The European Green Deal (EGD), announced in late 2019, sets high ambitions for the transformation of the EU’s economy and way of life so as to become the first climate-neutral continent. Among the many changes that will take place before 2050 as a consequence of the implementation of the EGD, a relevant one will be the implications for fossil fuels exporters into the EU. The EU intends to replace “imported natural gas and petroleum products with locally produced renewable electricity, gases and liquids”.[1] This serves a double purpose. Firstly, to transition from fossil fuels to renewable energy sources, and secondly, to reduce dependency on energy imports, with the geopolitical implications that this entails.[2] Furthermore, the Covid-19 pandemic has hit the global markets in an unprecedented way, consequently halting most of the climate-related policies that countries were aiming to implement in the upcoming years. After an initial period of crisis where both the EU and its Member States turned their back on each other and fought over medical supplies, the EU committed itself to using the Covid-19 pandemic as a catalyzer to increase the EU’s integration and implement the EGD. Thus, the EU has continued with its plans by allocating 35% of the Next Generation EU Covid-19 recovery budget towards green initiatives.[3]

Concerning natural gas, the EU will continue to rely on it until 2030, seeing as it is a lesser contaminating alternative than coal.[4] By 2050, natural gas is expected to make up only one tenth of the EU’s energy mix.[2] In 2019, gas accounted for 23.8% of the EU’s total energy consumed, but remains the most feasible alternative to coal, which made up 13.6% of the energy mix that same year.[6] In 2019, the EU imported about 92% of the natural gas it consumed.[7] If the EU is to reduce natural gas consumption so drastically, this will have important economic and geopolitical implications for the supplier countries. Estimates indicate that natural gas imports will shrink somewhere along 13% and 19% between 2015 and 2030, while after 2030, they will drop between 58% and 67% compared to 2015 levels.[8] This major shift will change the way in which the EU relates to its neighbors and partners, most notably the current main providers of energy and those that have the potential to become new providers in the near future.[9]

Figure 1 Evolution of EU energy imports (55% lower emissions in 2030 compared to 1990 and climate neutrality in 2050)

Source: Bruegel/ECFR based on European Commission (2020) MIX scenario.

Moreover, as the EU has already announced itself, it has the intention of fulfilling the role of initiator and leader of the global climate transition.[10] Countries are already following suit with carbon-reduction commitments, many of them ahead of the COP26 that will take place in Glasgow in late 2021. Therefore, not only is the EU initiating a shift towards clean energies and the eventual phasing out of fossil fuels and natural gas, but it is also using its normative power to push other nations to do the same.[11] Examples of this include the 2018 Free Trade Agreement with Japan, which was the first one to make an explicit reference to the Paris Agreements.[12] The EU has pursued its effort to encourage other countries to fulfill their environmental commitments, even those who may be less receptive, like the FTA attempt with the MERCOSUR block,[13] which included a provision to protect the Amazon, thus proving that the EU is willing to use all of its normative power toolkit to endorse its climate objectives. This overall shift in consumption could lead oil and gas-producing economies to lose $7 trillion USD by 2040, according to the International Energy Agency.[14]

Seeing the importance of the matter, it is surprising that after over a year since the introduction of the EGD, the EU still has no strategy to deal with the external dimensions of the Deal. Even more so considering the increased geo-politicization of energy dependence, especially in relation to energy security and dependence on Russia, which will push strategic partners from the EU’s neighborhood like Algeria to their socioeconomic limits. 

Concerning fossil fuel exporters, currently most of them are part of the EU’s neighborhood, an area that holds special strategic and geopolitical importance, and which will be heavily affected by the consequences of the transition. In its Southern Neighborhood, the EU has preferred to reluctantly accept semi-autocratic moderate regimes rather than Islamic governments, particularly after the instability caused by the Arab Spring and the events that followed.[15] This is because this region is especially relevant when it comes to the regulation of migratory flows and terrorism. In the specific case of Algeria, the ‘pouvoir’, the undemocratic power structures that have historically ruled the country, have been tolerated up until the social rise of the Hirak. Within this context, Algeria is one of the few countries in the region that remained stable during the Arab Spring, though the generous set of social programs targeting food, energy and housing prices resulted in a heavy strain on Algerian economy. Moreover, being the second largest military power in Africa, the country is especially important to the EU.[16] Hence, any signs of instability in Algeria can have direct consequences in key EU policy areas. The implementation of the EGD has the potential to destabilize Algeria due to the country’s high level of dependence on hydrocarbon exports to the EU, which remains its main export destination.[17]

