With autumn fast fading into winter, Europe is bracing itself for a possible repetition of the Jan-uary dispute between Russia and Ukraine, which disrupted gas supplies across the continent for two weeks during one of the coldest months of the year.

It was not the first time that Russia, the world’s largest gas producer, had cut gas flows to Europe in a commercial row with its neighbours. But this incident was unprecedented in its severity, and the ensuing energy crisis added urgency to Europe’s long-discussed plans to improve security of natural gas supplies by diversifying sources and supply routes. It also threw the spotlight on the potential of North Africa to play a bigger role in meeting Europe’s gas requirements.

There are currently three pipelines transporting North African gas to Europe. Algeria has an export capacity of about 42 billion cubic metres a year (cm/y) through its Maghreb-Europe and Transmed pipelines. The Maghreb-Europe pipeline connects Algeria with Spain via Morocco, while the Transmed pipeline passes through Tunisia on its way to Italy. The third line, known as the Greenstream pipeline, which has a capacity of 11 billion cm/y, runs from Libya through to Sicily and on to Italy.

Diversifying supplies

At the height of the crisis in January, the European Commission publicly thanked Algeria and Libya, along with Norway, for providing “a steady and even increasing supply of natural gas” to the member states. As Europe looks to reduce its over-reliance on Russian gas, there is strong backing for the two North African countries to increase their exports to the region.

According to industry association Eurogas, the 27 member states of the EU consumed 517 billion cubic metres of gas in 2008, of which about 60 per cent was imported from outside the union. Russia is the largest external supplier of gas to Europe, accounting for 25 per cent of imports, followed by Norway, which contributes 18 per cent, and Algeria, with 10 per cent. Algeria’s proven gas reserves, at 4.5 trillion cubic metres, are almost three times the size of Libya’s, so it is far better placed to capitalise on Europe’s drive to reduce its dependence on Russian gas.

The country already has several projects on the table to boost exports to Europe. It is currently commissioning its new Medgaz pipeline, which runs from Beni Saf in Algeria to Playa del Charco near Almeria in Spain without transiting any other country. The $1.27bn pipeline is expected to be operational by the end of the year and will have an initial capacity of 8 billion cm/y.

Algeria is also considering building a second pipeline to Italy. The front-end engineering and design for the Galsi pipeline, which would run from Skikda to the island of Sardinia and on to Castiglione della Pescaia in Italy, has been completed, but a final investment decision on the $3bn project has yet to be taken. The pipeline would have a capacity of 8 billion cm/y and 12 firms are understood to have signed letters of intent with Algeria’s state energy giant, Sonatrach, to purchase the gas.

The Galsi pipeline is scheduled to be completed by 2013, but Algeria might be overstretching itself by taking on this second project so soon after the Medgaz start-up.

“They already have a fairly expansive export market, so there will be a number of considerations they will have to take into account before a final investment decision on Galsi is made,” says one industry analyst. “Clearly there will be issues about whether there will be sufficient demand for an additional pipeline, and whether there will be sufficient gas supply to support Galsi on top of the Medgaz, Transmed and Maghreb-Europe pipelines, as well as meeting increasing domestic consumption and existing liquefied natural gas [LNG] commitments.”

Key facts

  • 11 billion cm/y – Capacity of the Greenstream pipeline from Libya to Italy
  • $1.27bn – Estimated cost of the Medgaz pipeline from Algeria to Spain

cm/y=cubic metres a year

Source: MEED

In 2004, Algeria set itself a target of inc-reasing its gas exports to 85 billion cm/y by 2010. But the date has repeatedly been pushed back due to a combination of robust growth in domestic demand, technical problems that impeded production increases from its gas fields, and an accident in 2004 that took an LNG facility out of service. Last year, Algeria’s combined pipeline and LNG exports totalled 60 billion cubic metres, according to the BP Statistical Review of World Energy 2008. It now hopes to achieve the 85 billion-cm/y target by 2013.

To facilitate this boost in output, and to meet local demand, an intensive programme to extend the internal transmission and distribution pipelines is under way in the country. But Algeria is also hoping to implement a joint project that would involve Nigerian gas being piped into Europe through its export network.

