The European Commission is courting energy-rich but authoritarian Algeria in a bid to secure new gas supplies and keep North African instability in check.

It may just have to wait for the country's ailing socialist leader to die first.

Top EU officials have been frequent visitors to Algiers for more than a year as they try to make the case for a boost in investment from European companies. A more prosperous Algeria that pumps more gas helps the EU deal with its pressing migration problem by stabilizing North Africa and allowing the bloc to reduce its reliance on Russian gas. Algeria stands to gain too, getting help to kickstart an economy that has been battered by slumping oil prices.

The biggest obstacle is Abdelaziz Bouteflika, Algeria’s 79-year-old wheelchair-bound president.

“They’re waiting for Bouteflika to die, or for there to be a change of government," said an EU source familiar with the EU-Algeria relationship.

After a stroke in 2013 that left him partly paralyzed, Bouteflika has made very rare public appearances and traveled to Europe for hospital checks several times, most recently in April. Despite his health problems, Bouteflika maintains a tight grip, winning a re-election in 2014 despite low voter turnout, but his illness does seem to have left a void at the core of the decision-making process in the country of 39 million.

“They’re waiting for Bouteflika to die, or for there to be a change of government,” said an EU source familiar with the EU-Algeria relationship, who asked not to be named. “They know they have to change.”

The European Union already has longstanding ties with Algeria, with nearly €53 billion worth of trade between the two in 2014 (largely with the EU's southern members). Algeria is already the bloc’s third-largest energy supplier, most of which comes through two gas pipelines to Spain and a third to Italy.

Both sides are hoping for more.

The Commission has sharpened its focus on Algeria as pressure mounts to reduce Russia's dominance of the EU's gas imports and to protect the bloc from unexpected cut-offs. The interest in Algeria has been particularly driven by three key EU officials with a strong Mediterranean background — Miguel Arias Cañete, the climate action and energy commissioner, is Spanish; Dominique Ristori, the director general for energy, is from the French island of Corsica; and Federica Mogherini, the high representative for foreign affairs, is Italian.

The EU missions to Algeria come at a time when the OPEC member's oil and gas-reliant economy has taken a huge blow from the oil price tumble over the past two years.

Arias Cañete visited Algiers in May 2015 and then led a delegation of EU energy company representatives a year later for the first-ever EU-Algeria business forum. The group included oil and gas majors Total, Eni and Statoil, which are already involved in the country, as well as renewable energy developers Enel and Vestas. Ristori then met Algeria’s ambassador to Belgium, Amar Belani, with the president of Spain’s gas industry association Sedigas, Antoni Peris, in Brussels in June.

Mogherini met Bouteflika and other government officials in Algiers in September 2015, on a visit focused on addressing migration and security concerns.



The EU missions to Algeria come at a time when the OPEC member's oil and gas-reliant economy has taken a huge blow from the oil price tumble over the past two years. As of last year, the government had used around $50 billion out of its $190 billion foreign currency reserve to make up the drop in revenues.

But even before the oil price downturn, Algeria's energy sector suffered a setback in 2013 when Islamic terrorists attacked the In Amenas gas processing plant run by Norway’s Statoil, the U.K.’s BP and Algeria's Sonatrach, taking hostages and killing at least 39 foreigners and one Algerian. The plant returned to full capacity in late July. BP, Statoil and Sonatrach’s In Salah plant was also hit with explosives in March.

Algiers has done a good job of clamping down on terrorism, analysts say. But its long eastern border with Libya and Tunisia makes it hard to keep out all the militants.

Pushing for change

European energy companies, including BP and Statoil, say they’re staying in Algeria despite the attacks, and could be persuaded to invest more.

First, however, they want to see a break from a government that has gone to great lengths to protect one of Algeria’s biggest moneymakers: the state-owned oil and gas giant Sonatrach, which employs some 120,000 people (compared to Shell’s worldwide 94,000) and generates about 30 percent of Algeria's GDP.

Current rules make Algeria one of the least attractive energy investment destinations in the world: Sonatrach gets at least 51 percent of any contract between an international oil and gas company and the government. The government then gets as much as 90 percent of the revenue in taxes — compared to 50 percent in the Netherlands and the U.K. and 80 percent in Norway, according to an informal note the Commission sent to energy companies, obtained by POLITICO.

Development is so slow that it can take up to 17 years to carry a gas project from exploration to production, compared to a global average of five to eight years.

"Companies would like to be able to take the money they make in Algeria out of Algeria," said Geoff Porter, president of the U.S.-based firm North Africa Risk Consulting. Existing rules "make companies effectively resort to fraud to get money out of the country."

Algiers was initially “very hostile” to the idea of change, but has softened after a number of meetings with Brussels, the Commission said in the note. That said, Algeria wants something in return for loosening its foreign investment rules: a new gas pipeline from Spain to France.

The 190-kilometer MidCat line would send Spanish and Portuguese gas imports through the Pyrenees, into vast pipeline networks in Germany and Austria, and further east to countries that rely heavily on Russian gas. Spain and Portugal have been eager for the MidCat, because they already have too much gas coming by ship and pipeline, and the European Commission agrees. France, however, is more resistant.

It's important that the EU remains Algeria's partner of choice, Arias Cañete said during his visit this May. "The construction of missing links within the EU, including the new MidCat gas pipeline between France and Spain, will open new markets for Algerian gas."

The 'Norway of the south'

The oil price decline has underlined the need to diversify Algeria's economy by bringing new investment into renewable power generation, auto parts manufacturing, information technology and pharmaceuticals.

That's in addition to the oil and gas deposits that could still be developed, including the world’s fourth largest shale gas reserves.

Bouteflika held a high-level policy meeting in February to talk about the need to intensify gas exploration, and make renewable energy development a national priority. But the move came too late to revive the country's gas exports, Ali Aissaoui, a senior visiting research fellow at the Oxford Institute for Energy Studies, said in a recent report.

What Algeria needs now is for energy majors to come in and develop new oil and gas supplies for export, as well as renewable electricity to meet domestic demand.

Algeria’s natural gas exports to Europe have steadily fallen since 2009, partly because of decreasing demand in the bloc and rising demand in Algeria. The government’s failed bidding round for new exploration and production licenses in 2014, which awarded just four out of the 30 on offer, further underscored the need to sweeten investment terms for foreigners.

What Algeria needs now is for energy majors to come in and develop new oil and gas supplies for export, as well as renewable electricity to meet domestic demand. The government has said it wants to invest $43 billion in the gas sector alone.

“The idea was to get as much production out, particularly as they were under pressure from declining oil prices,” said Philip Stack, principal Middle East and North Africa analyst at the global risk consultancy Verisk Maplecroft. “But they’ve lacked the technical expertise of Western majors who are very, very good in the tail-end of production with getting more out.”

Essentially, Algeria’s choice boils down to reviving its gas industry to become the EU’s “Norway of the south,” or turning into a net importer, the EU source said.

The stakes are high for both sides. Without Algerian gas, the EU could see itself tied even more closely to a politically unreliable Russia. And if Algeria's economy withers, it could face domestic unrest in a region that has already seen the collapse of neighboring Libya.

“If Algeria falls into the hands of Al-Qaeda and ISIL, that’s North Africa,” the EU source said. As the country’s largest source of revenue, “energy is a source of stability.”

But change is slow to come to Algeria, analysts said. So for now, Brussels is simply prepping the ground for the post-Bouteflika era.

“Eventually, the politics and the mentality will change,” Porter said. “People say ‘Oh, the EU is wasting its time.’ But no, they’re making a good investment.”