North Africa challenges Russia.

Author:Ford, Neil
Position:BUSINESS & FINANCE
 
FREE EXCERPT

It is well known that north African gas producers are targeting growing demand across the Mediterranean in the European Union (EU). Algeria's success in developing a comprehensive network of gas pipelines to Spain and Italy to complement its liquefied natural gas (LNG) sector, has persuaded Italian firm Eni-Agip to construct another pipeline from Libya to the European mainland. Yet research by UK analysts Prospex reveals that the North African region will provide almost 50% of European gas imports within five years, despite having just 4.4% of the world's reserves. How is this being achieved?

Algeria, which currently dominates North African gas supplies to the EU, trails behind Russia as a European supplier at present, providing 28% of European imports. But, Prospex argues, new Algerian projects, allied to the Egyptian LNG sector and the Western Libyan Gas Project, will allow North Africa as a unit to overtake Russia as a supplier, with nearly 50% of EU imports. Prospex concludes: "The region will retain this market share over the decade to 2020 as the European gas market continues to grow. Its importance to Europe will only begin to decline from 2020, and then only gradually." The gas projects currently under development are therefore obviously just a foretaste of what is to come.

If integrated gas and electricity markets evolve as planned across the EU and North Africa, Prospex holds up the possibility of Algeria and Libya using their gas reserves to generate electricity for export to the EU. The report points out: "North African operators able to sell power when European power prices are high, and gas when they are low would, in theory, be in a highly advantageous trading position." However, all five North African countries are currently struggling to meet domestic demand for electricity, the EU's power markets are still not as open as many would wish and subsea transmission lines are expensive to install.

The EU is a particularly attractive market for gas producers in all parts of the globe. Apart from being one of the world's biggest energy consumers in its own right, gas fired generation capacity is making up an increasing proportion of the generation mix in almost every member state. Despite rising gas prices, the European Commission (EC) is keen to see generators move away from coal fired capacity on environmental grounds, so demand for gas is rising steadily in both long-standing members and the new accession states of East and...

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