Algeria - Gold from Gas

In recent years, Algeria has been increasingly targeting the US as a major customer for natural gas, having exported more than 60 billion cubic meters last year. It has ambitious plans to become one of the US's major suppliers in the coming years.

In May, Mohamed Meziane, the president and chief executive officer of Sonatrach , Algeria's state owned oil and gas company, announced the company was looking to triple gas exports to the US from 4 billion to 12 billion cubic meters by 2010.

Meziane said he was confident that Algeria could carve out a larger slice of the expanding US market, despite competition from other suppliers, especially those in the Middle East. Currently, Algerian exports account for only around 5% of US gas imports, something Meziane said he believed would change.

"We managed to break into European markets, including the British, so why not other markets? Our interest is no longer directed solely towards European nations," he said to local media.

The US is increasing its reliance on natural gas, with one-quarter of the country's energy now coming from gas. However, as the demand for gas rises, with daily consumption standing at around 1.7 billion cubic meters, the US is also seeing the depletion of many of its domestic resources, with fields in the Gulf of Mexico nearing the end of their commercial lives and daily production falling by 1.2 million cubic meters since 2001.

This is an opportunity in the market that Algeria hopes to take advantage of. Algeria aims at lifting its annual exports from the 62 billion cubic meters registered in 2006 to 85 billion cubic meters by the end of the decade, with more than a third of this increase intended for the US market.

Diversifying its market
"Algeria will not miss the opportunity to take share from the US market and Algeria will contribute to fill the US gas shortage," said Chakib Khelil, the minister of energy and mines. However, separately the minister confirmed the cancellation of a proposed gas-to-liquids (GTL) plant on the basis of spiralling costs. Proposed gas exports seem to have been little affected by the cancellation.

The emphasis on the US market is part of Algeria's plan to capitalize on its gas resources and to diversify its markets. Sonatrach recently announced that, in the future, half of its exports would be carried by pipelines, mainly to Europe, which buys around 70% of its gas needs from Algeria, while the other 50% would be shipped by tanker to more far-flung destinations such as the US and Asia.

The US, too, would be happy to lock Algeria into some long-term agreements and to meet its asking price as a means to ease calls for a gas cartel similar to OPEC. Washington, along with Europe, was none too pleased with the suggestions from some of the world's major gas producers, including Russia, Venezuela and Algeria's President Bouteflika that an organization for gas producing nations be set up, fearing price rises and market control.

During his May visit to the US, Khelil sought to allay these fears. Algeria did not seek "control of the world oil and gas market or to fix the prices," he told a press conference after meeting with Samuel Bodman, the US energy secretary of state in May.

Khelil also soothed ruffled US feathers over the close ties between Sonatrach and Russian gas giant Gazprom, saying the relationship was no different from that enjoyed by the Algerian firm and other international companies in America and Europe.

In June, Khelil told the international press that Algeria would be holding bidding rounds for new hydrocarbon exploration blocks to bring new capital and technology into the energy sector.

Algeria's LNG sector has been a key supplier to Europe for some time. With increased exports to the US, the country is developing a growing energy-hungry customer which will become an ever more important source of revenue.