Algeria’s Evolving Energy Strategy
Algeria, long renowned for its abundant hydrocarbon resources, is now navigating a dual path: sustaining its role as a key natural gas supplier to Europe while rapidly accelerating its energy transition ambitions. The global shift toward decarbonization, exacerbated by Europe’s desire to diversify energy sources in response to the Ukraine invasion and its subsequent disconnection from Russian gas, has placed Algeria in a critical position. The North African country’s new policies, strategies and fiscal framework are reshaping its energy sector, opening doors for international partnerships and long-term investments, and setting the stage for its growing role in renewable energy and green hydrogen.
At the heart of Algeria’s energy landscape transformation is its revised hydrocarbon law (Law 13-19), introduced in December 2019. This legal framework offers significant improvements to attract foreign investors, addressing concerns over Algeria’s historically rigid energy sector. Through more favorable fiscal terms, simplified procedures and a greater emphasis on collaboration, the law seeks to enhance exploration and development, particularly for unconventional resources.
Under the oversight of state hydrocarbons regulator Alnaft, Algeria has launched the Algeria Bid Round 2024, an initiative that aims to unlock new oil and gas potential in six key sites, including M'Zaid, Ahara and Reggane 2. The round is a clear signal that Algeria is not abandoning its traditional energy sector, even as it embraces the energy transition. The country’s renewed focus on its vast unconventional gas reserves, including shale and tight gas, is reflected in the recent memorandums of understanding (MOUs) signed with major international players such as Exxon Mobil and Chevron. With hundreds of trillions of cubic feet of unconventional gas reserves awaiting exploration in basins like Ahnet and Gourara, Algeria is positioning itself as a critical supplier of much-needed gas to the global market.
The Promise of the SoutH2 Corridor
One of the most ambitious elements of Algeria’s energy transition strategy is the development of the SoutH2 Corridor, aimed at supplying Europe with green hydrogen. The recent MOU signed between Sonatrach, Sonelgaz and a consortium of European partners, including VNG, Snam, Seacorridor and Verbund Green Hydrogen, underlines Algeria’s commitment to tapping into the global demand for low-carbon energy.
This MOU seeks to explore the viability of large-scale hydrogen production and its export to Europe, a market eager to diversify its energy sources. Given Algeria’s geographical proximity to Europe, coupled with its renewable energy potential, the country is well situated to become a leader in the emerging hydrogen economy. The agreement not only strengthens Algeria’s ties to Europe but also underscores the potential for green hydrogen to become a pillar of its future economy.
However, challenges remain. Limited long-term offtake commitments from European buyers, declining hydrogen demand forecasts and uncertainty around the financing of export infrastructure pose significant hurdles. These concerns need to be addressed to ensure that Algeria can capitalize on its hydrogen potential, while avoiding pitfalls that could derail its energy transition efforts.
Diversifying Through Renewables
Algeria’s push for renewable energy is critical not just for its decarbonization goals but also for maintaining its gas export capacity. With domestic gas consumption rising, the country must reduce internal demand if it is to sustain its export volumes. To that end, Algeria has set a target of 22 gigawatts of renewable capacity by 2030, focusing on solar photovoltaic (13.5 GW), wind (5 GW), concentrated solar power (2 GW) and biomass (1 GW).
These targets are ambitious but achievable, given Algeria’s vast solar resources and the technical expertise that can be leveraged through international partnerships. However, the country must navigate logistical challenges, including the need for significant investments in infrastructure and grid modernization, to ensure that renewable energy projects are successfully implemented and integrated into the national energy mix.
Challenges to Overcome
Despite the optimism surrounding Algeria’s energy transition, several obstacles could impede progress. While the new legal framework offers incentives to foreign investors, the high costs associated with developing unconventional resources and renewable infrastructure remain a concern. Moreover, the slow pace of project approvals and operational challenges could dampen investor enthusiasm, especially in a highly competitive global market.
The future of Algeria’s hydrogen ambitions will also depend on Europe’s long-term commitment to hydrogen as a key energy source. With hydrogen uptake forecasts fluctuating, and the EU’s own internal production capacities growing, Algeria’s hopes of exporting green hydrogen at scale may face headwinds. Securing adequate funding for export infrastructure, such as pipelines and terminals, will be crucial if Algeria is to realize its hydrogen export ambitions.
A successful path forward for Algeria's energy sector will depend on three key areas: public-private partnerships, infrastructure investment and regulatory efficiency. Strengthening collaboration between Sonatrach, Sonelgaz and international energy players is essential to driving major initiatives like the SoutH2 Corridor and scaling renewable energy projects. Such partnerships can provide the technical expertise and capital needed to overcome infrastructure challenges. Secondly, Algeria must prioritize substantial investments in energy infrastructure, particularly in its grid and hydrogen export facilities, to ensure the successful integration of renewable projects and enable the transport of green hydrogen to Europe. Finally, improving regulatory efficiency by streamlining approval processes and reducing bureaucratic delays will foster a more favorable environment for investors, accelerating project timelines and enhancing Algeria’s competitiveness in the global energy market.
Algeria’s future is bright, but the road ahead is complex. Balancing traditional hydrocarbons with the emerging low-carbon economy will require coordinated efforts, strong partnerships and bold decision-making. With the right strategies in place, Algeria can secure its role as a pivotal energy supplier for Europe and a leader in the global energy transition.
