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Why Algeria's gas pipeline closure will prove costly for all

Why the closure of Algeria's gas pipeline to Morocco will prove costly for all
6 min read
01 December, 2021
Analysis: As relations between Morocco and Algeria continue to deteriorate, Europe could also feel the consequences.

After 25 years, the Maghreb Europe Gas pipeline (GME) has had its operations suspended after Algeria's decision last month to end its contract following the rupture in relations with neighbour Morocco.

Inaugurated in 1996, the pipeline has transferred billions of cubic meters (bcm) of natural gas annually from Algeria to southern Spain along 1,400 kilometres across northwest Africa and 540 kilometres of Moroccan territory.

Algiers will now deliver its natural gas to Spain exclusively through an undersea pipeline to avoid going through Morocco. The GME has a capacity of transferring around 12 bcm annually but in poorly performing years like 2019, production can be limited to 7 bcm passing through the pipeline.

Europe has long considered the energy potential of the Sahara desert in North Africa, which could generate renewable and solar energy that would meet European energy demands.

However, many North Africans fear that Europe's help in fulfilling its targets for greenhouse emission cuts could plunder local resources, cause environmental damage, and solely serve the interests of corrupt elites.

As relations between Morocco and Algeria continue to deteriorate significantly, the consequences will not only affect the Maghreb region. Europe will now have to contend with decisions that do not prioritise its interests at a time when countries like Spain are struggling with skyrocketing prices of electricity, fuel, and natural gas.

In July, the Moroccan ambassador to the UN called for the self-determination of the Kabyle people in Algeria, which was seen as a direct “insult” to the sovereignty and unity of the country.

In turn, Algiers accused Morocco of supporting the "terrorist" arsonists of the forests of Kabylia and unilaterally severed diplomatic relations, closing the border, recalling its ambassador, and now suspending one of the last few forms of cooperation between the two states.

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Uncertainty about the pipeline’s future is an issue that concerns both Morocco and Algeria and jeopardises any chance of industrial cooperation that would help connect the Maghreb region more closely to world trade.

Competition to be the leading regional power has defined the bitter rivalry over the last two decades (which both the EU and the US have had little interest in fixing) and is the driving force behind why broader economic cooperation, trade, and investment across North Africa and neighbouring regions have failed to progress despite great potential.

Since the 1994 closure of land and sea borders between Morocco and Algeria, commercial transactions had been considerably reduced but still functioning. Until 2016, Algiers was Rabat's primary trading partner, since replaced by Egypt and Côte d'Ivoire.

With the suspension of the pipeline, commercial transactions will continue to deteriorate and make more room for smuggling and informal border trade, which is driven by drug, fuel, and medicine trafficking.

Competition to be the leading regional power has defined the bitter rivalry over the last two decades. [Getty]

With both countries suffering from high unemployment rates, political discontent, and tepid economic indicators, the timing of the pipeline’s suspension will only further exacerbate a delicate situation by threatening thousands of jobs during a time when poverty is on the rise and social and political stability is fragile.

The GME gas transit has proven advantageous for the two neighbours over the course of its history. Algiers benefits from a low-cost route for its exports to Spain and Portugal, and Rabat, which lacks alternative sources of natural gas supply, has received an average of 1.07 bcm annually over the last five years making up over 95% of the total supply for its power sector.

While Morocco’s National Office for Hydrocarbons and Mines and the National Office for Electricity and Drinking Water have ensured that Algeria’s move will not have a "insignificant impact" on performance in the immediate future and that all necessary measures have been taken to continue to supply the kingdom with gas, it may still face an energy crisis of its own if it fails to recover lost numbers, with few alternative options.

To add to Spain’s worries, Morocco has also renewed the license for Qatar Petroleum to explore oil in its southern waters near the Canary Islands after Italy sold 30% of its share to Qatar Petroleum. The move comes a year after Morocco passed laws delimiting its maritime borders with Spain giving Morocco exclusive authority over research, economic activity, and resources in the area, which was heavily criticised in Spain.

Morocco’s own relations with Germany and Spain have soured over the past year, something which it will look to remedy quickly if it wishes to maintain its regional dominance over Algeria.

Since the pipeline suspension, Rabat has also stepped up efforts to strengthen its economic relations with France as the latter manoeuvres the bumpy terrain it shares with Algeria, which is currently on bad terms with the Elysée.

Algeria will now be looking to reassure Spain that the GME closure will not affect its exports, which accounted for 34.8 bcm between 2016 and 2020 or 52% of its total exports to Spain. Spain also receives natural gas from a second pipeline in Algeria called the Medgaz pipeline, which was inaugurated a decade ago and is jointly controlled by the Algerian state and Spanish energy company Naturgy.

While all operations will now rest on the Medgaz route for Spain to cover nearly half of all the natural gas it consumes annually from Algeria, there are still concerns the pipeline will be unable to make up for the shortfall from the GME closure.

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In order to avoid a significant production decrease, Algeria would need to increase the capacity of the Medgaz pipeline, which currently provides a quarter of all the natural gas that reaches Spain, to over 10 bcm a year for Spain to be able to cover its needs.

Another option aside from the Medgaz submarine route would be to ship more liquefied natural gas (LNG) but that may prove to be a poor economic decision for Algeria in the long term due to frequent outages at key LNG export facilities, and in the scenario that Spain ends up diversifying its gas sources and reducing its dependence on Algeria as its primary source.

Algeria may decide to restart supplies again at some point in the future, but in order for this to resume a substantial degree of political will needs to be in place as it contends with the threat of the Tel Aviv-Washington-Rabat axis on its territory.

Yasmina Allouche is a freelance journalist and researcher working on the Maghreb with a special focus on Algeria.

Follow her on Twitter: @animsche