Energy Capital & Power

Algerian Energy Fuels Economic Growth

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Gas as a Catalyst for Economic Growth

Algeria’s natural gas sector represents one of the most developed of its kind in Africa, with a robust domestic and export pipeline network and large-scale processing facilities connecting the country’s gas-rich fields with international markets. The country became the world’s first LNG exporter in 1964 when it delivered an LNG cargo to the UK, and since then has invested heavily in gas infrastructure, positioning gas as a major economic driver.

Following the discovery of major gas finds, Algeria quickly moved to develop infrastructure that enabled both the export and domestic utilization of gas. Now, Algeria represents the biggest LNG exporter in Africa. Algeria exported approximately 14.5 billion cubic meters (bcm) of LNG in 2022, with trade markets including France, Italy, Spain, Turkey and the UK. In 2023, Algeria’s natural gas exports to southern Europe (Italy and Spain) remained strong as countries moved to diversify supplies and reduce the reliance on Russian resources. According to S&P Global Commodity Insights, Italy imported 22.4 bcm of gas in 2022 while Spain sourced approximately 24% of its gas from Algeria. Capitalizing on rising demand, Algerian National Oil Company Sonatrach plans to supply 110 bcm over the next five years to Europe, thereby significantly enhancing export-based revenue for the country.

As such, gas significantly has and will continue to contribute to the country’s Gross Domestic Product (GDP) growth. Between 2016 and 2021, the industry accounted for 19% of GDP. Despite a contraction in 2020, strong recovery in global gas imports in 2021 helped Algeria’s GDP grow by 3.4%. In 2022, gas represented 93% of all exports, bringing in approximately $50 billion for the country. However, this dependency makes the economy vulnerable to fluctuations in global energy prices.

In years where energy prices have been favorable, such as in 2022, high export levels and increased gas prices have helped fuel economic growth for the country. This in turn has led to a positive trade balance and account surplus. In 2022, for example, the current account surplus reached 9.5% of GDP. However, it also makes the country highly vulnerable to low-price contexts, leading to a push for economic diversification by the government.

Fueling Diversification Through Gas

While hydrocarbon revenues have improved development indicators in Algeria, diversifying the economy is crucial for strengthening economic resilience while advancing in-country opportunities such as job creation, market development and overall standard of living. Using a mix of gas export earnings and foreign direct investment, Algeria is spearheading the development of high potential economic industries. These include renewable energy, manufacturing and commerce.

On the renewables and manufacturing side, the country aims to produce between 30% and 40% of its power from renewable energy by 2030 while positioning itself as a regional manufacturing hub. Over the past decade, the Algerian solar and wind power sector has expanded considerably, with several projects launched. The production of inverters, technology products and energy storage solutions has surged while the textile industry continues to grow.

Additionally, a reformed regulatory environment has accelerated diversification. Recent policy measures, including the introduction of a new Hydrocarbon Law, Investment Law and efforts to enhance the business environment, underscore Algeria’s commitment in this area. The Government Action Plan of September 2021 – a national development guideline – emphasizes private sector-led growth, reducing product and service imports, boosting non-hydrocarbon exports, and reforming public banks and state-owned enterprises. Through gas, Algeria’s economic continues to grow from strength to strength.

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Thaakira Samodien

Thaakira Samodien

Thaakira Samodien is a strategic content writer at Energy Capital and Power. She has a shared passion for writing and is an advocate for the growth and development of African Nations