LNG Market Outlook Featured Article

Gas production in Algeria rebounded in 2020 by roughly 1.5 bcm, but LNG exports declined due to an increase of 16% y-o-y in domestic demand. The rise in domestic demand kept LNG utilization rates at 43% of total capacity. In 1Q 2021, Algerian LNG exports were roughly 700,000 tons higher than 1Q 2020 figures. With this trend in mind, and Algeria’s need to boost economic growth through hydrocarbon export revenues, LNG exports are forecast to rise by 4-5% in 2021 to 11.3 MMt/y. Sonatrach has also indicated that it will raise natural gas exports by 25% in 2021. For 2022, LNG exports are forecast to fall to 9.1 MMt/y due to rising domestic demand, pipeline exports and slow production growth.

Algeria has exhausted a large portion of its reserve base and will need to go undergo exploration efforts to find new oil and gas resources if they wish to increase exports in the long run. Fully aware of this fact, Algeria changed the legal framework surrounding oil and gas investment in the country to entice more IOC’s into the industry. For 2021, there are four major developments expected to start-up with three of these being directed towards expanding gas production and infrastructure. Sonatrach has stated they expect the new projects to produce an additional 8 bcm/y of gas, but these figures include re-injected gas and non-marketed volumes. However, market observers and investors are skeptical that the recent rule changes will significantly alter the investment climate. Algerian production is forecast to rise to 89 bcm/y by 2022 from 88 bcm/y in 2021.

Algerian pipeline exports to Italy and Spain have increased since October 2020 with Italy taking in more volumes than Spain. Spain and Italy absorb roughly 70% of total Algerian gas exports, but the situation changed in 2020 with both countries turning to LNG from the US, Russia and Qatar for cheaper spot LNG. Algeria’s gas supply contracts are oillinked with a 6-month price lag. Towards the end of 2020 and into 1Q 2021, the Algerian pricing scheme began to reflect the lower gas prices seen in early 2020 due to Covid-19 and pipe exports to Spain and Italy surged.