency which can be seen in the attached table. That is, that the importance of “foreign” gas production in Algeria has constantly increased.

TABLE 1 Production and repatriated profit in the agreements with foreign companies that operate in the Algerian deposits

Both factors indicate the loss of “Algerianity” of the country’s gas, which predictably will be considered as a marketable asset capable of yielding profits –not national income- for the companies that market it. From this point of view, it is relevant to remember who markets this gas to integrated consortiums of European and domestic companies: principally SONATRACH.

Furthermore, the activity of these integrated consortiums, which also has a bearing on the creation of transport and natural gas storage infrastructures, is supported as much by European institutions (DG Tren and the EIB) as by European governments, who support the European energy private sector with the aim of maintaining its function as energy supplier. To cite a present example, two of the priority Trans-European Network (TEN) projects are centred on Maghreb: the NG.2, which is intended to unite Algeria with Spain, Italy and France, and the NG.6, that will construct a ring to unite the Maghreb with the Eastern Mediterranean countries via Turkey.

All this has led to the integration of Algerian gas in the European energy sector for two reasons: because extraction and marketing of the gas is carried out by means of mixed, vertically integrated companies and, because with the current network of gas pipelines the deposits located in Algerian territory are integrated in the downstream European gas sector .

Gas, A Factor of Regional Energy Integration?

The answer to this question is ambivalent. It has already been said that the current structure of infrastructures and storage in Algeria is conceived principally for the export of gas to Spain, Italy and France, and it is mainly companies from these countries that acquire the gas. From this point of view, the hydrocarbons and the companies, currently from Algeria –but according to predictions of the Mediterranean Energy Observatory (OME) also from Libya and Egypt in the near future (2.31 % and 2.52 %, respectively, of the European supply in 2010) form the European upstream gas sector and remain integrated –microeconomically- in the same logic as the European energy industry.

However, the growing construction of pipelines gives greater prominence to the transit countries, with potential ability to influence the course of energy relations. From this perspective, especially in the case of the Maghreb, the construction of pipelines to Europe gives an importance to Morocco and Tunisia which they did not have in the previous oil market. It seems very unlikely that Morocco or Tunisia would carry out any action against Europe, but it is plausible that they could use this position of transit country to resolve their ancestral conflicts with their neighbour Algeria, in the case of Morocco, or Libya, in the case of Tunisia – and obviously, also vice versa.  If such a situation were to arise, we would find ourselves up against a Maghreb geo-energyarea, that acted with a logic previously unknown, a logic that would not resemble that of the most national kind governed by the producing states of the past, but would still have in common with the past situation the fact that national interests would take precedence over regional energy integration.