U.S. Energy Information Administration Updates Analysis on Algeria's Energy Sector

Algeria is the largest natural gas producer and second largest oil producer, after Nigeria, in Africa. It became a member of the Organization of the Petroleum Exporting Countries (OPEC) in 1969, shortly after it began oil production in 1958. Currently, the country is heavily reliant on its hydrocarbon sector, which accounted for almost 70 percent of government budget revenue and grants and about 98 percent of export earnings in 2011, according to the International Monetary Fund.

In recent years, crude oil production has been stagnant, while natural gas production has gradually declined, because new production and infrastructure projects have repeatedly been delayed. Additionally, in the last three licensing rounds there has been limited interest from investors to undertake new oil and gas projects under the government's current terms. As a result, the Algerian parliament recently approved amendments to the current hydrocarbon law and introduced fiscal incentives to entice foreign companies to take on new ventures, particularly exploration in offshore areas and in areas onshore that contain shale resources.

The recent militant attack on the In Amenas gas facility prompted security concerns about operating in Algeria's remote areas, particularly in the south. Any major disruption to Algeria's hydrocarbon production would not only be detrimental to the local economy but, depending on the scale of lost production, could affect world oil prices. Also, since Algeria is the fourth largest natural gas supplier to Europe, unplanned cuts to natural gas output could affect some European countries. Natural gas and oil account for almost all of Algeria's total energy consumption, and the country consumes very small amounts of hydro power, coal, and traditional biomass.

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