Southeast European countries look to Algeria to diversify energy supplies

Southeast European countries look to Algeria to diversify energy supplies
Both Slovenia and Croatia are tapping Algeria for gas imports as the country becomes an important supplier to southern Europe.
By bne IntelliNews June 3, 2024

Algeria has become an important supplier of natural gas to southern Europe, including the Southeast European countries of Croatia and Slovenia, as they seek to diversify their energy sources and reduce reliance on Russia.

With European countries turning to Algeria for gas supplies amid the disruption caused by the Russian invasion of Ukraine, Algeria has become Europe's second-largest pipeline gas supplier after Norway. The EU and Algeria have maintained a long-standing strategic partnership on energy, aiming for a stable and reliable flow of gas. 

This now includes the small Southeast European EU members Croatia and Slovenia, which like other states in the region have been exploring options to boost energy security and diversify their supplies. This has seen governments reach out to Azerbaijan in particular, as well as the construction of new pipeline infrastructure. 

With the aim of boosting gas supplies from Algeria too, Slovenian Prime Minister Robert Golob signed a gas purchase agreement with Algerian officials during his official visit to Algiers on May 27. "This visit marks a significant step in strengthening our energy security and economic ties with Algeria," Golob said.

The amendment to the gas purchase agreement between Geoplin doo Ljubljana and Algeria’s Sonatrach group will increase gas supply by an additional 200mn cubic metres per year, supplementing the existing basic contract of 300 mcm per year from 2023 to 2025. Slovenia indicated it is keen to extend the natural gas supply contract beyond 2026, when the current contracts are set to expire.

Golob's visit also saw the official opening of Slovenia's embassy in Algiers, as Ljubljana seeks to deepen diplomatic relations between the two countries too. Golob said he hopes Algeria will reciprocate by opening an embassy in Ljubljana later this year. 

The visit follows the recent implementation of an economic cooperation agreement between Slovenia and Algeria on March 20.

Historically, Slovenia relied on Algerian gas, sourced via Italy, to meet up to 30% of its gas market needs. However, after the expiration of the contract between Geoplin and Sonatrach in 2012, Slovenia’s then government, under Janez Jansa, opted to solely depend on Russian gas. The importance of Algerian gas as a viable substitute became apparent following Russia's 2014 attack on Ukraine and the ensuing energy crisis.

In recent years, Slovenia has thus sought to reestablish its energy collaboration with Algeria, which includes a three-year gas supply agreement between Geoplin and Sonatrach, signed in 2022. This contract, effective from January 1, 2023, covers a third of Slovenia's annual gas consumption, with provisions for potential extensions.

Shortly before the Slovenian prime minister’s visit to Algeria, Algerian Sonatrach shipped its first LNG cargo to neighbouring Croatia, which arrived at the Krk floating regasification terminal on May 22. The shipment, a result of extensive collaboration with Croatian stakeholders since the terminal's commissioning in 2021, marks Sonatrach's first natural gas supply to Croatia and Hungary.

Algeria, a major natural gas exporter, increased its production by 3.3bn cubic metres to 136 bcm in 2023. The country exported 52.4 bcm of gas in 2023, up from 49.3 bcm in 2022. Foreign Minister Ahmed Attaf told the World Economic Forum in Riyadh in April that many European countries were requesting more gas supplies to meet high demand.

In the past, Algeria delivered gas to Europe via the Maghreb-Europe Pipeline (MGE), which also passed through Morocco. Political tensions, however, led to the pipeline's closure in October 2021. Since that time, Algeria has been using the Medgaz pipeline to export gas to Europe, particularly to Spain. By 2023, Algeria became the leading energy supplier to Spain, meeting 29.2% of its energy requirements.

Algiers is also considering building the Algeria-Sardinia GALSI gas pipeline to further boost gas exports to Europe, and may in future use the pipeline to transport hydrogen and ammonia exports.

To further boost gas exploration and production, Sonatrach signed agreements with ExxonMobil and Baker Hughes on May 23. The first agreement with ExxonMobil focuses on the development of hydrocarbon resources in Algeria’s Ahnet and Gourara basins. The second agreement, with Baker Hughes, involves providing services for Algeria's largest gas field, Hassi R’Mel.