Algeria Gas Production Faces Problems Despite Its Natural Advantage

Crude oil is holding firm near the top of its 52 week range as Algeria opens a new hydrocarbon bidding round meant to reverse years of stagnant gas output, with the United States Oil Fund (AMEX:USO) trading at 134.64 dollars, up 0.07% on the day and sitting well above the midpoint of its 102.42 to 142.33 range.

In Brief

• USO trades at 134.64 dollars, up 0.07% on the day, with an RSI of 61.18 signaling a market that is firm but not yet overbought.
• Algeria's ALNAFT agency opened seven onshore blocks in June, covering an estimated 2.1 billion barrels of oil and 66.5 billion cubic meters of gas.
• Bidding and ratification are due in November, with the acreage concentrated in the more developed Illizi Ghadames, Oued Mya and Sahara basins.
• Algeria supplied around 18% of EU natural gas imports in 2025, ranking second behind Norway and ahead of Russia.
• Domestic gas demand of roughly 57 billion cubic meters a year is squeezing the export surplus that keeps Algeria relevant to European buyers.

Why Oil Prices Are Firm As Algeria Courts New Capital

The backdrop for Algeria's tender is a crude market that has stayed elevated through a prolonged Middle Eastern crisis. USO's climb toward the upper end of its yearly range reflects that tension, and it is exactly the kind of price environment that makes long dormant basins in the Sahara suddenly worth another look. When benchmark prices sit closer to 142 than to 102, the economics of drilling into mature or moderately developed acreage improve, and companies that might have passed on Algerian terms a few years ago start running the numbers again.

That dynamic helps explain why Algiers picked this particular moment to launch seven onshore blocks through ALNAFT, its hydrocarbon resource agency. The offer, opened in early June with bids due in November, spans roughly 2.1 billion barrels of oil and 66.5 billion cubic meters of gas. Four of the blocks sit in the Illizi Ghadames basin near the Libyan and Tunisian borders, while the remaining three are spread across the more oil leaning Oued Mya and Sahara basins. Unlike the 2024 round, which leaned toward gas prone but poorly connected acreage in the southwest, this tender targets basins with existing infrastructure and shorter paths to production.

A Legal Reset Years In The Making

Algeria's upstream sector spent much of the 2010s struggling to attract capital. The 2014 bidding round exposed the problem starkly: high tax rates, heavy state control through Sonatrach, and limited contract flexibility kept many international players on the sidelines. The 2019 hydrocarbons law was the government's answer, broadening contract structures and dropping the old rule that forced Sonatrach to hold at least 51% of upstream projects.

The 2024 round, the first of five planned tenders, showed early signs the reset was working. Five of six licenses were awarded. QatarEnergy entered the country alongside TotalEnergies on the Ahara license, with Total operating and each holding 24.5%. Eni and Thailand's PTTEP picked up the gas focused Reggane 2 project, while Chinese firms Sinopec and Zhongman Petroleum added positions at Hassi Berkane North, Guern El Guessa and Zerafa II. Since then, Eni signed a 1.35 billion dollar production sharing deal for the Zemoul El Kbar perimeter, targeting 415 million barrels of oil equivalent including 9.3 billion cubic meters of gas, and Saudi Arabia's Midad Energy committed 5.4 billion dollars to develop Illizi South.

That roster matters because it spans continents and strategies. Eni has operated in Algeria since 1981 and now produces around 140,000 barrels of oil equivalent per day there. TotalEnergies is both a driller and a major buyer of Algerian LNG. QatarEnergy adds gas marketing muscle, while the Saudi and Chinese entries show the country's appeal now extends well beyond its traditional European partners. Talks with Chevron and ExxonMobil over shale and unconventional gas potential are ongoing, though nothing has been finalized.

Aging Fields And A Shrinking Export Cushion

Algeria remains Africa's largest gas producer, with natural gas making up about 49% of its hydrocarbon output and total recoverable resources estimated between 2.5 and 3.4 trillion cubic meters of gas, plus roughly 10.5 billion barrels of oil. But the production base underpinning those exports is aging fast. Output rose from about 278 million cubic meters a day in 2021 to 287 million in 2023, yet that 2023 figure now looks more like a peak than a launching point.

Hassi R'Mel, the country's flagship gas field and now 65 years into production, has fallen to roughly 20% of its original 3 trillion cubic meter resource base after peaking in the mid 1990s. Hassi Messaoud, the giant oil field, shows a similar depletion pattern. Much of today's strain traces back to a 14 year ban, from 2005 to 2019, on production sharing and service contracts for gas fields, a policy that choked off new investment just as output from 1980s and 1990s discoveries began fading.

Exports still lean heavily on pipelines, which carry about two thirds of Algerian gas abroad through the TransMed line to Italy via Tunisia and Sicily, and the Medgaz subsea link to Almeria in Spain. TransMed has capacity near 32 to 35 billion cubic meters a year and has been running around 21 billion, while Medgaz moves roughly 10 to 10.5 billion. A third route through Morocco has sat idle since 2021 after Algiers let the transit deal lapse amid political friction with Rabat. Italy now takes 20 to 23 billion cubic meters a year, covering about 30% of its gas needs, while Spain sources roughly a quarter of its imports from Algeria and is in talks, begun in March 2026, to expand Medgaz capacity by up to 1 billion cubic meters annually.

LNG volumes have swung more sharply. Algeria's Arzew and Bethioua terminals in the west handle about 20.8 million tonnes a year of liquefaction capacity, with Skikda in the east adding around 4.5 million tonnes. Shipments spiked after Europe cut ties with Russian gas, jumping to a record 1.3 million tonnes in September 2023, a 60% year over year increase, with France, Italy, Spain and Turkey as top buyers. By 2025, though, Algerian LNG exports to Europe had slipped to about 9.5 million tonnes annually, roughly 6% of the continent's LNG imports and down about 2 million tonnes from the prior year.

Can Algeria Convert Its Opening Into A Lasting Gas Advantage

Combining pipeline and LNG flows, Algeria supplied about 18% of the European Union's natural gas imports in 2025, trailing only Norway and outranking Russia. That position gives Algiers real leverage in Rome and Madrid, but it also raises expectations the country may struggle to meet. Domestic consumption reached about 57 billion cubic meters in 2025, absorbing more than half of national output, and every cubic meter now gets contested among power generation, industry, pipeline contracts and LNG buyers. With hydrocarbons contributing roughly 10 to 12% of GDP and more than 90% of export revenue, a shrinking surplus is as much a budget problem as an energy one.

Oil investment will likely stay limited given Algeria's OPEC+ membership caps output ambitions, which leaves gas as the country's clearest strategic asset. The 2026 tender, with results due in November, will show whether elevated crude prices and looser contract terms are enough to draw the capital needed to develop underused basins before mature fields like Hassi R'Mel decline further. Europe's appetite for nearby, non-Russian gas is not in question. Whether Algeria can supply it at scale for another decade depends on how this round, and the four still to follow, actually land.

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