Despite Algeria’s relative gains from rising oil and gas prices caused by the war in the Middle East, the country does not in fact possess the capacity required to become an “energy savior” for Europe due to a series of structural, technical, and economic constraints limiting its ability to significantly increase exports, according to a report by international risk analysis platform RANE.
The report explained that Spain and Italy have intensified efforts in recent months to secure additional Algerian gas supplies amid declining energy flows from the Gulf region, particularly after disruptions affecting part of Qatar’s gas exports due to the Iran war and tensions linked to the Strait of Hormuz.
According to the report, Spanish Foreign Minister José Manuel Albares visited Algeria at the end of March, where discussions focused on increasing Algerian gas exports through operating the Medgaz pipeline at full capacity, potentially raising exports to Spain by up to 10 percent, alongside possible increases in liquefied natural gas shipments.
However, the report noted that no concrete impact from the visit has been visible so far.
The report also highlighted that Italian Prime Minister Giorgia Meloni visited Algeria to strengthen energy cooperation at a time when Algerian gas accounted for around 30 percent of Italy’s total gas consumption in 2025.
Yet the report said Italy’s efforts to increase imports of Algerian gas have likewise produced no visible results to date.
Despite growing European interest in Algerian energy supplies, the report stressed that Algeria lacks sufficient spare capacity to rapidly or substantially increase exports.
It explained that the Algerian state-owned energy company Sonatrach is already tied to long-term supply contracts that limit its ability to redirect additional quantities toward European markets.
Among the major factors highlighted by the report was the continuous growth in domestic energy demand inside Algeria, where consumption is increasing annually by between 3 and 4 percent due to demographic growth, rising temperatures, and expanding industrial needs.
This, the report said, is steadily reducing the amount of gas available for export.
The report also pointed to technical challenges related to Algeria’s liquefied natural gas infrastructure, noting that LNG facilities have undergone years of maintenance and modernization work, resulting in lower production levels compared to the peak levels recorded in 2023.
According to the same data, Algeria’s total LNG liquefaction capacity stands at around 25.3 million tons annually, but actual production in recent years has remained significantly below maximum capacity, reflecting the sector’s limited operational capabilities.
The report further noted that several aging Algerian gas fields, particularly the Hassi R’Mel field, are facing natural declines in pressure and production, forcing Algeria to invest additional resources merely to maintain current output levels rather than increase them.
In this context, Algeria is currently building three new compression stations at the Hassi R’Mel field, expected to enter service between late 2026 and mid-2027, in addition to the Alrar Phase 3 project, which aims to offset declining field pressure and maintain daily production at around 10 million cubic meters.
Despite these projects, the report argued that their impact will remain limited in the short term, particularly as Europe is searching for immediate solutions to compensate for energy disruptions caused by the war in the Middle East, while Algerian projects require years before reaching full operational capacity.
At the same time, the report acknowledged that Algeria is benefiting relatively from rising global oil prices, which have exceeded $126 per barrel at certain periods, providing the Algerian state with important fiscal breathing room and helping reduce budgetary pressure.
However, the report cautioned that these gains remain relative because Algeria has one of the world’s highest fiscal breakeven oil prices, requiring prices above $120 per barrel to maintain budgetary balance, making its gains more limited compared to other oil-producing countries.
The report also warned that prolonged high energy prices could deepen Algeria’s dependence on hydrocarbon exports instead of pushing the country toward economic diversification and deeper structural reforms.
In this regard, the report said Algeria’s investment climate continues to face major obstacles, including the persistence of the “51/49 rule,” which imposes majority local ownership in oil and gas projects, in addition to bureaucracy, weak institutions, and compliance risks, factors that make the Algerian market less attractive to foreign companies compared to other energy destinations.
