Albania is on the verge of a potentially transformative investment by multinational oil major Shell at a promising site in the Shpirag area. While the final investment decision (FID) has yet to be made, discussions are already underway about an investment of up to €7bn, as announced by Prime Minister Edi Rama in August. That is 40% of Albania’s 2022 GDP.
The investment will be a highly lucrative one for Albania, but it marks another move by the country – currently one of the greenest in Europe because of its hydropower-based energy sector – towards hydrocarbons. Developing countries around the world face similar dilemmas as they seize opportunities for economic growth, for Albania in sectors such as energy, construction and tourism, which leads in turn to higher consumption (and thus a bigger carbon footprint) on the part of their increasingly affluent populations. Tirana is responding to this by investing into new renewables projects and tackling electricity losses. But at the same time, thanks to its location on the Trans Adriatic Pipeline (TAP) route Albania is already developing its gas sector, while the construction of several new airports also risks pushing up greenhouse gas (GHG) emissions.
According to Rama, preliminary analyses have shown that the oil found at Shpirag is of very high quality. This potentially paves the way for a scale of investment that would be game-changing for Albania, currently one of the poorest countries in Europe. Despite strong growth in recent years, Albania’s GDP per capita stood at $18,552 in 2022, compared with the EU average of $54,249, according to World Bank data.
The existence of the Shpirag deposit was confirmed back in 2013 with the successful drilling of the Shpirag-2 well, which revealed the presence of a significant light oil column in the reservoir, spanning at least 800 metres, Shell said at the time.
Rama said that the oil discovered at Shpirag, close to the city of Berat, is the same quality as that extracted in Saudi Arabia. Oil deposits previously exploited in Albania have been heavy oil, such as that used for bitumen, which is less valuable and cannot be used in vehicles.
Speaking at a press conference alongside Energy and Infrastructure Minister Belinda Balluku on August 23, Rama said the exploration work over a 10-year period had been technically challenging, but was on the verge of final testing to assess the pressure stability of the gas and oil flow that could be extracted.
In 2021, Albania produced just over 712,000 tonnes of oil – a small amount compared to the major EU oil producers such as Italy, Denmark and Romania, Eurostat data showed.
The main company currently active in producing oil in Albania is Bankers Petroleum, which was taken over by China’s Geo-Jade Petroleum Corporation in a CAD575mn (€405mn) deal in 2016.
Bankers Petroleum has been operating Albania's Patos-Marinza oilfield since 2004 and has a 100% interest in both the Kucova oilfield and Exploration Block F in the Balkan country.
Green energy investments
The start of development would mark another boost to the hydrocarbons industry in what is currently one of the greenest countries in Europe, at a time when other European countries are trying to move towards renewables.
Despite its oil resources, Albania has for decades generated almost all of its electricity from hydropower. As of 2018, it was ahead of all the EU member states and behind only Iceland and Norway (incidentally the continent’s biggest oil producer after Russia) in terms of the proportion of energy consumed from renewable sources.
Albania has long taken advantage of its many rivers to produce electricity. Some of the main hydropower infrastructure was built back in the communist era such as the Komani HPP on the Drin river, which provides some 65% of the country's electricity, although there have been more recent investments, such as those by Norway’s Statkraft.
The Norwegian energy company has built two major hydropower plants (HPPs) in the Devoll valley, Banja and Moglice, which were put into operation in 2016 and 2020 respectively. Along with the TAP project, Statkraft’s investment considerably boosted foreign direct investment (FDI) into Albania for several years running.
There is greater hydropower capacity together with efforts to reduce technical losses from the electricity transmission system and stamp out electricity theft, thereby improving the reliability of supply for Albanian consumers and businesses.
This is in contrast to 15 years ago, when blackouts were frequent and Tirana and other cities throbbed to the noise of emergency generators outside shops, offices and cafes, pumping smoke out into the streets.
However, Albania continues to struggle with the irregular supply of electricity from its hydropower sector, which accounts for almost 99% of total production within the country.
Changes in precipitation levels from year to year cause hydropower production to fluctuate dramatically, and in dry years Albania can spend up to hundreds of millions of euros importing power from abroad. That was particularly problematic in 2022, when Albania was forced to import at a time when Russia’s invasion of Ukraine had sent energy prices sky high.
Environmental groups have campaigned vigorously against the construction of new HPPs and dams in Albania and the region amid a new wave of hydropower investment – both large and small scale – in Southeast Europe.
Campaigners warned that new HPPs threatened the last wild river in Europe, Albania’s Vjosa river. Tirana has since announced plans to revise its strategy on building small HPPs, and has declared the Vjosa area a national park, thus blocking hydropower development.