Ultimately, however, market changes are going to be structural due to the energy transition and the long-lasting effects of the Shale Revolution, which consists in the development of new extractive methods of fossil fuels that allow access to previously thought inaccessible resources, thus increasing the offer.[18] Lately, markets have been characterized by an increase in supply.[19] Liquified Natural Gas (LNG) has been the source with the biggest trade growth, amounting to 13% in 2019.[20] In this regard, the European market has led the growth in LNG imports, reaching 117 bcm in 2019, 78% more than the previous year.[21] On the other hand, European gas imports through pipelines decreased by 6.5% in 2019, with Spain, as the main destination for Algerian gas, leading the drop with a 15% decline.[22] The first tendency is a decline of trade through pipelines and an increase of LNG, which is detrimental to Algeria, since it reduces the country’s comparative advantage in infrastructure. Moreover, barriers to market entry are shifting away from pipelines and towards ports and vessels equipped for the processing and manufacturing of LNG. 

 Figure 2 LNG Imports by source: Europe (in billion cubic meters

Source: BP Statistical Review of World Energy, 2020

Source: Bruegel/ECFR based on European Commission (2020) MIX scenario.

Source: The Global Gas Market 2020 Edition, Cedigaz

Although Algeria trades small portions of LNG, its infrastructures are constituted mainly by pipelines connecting it to Spain and Italy. Algerian pipeline exports fell by 30% in 2019 compared to the previous year.[23] Pressure was exercised both by the fact that cheaper LNG came primarily from the US and by the increased importance of Russian gas resulting from both the TurkStream and from a potential Nord Stream 2.[24] The steady increase in the production and consumption of renewable energies also influenced the market shifts. Renewable energy made up 19.7% of the EU’s energy consumption in 2019, in line with the 20% objective by 2020.[25] This market behavior illustrates the beginning of a decline that will continue into the future as part of the energy transition and the Shale Revolution. 

Source: Bruegel/ECFR based on European Commission (2020) MIX scenario.

 Source: BP Statistical Review of World Energy, 2020

Two additional damaging factors for Algerian natural gas exports are the decline in production and the increase in domestic consumption.[26] To fight against these issues, the Algerian government has implemented the 2019 New Hydrocarbon Law.[27] The main purpose of this law is to improve the attractiveness of Algerian hydrocarbon sector and to incentivize foreign investment in said sector. However, the government wants to maintain control over it, preserving the prior 51/49 ownership requirement.[28] This means that Sonatrach, the state-owned extractive company, must hold at least 51% ownership of projects initiated by foreign companies in Algeria. The approval of this law demonstrates Algeria’s willingness to continue developing its hydrocarbon sector through foreign investment, while still maintaining control over this critical sector, in an effort to increase exports. 

However, a crucial issue concerning the imbalance between production, sale and consumption of natural gas is Algeria’s low level of energy efficiency. Energy consumption efficiency is an endemic issue in countries with an abundance of fossil fuels and state-owned extractive companies.[29] This is a direct consequence of the low prices that these goods tend to have, as well as the lack of environmental awareness of the population.[30] Energy products are typically highly subsidized, making prices very accessible for most of the population. This, in turn, has additional negative repercussions for CO2 emissions, for which Algeria ranks third in Africa, much against the country’s modest commitments to the Paris Agreements.[31] Since countries tend to prioritize energy autonomy, they will always make sure to meet internal energy demand before exporting any leftover hydrocarbons. In the case of Algeria, this has resulted in a sharp reduction of exports and consequently a reduction of revenues, since the sale price of hydrocarbons is very different at home than it is abroad. This has caused Sonatrach to become virtually economically sustained by the state as a consequence of the lax subsidy policy in Algeria and the exports drop.[32]

Nevertheless, Algeria is also on the way to develop its own renewable energy capacity. The Algerian government acknowledges the benefits of renewable energy and sees the overall need to diversify its economy by advancing its national renewable sector.[33] The most pressing matter, apart from the global energy transition, is that oil reserves are estimated to run out in 20 years, and natural gas in 50 years.[34] Therefore, even if Algeria wants to hold on to hydrocarbons for as long as possible, this cannot last forever. 

