Export volumes are stagnating as prices fall from 2022 peaks
Opportunities in Algeria’s private sector remain limited due to its tight size and underwhelming investment inflows. While the public sector tends to provide more pronounced opportunities, prospects in 2024 are likely to be more challenging for MNCs as the country’s leading energy industry sees limited growth, resulting in lower-than-expected state revenues that would conventionally fund B2B opportunities in the public space. Businesses may face cost reduction pressures and payment delays from government actors after record spending in 2023. As public investment falls in 2024, private business investment may fall in tandem given the government’s large role in the broader economy. B2B MNCs should consider these dynamics as they plan for 2024, emphasizing value propositions and the cost-effectiveness of their offerings.
A faster- or deeper-than-expected fall in Algeria’s current account balance may add pressure on the DZD, fueling already-high inflation and further weakening consumer demand, and may result in broader import restrictions. B2Cs should engage closely with their local partners to stay abreast of a rapidly evolving regulatory environment and anticipate any effects on consumer demand and inventory management.
Overview
FrontierView sees Brent crude averaging US$ 78 bbl. in 2023 and US$ 79 bbl. in 2024, a drop of around 20% from US$ 98 in 2022, when Russia’s invasion of Ukraine drove a spiking of global energy prices. Average natural gas prices have also declined markedly.
Algeria has cut oil production twice already in 2023, taking daily volumes from 1 million at the start of the year to 920,000 bpd by August. Algeria is also struggling to raise natural gas production significantly beyond the 100 bcm mark and diverts more supplies each year to the local market, where prices are highly subsidized and droughts and heatwaves are rising in intensity. New supplies from recently announced investments are likely to come online by 2025 at the earliest.
Sonatrach, the national energy giant, exported 24.84 bcm of natural gas in H1 2023—a minimal increase from the level achieved in 2022 and a marked 17% drop from the peak reached in 2021. This comes despite Sonatrach’s major 2022 deal with ENI to increase exports to Italy by an incremental 9 bcm per year by 2024.
In H1 2023, pipeline exports to Italy (50% of volumes in 2022) were stable, but pipeline volumes to Spain (21% in 2022) were down by 19% YOY, with reports emerging of price renegotiation pressures from Sonatrach’s Spanish partners.
Our View
After flat volume growth in 2022, Algeria’s exports will grow at just 1.6% and 1.1% in 2023 and 2024, respectively—far from the 13.7% increase recorded in 2021. FrontierView expects little growth in business activity within the private sector. Despite the national gas sector being prioritized as a critical industry, years of underinvestment and frail diplomatic relations with neighboring markets continue to hinder the country’s ability to capitalize on increased European demand for Algerian gas. Falling energy prices will drive down the value of exports, putting pressure on Algeria’s hydrocarbon-reliant budget, while bringing the current account back into deficit, slowing the pace of reserve accumulation at the Bank of Algeria, and putting pressure on the Algerian dinar (DZD).
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