Algeria gears up gas supply to Europe.

With European governments again unsettled by Gazprom's gas supply dispute with Ukraine in January, Brussels will take some comfort from Sonatrach's announcement that Algerian gas exports will increase by 25% during 2009. Almost all this additional supply is destined for the EU via an expanded Transmed pipeline and the new Medgaz scheme. The new projects are certainly needed but doubts remain over Algiers' long-term upstream investment strategy.

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The capacity of the Transmed pipeline, otherwise known as Enrico Mattei, has been repeatedly increased since it was completed in 1983 but Sonatrach chairman Mohamed Meziane has now revealed that a new compressor station and other transmission infrastructure was due to he completed by March this year. This will boost transmission capacity to a massive 33.5bn cu m/year out of the 77.5bn cu m/year export capacity that the state-owned company expects to secure by the end of this year.

The 1,100km pipeline runs from Hassi R'Mel through Tunisia and under the Mediterranean to Sicily and then on to mainland Italy, making the Italian market particularly important for Sonatrach.

The second Algeria-Italian gas pipeline, the Galsi project, is being developed by Snam Rete Gas and should be completed by 2012 with initial transmission capacity of 8bn cu m/year, although this is likely to rise to 10bn cu m/year. Like Transmed, the pipeline will connect one of Italy's main islands, in this case Sardinia, before piping gas on to the mainland.

Meziane has also indicated that the Medgaz pipeline to Spain will come on stream in September, providing 8bn cu m/ year of additional export capacity. The sub-sea section of the 24-inch line was completed by contractor Saipem in December and the Medgaz consortium, which comprises Sonatrach (36%), Cepsa (20%), Iberdrola (20%), Endesa (12%) and GDF Suez (12%). There are plans to test the pipeline during the first quarter of this year. The scheme will transport gas from Beni Sat in Algeria to Almeria in Spain, where it will connect with the Iberian gas grid. Spain could further increase its reliance on Algerian imports if the transport capacity of Medgaz is doubled to 16bn cu m/year, as has already been planned, at a later stage.

Apart from Medgaz, the North African country already supplies 8.5bn cu m/year to Spain and Portugal via the Maghreb-Europe Gas project.

LNG expansion

Expansion is also under way in the Algerian liquefied natural gas (LNG) sector. Apart from the new 4.5m mt/year LNG train that is being developed at Skikda to replace the three trains that were damaged in an explosion in 2004, Meziane revealed that two new LNG liquefaction trains are to be constructed, each with 6m mt/year production capacity. They will be developed at the existing LNG plants at Arzew and Skikda respectively and will take national output to 28.7m mt/year by 2012. This will enable the company to meet government targets on the expansion of the LNG sector and allow the industry to fully recover from the economic impact of the 2004 Skikda accident.

Sonatrach has indicated that gas will be partly supplied to the new trains by fields to be developed by Repsol, GDF Suez and Total in the Reggane region, including the Timimoun and Touat fields. This suggests that both Repsol and Sonatrach are prepared to put the dispute over the Gassi Touil concession behind them. The Algerian firm cancelled the Spanish company's concession on the fields in 2007, claiming that the project was three years behind schedule. Sonatrach will now develop the Gassi Touil fields itself to supply the new Arzew LNG train.

Speaking to journalists in Oran, Meziane commented: "We're on track to achieve our development plan." That plan comprises a $45bn investment package between the end of 2008 and 2012, plus a pledge to increase national gas export capacity to 85bn cu m/year by 2012. However, the Sonatrach chairman denied press speculation that some projects could be shelved because of falling oil prices. The company now expects to generate income of $76bn in 2009, down from its previous estimate of $80bn.