Nigeriahas the largest gas reserves on the African continent, estimated at 5.2 trillion cubic metres. The planned $10bn Trans-Saharan pipeline would span 4,100 kilometres, starting from Warri in Nigeria, passing through Niger and then connecting with the Algerian gas export infrastructure at Hassi R’Mel.

The project is currently being studied, but it is proposed that the pipeline would have a capacity of 20-30 billion cm/y and would be completed by 2016.

The EU’s dependence on gas imports has been steadily rising over the past decade and its annual gas consumption is forecast to reach 630 billion cubic metres by 2030. It is predicted that more than 80 per cent of gas demand will have to be met through imports by this date, and about 30 per cent of those imports are expected to be in the form of LNG.

Having built the world’s first liquefaction unit and begun LNG exports in 1964, Algeria has long dominated the European LNG market. Its shipments in 2008 totalled about 15 billion cubic metres, according to the BP Statistical Review of World Energy 2008. By comparison, Libya sent just 53 million cubic metres of LNG to Spain, while Nigeria transported 13.7 billion cubic metres to various European countries. Egypt, whose export pipelines only connect to Israel, Jordan and Syria, shipped 6.29 billion cubic metres of LNG to Europe last year.

Challenging route

The fact that Nigeria already has access to the European market via its LNG sales raises questions about the logic behind the Trans-Saharan pipeline. “If Algeria was purchasing gas from Nigeria at a cheap price, then it would be a very attractive option from Sonatrach’s perspective,” says the analyst. “But the big question is, why would Nigeria want to do that? Why not liquefy the gas and sell it at market price?”

The project was first mooted in the 1970s and the arguments in favour of the scheme include the potential economic development and stability it could bring to Nigeria and Niger as a result of the additional income and improved access to gas supplies.

Although Europe has said it supports any project that aims to increase gas imports into the union, it considers LNG an attractive alternative to pipelines because it offers flexibility of suppliers. It also makes transiting third-party countries unnecessary, which lessens the possibility of supplies being disrupted due to commercial disputes or even attacks on the pipeline by militants or terrorists, as often happens with Nigeria’s oil infrastructure. There is also a bottleneck in Europe’s internal gas grid, which currently prevents Spain from pumping significant volumes on to France.

The growing interest in LNG has opened the door for another regional player in the European gas market. This year, Qatar has significantly expanded its presence in the market and is now on its way to becoming the fourth-largest gas supplier to the EU.

“There are a lot of commercial and logistical challenges involved in the Trans-Saharan pipeline project”

Industry analyst

In March, Qatar opened the first phase of its 21 billion-cm/y LNG terminal at South Hook, Milford Haven, in south Wales. At full capacity, the facility will be able to meet 20-25 per cent of the UK’s gas needs. On 19 October, Qatar inaugurated a new offshore regasification terminal in Italy, developed under a joint venture with the US’ ExxonMobil Corporation and Edison of Italy. It has a capacity of 8 billion cm/y, which is equivalent to 10 per cent of  Italy’s natural gas consumption. In 2008, Qatar shipped 7.9 billion cubic metres of LNG to Europe. The EU has also expressed interest in a pipeline link to Qatar.

Russia, of course, will not relinquish its share of the European gas market without a fight. It is planning two new gas pipelines of its own, which bypass Ukraine and Belarus. The Nordstream pipeline is planned to run directly from Russia to Germany under the Baltic Sea, and the Southstream will be routed from southern Russia under the Black Sea to Bulgaria. The Nordstream project alone could satisfy 25 per cent of European gas demand.

Meanwhile, a third pipeline project, known as Nabucco, is being jointly promoted by the governments of Turkey, Bulgaria, Romania, Hungary and Austria. This would be a third-party access pipeline, meaning commitments will need to be secured to put gas into the pipeline, but it could potentially supply 5-10 per cent of Europe’s gas. Iraq and Azerbaijan have expressed an interest in using the route.

For Europe, the Middle East and North Africa region’s growing interest in exporting gas to the EU can only be seen as positive. By 2030, Europe needs to find an additional 113 billion cm/y of gas. So any project that makes it beyond the planning phase to become operational will provide a welcome boost to supplies.