Algeria 2026: Europe's pipeline pivot, Sonatrach's USD 50 billion bet, and the Maghreb realignment

Sonatrach's 2024 export baseline: 91 bcm, anchored on Italy #

Sonatrach's 2024 results, published in March 2025 and corroborated by the Algerian Ministry of Energy and Mines and IEA Gas Market Report Q1 2025, place total gas exports at 91 billion cubic meters, the highest level since 2008. Of that volume, pipeline exports accounted for 50.4 bcm, and LNG cargoes from the Skikda (GL1K, GL2K) and Arzew (GL1Z, GL2Z, GL3Z) trains contributed 40.6 bcm equivalent in regasified terms. The Italian draw alone, 26.4 bcm via the TransMed (Enrico Mattei) pipeline through Tunisia, represented 29 percent of Algerian gas exports in 2024 and roughly 38 percent of total Italian gas demand of 68.9 bcm reported by Snam. Eni, whose 2018 GSPA with Sonatrach has been progressively rolled forward, lifted approximately 22 bcm of that volume in 2024, with Edison, Enel, and Plenitude splitting the balance.

Algerian volumes have replaced 24 to 26 bcm per year of pre war Russian flow into Italy, a one for one substitution that few European supply diversification scenarios in 2022 expected to clear so quickly. The LNG complement is structurally important: Skikda and Arzew together hold a nameplate liquefaction capacity of 56 mtpa, equivalent to 76 bcm, although effective utilization in 2024 ran near 53 percent due to feed gas constraints from mature northern fields. Sonatrach's contracted LNG portfolio for 2024 to 2025 places roughly 60 percent of cargoes into Europe (France, Italy, Spain, Turkey), with the residual into Asia under the legacy contracts with KOGAS and CPC.

Eni and TransMed expansion: from 33.5 to 35 bcm capacity, plus the H2 backbone #

The TransMed pipeline, originally commissioned in 1983 and looped in 1994 and 2008, has a current technical capacity of approximately 33.5 bcm per year on the Tunisian segment. Eni and Sonatrach announced in January 2024 a debottlenecking program targeting 35 bcm by end 2026, primarily via compression upgrades at Mellitah and El Borma, with a USD 1.4 billion combined capex envelope (Eni half year report H1 2024). The strategic complement is the SoutH2 Corridor, an Italian, Austrian, and German pre Final Investment Decision project that contemplates a 3,300 kilometer hydrogen backbone from Algerian production sites near Bir Rebaa to consumption centers in Bavaria, designated a Project of Common Interest by the European Commission in November 2023. Sonatrach has earmarked 30 percent of the SoutH2 feedstock from green ammonia and renewable hydrogen production at the In Salah solar zone, where insolation runs at 2,400 kilowatt hours per square meter per year.

Eni's leverage is structural: Plenitude, its retail arm, holds 7.6 million European gas customers, providing committed offtake. The relationship is also asymmetric in Algiers's favor on price. Sonatrach's 2024 average realized price across European deliveries was USD 11.20 per million British thermal units, against a TTF month ahead average of USD 10.45, reflecting the indexation reset negotiated in late 2022. Italian buyers absorbed an estimated EUR 2.8 billion in premium over TTF spot equivalent in 2024 (Bruegel calculation, December 2024), the cost of supply security.

The GME closure and the Medgaz bottleneck #

On October 31, 2021, Algiers refused to renew the 25 year contract for the Gazoduc Maghreb Europe pipeline that ran from Hassi R'Mel through Morocco to Cordoba in Spain. The decision followed the August 2021 rupture of diplomatic relations with Rabat over Western Sahara and Pegasus surveillance allegations. The 11 to 12 bcm per year route has remained closed since, although Spain briefly used reverse flow in 2022 to ship LNG regasified at Mugardos northward into Morocco, a move that Algeria publicly protested in June 2022. The consequence is that Spain's import capability from Algeria collapsed to the single Medgaz pipeline, which runs 757 kilometers from Beni Saf to Almeria and was expanded from 8.0 to 10.0 bcm in 2022 (Naturgy and Sonatrach are 49 and 51 percent shareholders).

Actual 2024 throughput was 8.0 bcm, capped not by capacity but by Spanish demand softening (gas demand fell 6.2 percent year on year per Enagas) and pricing disputes between Sonatrach and Naturgy that triggered ICC arbitration filed in February 2023. The arbitration, still pending, contests roughly USD 1.6 billion in alleged underpayments. Spain's 2024 import mix tells the story: Algeria 24 percent, United States LNG 33 percent, Russia LNG 14 percent, Nigeria LNG 11 percent, Qatar 7 percent. The Iberian Peninsula has effectively become an Atlantic basin LNG hub with Algerian pipe gas as a swing component, the inverse of the 2010 to 2020 configuration.

Tebboune's second term and the Sonatrach USD 50 billion capex plan #

President Abdelmadjid Tebboune was reelected on September 7, 2024 with an officially announced 84.3 percent share on a 46.1 percent reported turnout (figures contested by the two opposition candidates Hassani Cherif and Aouchiche). The mandate consolidates the post Bouteflika settlement and authorizes the Sonatrach 2024 to 2028 investment program of USD 50 billion, announced by CEO Rachid Hachichi in October 2023 and reaffirmed in the 2025 Finance Law. The program targets a USD 7 billion annual exploration and production envelope, USD 4 billion for refining and petrochemicals (Hassi Messaoud refinery expansion, the new Tiaret refinery), USD 2 billion for renewables and hydrogen, and the residual for downstream gas treatment and pipeline integrity. The economics rest on a Brent assumption of USD 75 per barrel and a Henry Hub linked LNG netback of USD 9.50 per million British thermal units.