The Algerian government is aware of the enormous renewable energy potential the country has. The Sahara desert makes up 86% of Algerian territory; certain areas provide between 2,500 and 3,600 hours of sun per year.[35] This corresponds to approximately double the radiation that can be generated in the EU in a single year.[36]  In this sense, Algeria has set itself the target of developing its solar and wind capacity to 15,000 MW by 2035.[37] In 2019, the government presented a tender scheme to gather investments in which only Algerian companies or partnerships that respected the 51/49 requirement were allowed to participate.[38] The tender was not as successful as expected due to the formal requirements. Following this failure, the Algerian government launched a new corporation within the framework of Sonatrach dedicated to the development of renewable energy.[39]

To this day, the Algerian renewable sector is heavily underdeveloped considering the great potential the country has, both in terms of annual hours of sunlight and geographic proximity to the EU. The EU itself has foreseen in the EGD that it will not be able to produce all the necessary clean energy to supply the European region within its own territory.[40]Imports of green energy will be required to meet the demand. Algeria possesses the climatic characteristics, geographical and infrastructural features to become a main supplier of green energy to the EU via already existing pipelines.

Investment in the renewable energy sector would not only help Algeria’s energy transition, but also the diversification of its economy, which has been declared as a top priority for the upcoming years.[41] The Algerian government’s main goal is to provide for its people, especially by becoming self-sufficient when it comes to securing critical products like food and agricultural yields.[42] Afterwards, the government intends to limit its exports to a small number of specialized products.[43]  In terms of figures, Algeria has set itself the short-term goal of making $5 billion USD in exports unrelated to hydrocarbons during 2021.[44] This effort to diversify is not new, as Algeria has experienced multiple attempts in the last decades. However, all were unsuccessful because they went against the established power structures.[45] The strategy that Algeria is currently pursuing involves capitalizing on natural gas for the next 8 to 10 years until it is phased out by the EGD.[46] Moreover, the Algerian government is counting on an increase in the demand of gas.[47] While this increase may take place as the EU transitions from coal to gas, the gas market is diversifying and competition is rising. Therefore, Algeria will have to compete against energy superpowers, such as the US and Russia, in order to provide the EU with clean, cheap and secure natural gas. 

Algeria has been postponing an unavoidable reform of its economy and institutions.[48] The EGD poses both a threat to Algeria’s ‘pouvoir’ currently in place, and an opportunity for the country to embrace the shift to green energy, given its untapped potential in this sector. Nonetheless, this may require the ‘pouvoir’ to drive the change and lose part of its influence along the way. Certainly, the rentier character of Algeria’s politico-economic structure is the key determinant for resistance, but if the Algerian government does not hop on this train, there may not be many more opportunities like this. Momentum has been built internationally, with the EU announcing its ambitions and many countries following suit, but also domestically, with the Hirak taking the streets again after having stopped due to the pandemic. As difficult as it may be, Algeria finds itself in a privileged position to initiate a double transition: the transition towards renewable energies and the transition towards a non-rentier system. Whether it will be able to overcome these challenges, remains to be seen. 

