Can Africa be a stable source of energy?

Reliance on countries such as Libya and Algeria is not going to solve the EU’s energy problems. Toby Vogel reports.

Alongside immigration and political stability, energy security ranks high among the EU’s concerns in the Euromed area.

Oil and natural gas tend to come from countries whose relations with the EU are difficult (such as Russia) or whose regimes are authoritarian or wobbly or both. (Norway is an honourable exception to this rule.)

"Increasing dependence on imports from unstable regions and suppliers presents a serious risk," an EU paper on energy security observed last year. The paper noted that some producers - no prize for guessing who the drafters had in mind - were using energy as a political lever. The European Commission’s concerns were echoed by the European Parliament, which last month called for the development of a common European foreign policy on energy looked after by a senior official.

Russia is currently the EU’s single most important source of both gas and oil. But in response to Russia’s increasing assertiveness in using energy as a political tool, the EU is trying to diversify its energy supply and shifting attention to other countries.

Algeria is the EU’s third most important source of natural gas imports after Russia and Norway. At a time of rising dependence on non-EU energy sources, this ranking is significant and investments are set to boost the importance of exports from Algeria and Libya. Algeria is ramping up its capacity to produce liquefied natural gas (LNG), which makes it possible to transport natural gas by ship rather than through costly pipelines, and is also promoting the idea of a trans-Sahara gas pipeline, which would link it to gasfields in the Niger delta, to be completed by 2015.

Energy analysts believe that neighbouring Libya has great promise as a gas producer once it opens up its gas fields to foreign firms in the way that Algeria did with oil some two decades ago, when it renounced resource nationalism.

Libyan exports of natural gas to the 27 EU member states jumped from just 47,809 terajoules in 2004 to 209,499 terajoules in 2005, according to Eurostat, the Commission’s statistical office. Libya was also the fourth most important source of crude oil imports by EU member states in 2005, after Russia, Norway and Saudi Arabia, and its recent renunciation of terrorism has opened the door for large-scale investments in the energy sector there.

But increasing reliance on countries such as Libya and Algeria is not going to solve the EU’s structural problem of dependence on third countries - and these ‘alternative’ producers seem to be aware of their new power. Last year, Algeria increased taxes on foreign firms operating in the country and signed a co-operation deal with Russia’s Gazprom. (Together, Russia and Algeria account for close to 40% of the EU’s gas imports. Without diversification, Italy would depend on these two countries for 75% of its gas imports by 2010.) Last month, Sonatarch, Algeria’s national oil and gas company, kicked Repsol, the Spanish company, out of a massive gas development project, prompting Repsol to cry foul. While analysts attribute such resource nationalism above all to commercial considerations, it has a political dimension as well. The EU is increasingly concerned that it lacks the tools to meet the challenge.

Euromed foreign ministers will have an opportunity to debate this when they meet in Lisbon on 5 November.

Reliance on countries such as Libya and Algeria is not going to solve the EU’s energy problems. Toby Vogel reports.