Algeria's hydrocarbons revenue in 2024 was USD 50.0 billion (Bank of Algeria balance of payments), down from USD 60.4 billion in 2023, with non hydrocarbon exports at USD 6.9 billion. Fiscal breakeven at the central government level remains near USD 95 per barrel (IMF Article IV, July 2024), a structural vulnerability the capex cycle does not resolve.

Western Sahara realignment, the Russian arms anchor, and Sahel exposure #

On July 30, 2024, Emmanuel Macron sent a letter to King Mohammed VI endorsing the Moroccan autonomy plan as the only basis for a settlement of the Western Sahara dispute. Algeria recalled its ambassador from Paris within 24 hours, a step it had previously taken in October 2021 over visa policy and in 2022 over a Macron interview. The realignment is consequential for energy: France imported 4.3 bcm of Algerian LNG in 2024 (Engie, TotalEnergies), and Sonatrach sources have indicated a willingness to redirect 2027 contract renewals toward Italian and German buyers. Spain made the same shift in March 2022, recognizing the Moroccan plan, and Algeria responded by suspending the 2002 Treaty of Friendship and lifting price caps, an episode that Madrid is still litigating.

On the security side, SIPRI's March 2024 dataset confirms that Russia supplied 70 percent of Algerian arms imports between 2019 and 2023, with the Algerian defense budget at USD 21.6 billion in 2024, the largest in Africa and second on the continent only to Egypt's. Algeria's exposure is the Sahel: the September 2023 Alliance of Sahel States, formalized by Mali, Burkina Faso, and Niger in July 2024 as a confederation, has expelled French forces, cut formal ties with ECOWAS, and opened the Trans Sahara corridor to renewed insecurity. The 4,128 kilometer Trans Sahara Gas Pipeline, signed in 2009 by Algeria, Niger, and Nigeria with a notional 30 bcm per year capacity, has been formally revived in three trilateral statements between July 2022 and February 2024. Argus Media estimates a USD 13 billion construction cost and a feasibility window of 2032 at the earliest, contingent on Sahel stabilization that no current scenario delivers.

2026 outlook: holding the European pivot, hedging the long horizon #

The 2026 base case is straightforward and constrained. Algerian gas exports to the European Union should clear 52 to 54 bcm pipeline plus 28 to 30 bcm LNG, slightly above 2024 on TransMed compression gains and the GL3Z debottlenecking. Italian dependence on Algeria stabilizes at 38 to 42 percent of gas demand, the highest single supplier concentration since the 1990s shift away from the Soviet Union. Three risks dominate.

First, Hassi R'Mel decline: the basin produces an estimated 28 percent of Algerian dry gas and is depleting at 4 to 5 percent per year (IEA Gas Market Report Q4 2024). The In Salah Southern Fields ramp, operated by the BP, Equinor, Sonatrach joint venture and targeting 9 bcm per year by 2027, will partially offset the decline, but full coverage requires the Tinrhert and Reggane Nord developments to land on schedule. Second, the Western Sahara overhang: a hardening of the Algeria France rupture into commercial action would force European portfolio rebalancing in 2027 and 2028 contract resets, and would test the Italian Eni Sonatrach axis. Third, the Sahel and Russia anchors limit Algiers's diplomatic room to maneuver on the broader security architecture, and tie Sonatrach's long horizon options (TSGP, Niger gas) to a security environment outside its control.

The strategic recommendation for European buyers is a measured one. Lock 2027 to 2030 volumes through the current contracting window at indexation formulas weighted 70 percent to TTF and 30 percent to oil parity, accept the structural premium over TTF spot, but cap single supplier exposure at 35 percent of national demand through complementary United States and Qatari LNG, with optionality on Norwegian pipe. Algiers's leverage is real and durable through 2028, anchored by sunk infrastructure, geographic adjacency, and the absence of credible substitutes at scale. It is also self limiting beyond that horizon by the geology of Hassi R'Mel, the political brittleness of the Sahel hinterland, and the Russia France triangulation that Algiers cannot wholly bend.

Strategos estimates a 35 to 40 percent probability that Algerian export volumes plateau or decline after 2029, and a 55 percent probability that the TSGP remains a paper project through 2032. The European pivot is real. It is not a permanent solution, and the contracting window for the next decade is now.

Sources #

• Sonatrach 2024 Annual Report and 2024 to 2028 Strategic Plan
• Algerian Ministry of Energy and Mines, hydrocarbons statistics 2024
• IEA Gas Market Report, Q1 and Q4 2024 editions
• Eni half year and full year reports 2024, TransMed and SoutH2 disclosures
• Eurostat, EU energy trade with non member countries, monthly
• BP Statistical Review of World Energy 2024 (now EI Statistical Review)
• Reuters Algiers, Tebboune reelection coverage September 2024
• SIPRI Trends in International Arms Transfers 2023, March 2024 fact sheet
• Snam annual report 2024, Italian gas system data
• Enagas annual report 2024, Spanish gas system data
• Bruegel European natural gas import tracker, December 2024 update
• IMF Article IV consultation, Algeria, July 2024