• [1] European Commission, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions Powering a climate-neutral economy: An EU Strategy for Energy System Integration, COM (2020) 299 final, Brussels, 8 July, 2020, 4.
• [2] Ibid. 
• [3] Oksana Antonenko, “EU green transition likely to reshape relationships with key energy suppliers”, Control Risks, 10 December 2020. 
• [4] “An EU Strategy for Energy System Integration”, op. cit., 12-13. 
• [5] Ibid. 
• [6] Eurostat, Shedding light on energy in the EU. A guided tour of energy statistics (Brussels: Eurostat, 2020).
• [7] Eurostat, “Natural Gas Supply Statistics”, Statistics Explained, 29 October 2020, 3.
• [8] Leonard et. al., op. cit., 5. 
• [9] Ibid, 2.
• [10] European Commission, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions Powering a climate-neutral economy: The European Green Deal, COM 2019 (640) final, Brussels 11 December 2019, 2.
• [11] Ian Manners, “Normative Power Europe: A Contradiction in Terms?”, Journal of Common Market Studies 40, no. 2 (2002).
• [12] Karl Mathiesen, “EU-Japan trade deal first to carry Paris climate clause”, Euractive, 20 July 2018. 
• [13] Daniel Boffey, “EU seeks Amazon protections pledge from Bolsonaro in push to ratify trade deal”, The Guardian, 20 October, 2020. 
• [14] “Outlook for Producer Economies: What Do Changing Energy Dynamics Mean for Major Oil and Gas Exporters?”, International Energy Agency, October 2018. 
• [15] Luigi Scazzieri, “Rethinking the EU’s approach towards its southern neighbors”, Center for European Reform, 10 July 2020.
• [16] Etienne Copel, “Morocco/Algeria: The armed forces behind the Western Sahara conflict”, The Africa Report, 4 March 2021.
• [17] European Commission, Trade Algeria (Brussels: DG Trade, 2020).
• [18] Robert D. Blackwill, and Meghan O’Sullivan, “America’s Energy Edge: The Geopolitical Consequences of the Shale Revolution”. Foreign Affairs93, no. 2 (2014), 102.
• [19] Ibid, 4. 
• [20] Ibid, 8. 
• [21] Ibid, 11. 
• [22] Ibid, 13. 
• [23] “Global Gas Report 2020”, International Gas Union, 14.
• [24] Ibid, 13. 
• [25] Eurostat, “Natural Gas Supply Statistics”, op. cit. 
• [26] Lazhar Sahbani, “The main developments introduced by the Algerian New Hydrocarbon Law”, PWC Algérie, January 2020. 
• [27] Le Parlement Algérien, « Loi n° 19-13 du 14 Rabie Ethani 1441 correspondant au 11 décembre 2019 régissant les activités d’hydrocarbures », Journal Officiel de la République Algérienne, nº 79, 22 Décembre 2019.
• [28] Ibid, arts. 92-97. 
• [29] Adela Syslová, “Whose Sustainability? Political Economy of renewable energy transitions in Morocco and Algeria”, MSc thesis (London: SOAS University London, 2020), 14. 
• [30] Gonzalo Escribano and Lara Lázaro-Touza, “Oil Markets, Energy transition, climate governance and COVID-19: the short, the medium and the long term”, Elcano Royal Institute 6 (2020), 12.
• [31] Mohammed Bouznit, María del P. Pablo-Romero and Antonio Sánchez-Braza, “Measures to Promote Renewable Energy for Electricity Generation in Algeria”, Sustainability 12, no. 4 (2020), 1. 
• [32 Jekaterina Grigorjeva, “Starting a new chapter in EU-Algeria energy relations, a proposal for targeted cooperation”, Jacques Delors Institut Berlin 173, 30 September 2016, 10.
• [33] Leonard, et. al., op. cit., 12.
• [34] “Breaking Algeria’s Economic Paralysis”, International Crisis Group, 19 November 2018.
• [35] “The People’s Democratic Republic of Algeria Intended Nationally Determined Contribution, INDC-Algeria”, UNFCCC NDC Interim Registry, 3 September 2015.
• [36] Grigorjeva, op. cit., 6.
• [37] Commission Européenne, Document de Travail Conjoint des Services, Rapport sur l'état des relations UE-Algérie dans le cadre de la PEV renouvelée, SWD (2020) 285 final, Bruxelles, 18 Novembre 2020, 12. 
• [38] Michael Hochberg, “Algeria charts a path for renewable energy sector development”, Middle Eastern Institute, 20 October 2020.
• [39] « Processus de création d'une nouvelle société dédiée aux énergies renouvelables », Algérie Presse Service, 19 Février, 2021.
• [40] The European Green Deal, op. cit., 12.
• [41] Interview with an Algerian official, via videocall, 8 April 2021. 
• [42] Ibid.
• [43] Ibid. 
• [44] Ibid. 
• [45] Mohammed Benbouziane, Abderrahim Chibi and Sidi Mohamed Chekouri, “Algeria and the Natural Resource Curse: Oil abundance and economic growth”, The Middle East Development Journal , no. 2 (2017), 253.
• [46] Interview with an Algerian official, op. cit. 
• [47] Ibid. 
• [48] Gonzalo Escribano, “Argelia no es Venezuela”, Elcano Royal Institute 22 (2018).