Instead, the government is promoting other forms of renewable energy, in particular solar power, given Albania’s sunny climate.
This has attracted interest from major international investors. Having built two HPPs, Statkraft went on to build a floating photovoltaic (PV) plant in the central part of Albania along with Ocean Sun, which was expanded in 2023.
A new fossil sector
However, there have also been moves to invest in fossil fuels, spurred on by the global shift in emphasis to energy security after Russia’s invasion of Ukraine.
Balkan Green Energy News reported in February that a joint venture between Greece’s GEK Terna and Albanian Gener 2 has submitted an application to build a 170-MW thermal power plant (TPP) in Albania’s Fier district.
Additionally, there is a project for a liquefied natural gas (LNG) terminal in the port city of Vlora, which is set to supply a gas-fired power plant in the area. Albania has even seen interest in projects aimed at reopening coal mines since the onset of the energy crisis. The government also announced it had leased two power-generating ships to meet shortfalls in supply.
The potential to use gas power was suddenly opened up by Albania’s inclusion on the route of the TAP, part of the network of pipelines transporting gas from Azerbaijan to Italy. As reported by bne IntelliNews’ sister publication NewsBase, Albania currently consumes barely any natural gas, but it envisages using 2.4bn cubic metres per year by the end of the decade.
Developing a gas sector will require substantial investment in infrastructure, as its existing gas pipeline network is decades old and most of it is no longer operational.
There has also been a fresh look at domestic production potential. The Delvina Gas Company asked for permission for the revival of gas production from the wells situated within the Delvina block. Presently, gas extraction in Albania is mainly in the southern region, specifically at the Divjaka and Frakull fields, with some additional supply originating from the Ballsh oilfield.
Transport infrastructure revamped
The investments into the energy sector are just part of the infrastructure investments being made in Albania, which is also revamping its transport sector.
New roads are being built, a project is underway to extend and overhaul the elderly railway, and several new airports are planned.
Until recently Albania had only one international airport in operation, in the capital Tirana. A new airport has already opened in Kukes, and there are plans for more at the seaside cities of Saranda and Vlora.
The arrival of low cost carriers WizzAir and Ryanair are already helping to boost Albania’s tourism sector, a major contributor to GDP. Tirana International Airport recently became the fastest-growing in Europe in terms of passenger numbers.
However, the planned new airport at Vlora has run into controversy, as environmental groups say it will threaten bird sanctuaries for 200 species that stop at the nearby Vjose-Narte lagoon during their annual migration. There are also concerns it will infringe national and international biodiversity laws, as well as the Berne Convention for protecting European wildlife.
Campaigners have managed to grab international media attention over the issue, but there has been less support at home. A recent protest drew only a handful of participants. One Albanian commented on social media: “We don’t care about the birds. We need jobs. The birds can look after themselves.”
This also comes at a time when concern about the emissions from air transport are growing.
The launch of major infrastructure projects, together with the post-pandemic rebound in tourism, are already helping to lift Albania’s economy.
The country has already been transformed over the last couple of decades, after its extreme isolation during the communist period and the turbulent 1990s that saw the country come close to civil war when massive pyramid schemes collapsed in 1997.
If Shell’s investment at Shpirag goes ahead, this may have an even greater impact.
Other post-socialist states further east, notably Azerbaijan and Kazakhstan, have been propelled out of poverty by their oil and gas resources.
On the other hand, both countries are highly corrupt, according to NGO Transparency International, and while the development of their hydrocarbons created a new class of super-rich and an emerging middle class, large swathes of their populations felt few benefits. This is in addition to the pollution from the two countries’ oil and gas industries.
Rama is clearly mindful of this. While Shell’s FID is still pending, he spoke in August of the plans once oil starts flowing. The first to benefit will be pensioners, the prime minister said.
Tirana has also been working for around a year on plans to set up a sovereign fund, modelled on those in other countries with abundant natural resources. It is looking first to Norway, which has channelled its oil and gas revenues into a huge and transparent sovereign wealth fund, as well as examining the sovereign funds of Azerbaijan, Saudi Arabia and the United Arab Emirates (UAE) and holding talks with experts from Harvard University’s Center for International Development.
“Every Albanian must be convinced that this great wealth is his and this great wealth will be a support for everyone … the economic and financial benefit from this wealth will impact pensions, it will impact the balance of payments of the Republic of Albania without question, it will impact, it is not discussed, the education system, the health system and it will impact the well-being of our children,” Rama said.
The investments to develop the deposit will also include infrastructure for extraction and refining of the oil, which will create the basis for new industries in Albania.