Algeria is facing a new crossroad as its political and socio-economic balance has become increasingly weakened by the consequences of the oil price collapse since 2014. Algeria is faced with stark choices, as illustrated by the interplay between its energy sector and its political & economic challenges and opportunities. Budgetary constraints are putting pressure on its key hydrocarbon industry, which was already suffering from years of underinvestment due to tough fiscal terms, challenging business climate and security risks.
The North African nation needs to intensify efforts to revive its oil and gas upstream sector with new projects, avert the long-term production decline at mature fields, whilst meeting growing domestic demand and honoring gas export commitments. The widening fiscal deficit and the rapid erosion of financial buffers since the oil price fell is further increasing the need for foreign capital to boost oil and gas reserves, amid growing competition with other producing nations to attract capital and technical know-how from international oil companies. But the lack of upstream investment is just one of the challenges facing Algiers in its energy sector and beyond.
– In Asia, the average price of gas imports to Japan has risen since year-end 2017 in step with the uptrend in the oil price. LNG spot prices are under pressure and approaching those of oil-indexed contracts.
– These conditions have affected the European market, where price levels for Q2 and Q3 are relatively high.
– In the U.S., the Henry Hub price was lower in Q2 than Q1, due to the magnitude of U.S. natural gas output.
Globally, based on current information, average 2018 prices look to be up sharply in Europe (+36%) and Asia (+30-40%), but down in the United States (-3%).
Figure 1: 2017-19 gas price, by quarter: United Kingdom, Japan and the United States ($/MBtu and €/MWh)
European net LNG imports in H1 2018 did not sustain the growth momentum which was seen in 2017 (nearly 5% Y-o-Y growth in H1 2017) as total LNG net imports fell by 5% (-1.21 MT YoY) to reach 21.2 MT. This trend was mainly the result of higher re-exports, which went up 1.1 MT YoY, and strong declines in net LNG imports in Spain, the UK and France.
In Southern Europe, net LNG imports were down 8.7% to 12.1 MT, as imports in France, Spain and Italy declined. LNG imports in Spain declined by 12 % (-0.65 MT), counterbalanced by pipeline imports from Algeria which grew 18% compared to last year. Spanish LNG imports from Peru were down by 0.88 MT and this was partially offset by increased purchases from Trinidad and Tobago (+0.67 MT). In France, re-exported volumes surged by 0.72MT YoY, resulting in a 10% decline (-0.4 MT) in net LNG imports. The re-exported cargoes from France landed mainly in Asia (China, South Korea, India) and the Middle East (Kuwait). In Italy, LNG imports were down by 10% (-0.28 MT) as the power sector gas demand weakened in H1 2018, while hydroelectric power generation increased. Portugal was the only Southern European country where LNG imports were up, albeit marginally (+ 0.15 MT).
Figure 1: European LNG Importers in H1’18 (net of re-exports)