Firm friends: The EU and Algeria enjoy gas love-in in Algiers

Algeria's importance to the European gas landscape is often overlooked — which is not surprising given the sometimes hysterical attention paid to Europe's much bigger gas supplier to the east.

But Brussels is under no illusion that the EU's gas exporters should, where possible, become strategic partners and that those relationships have to be managed and worked on.

Algeria needs friends too — investments in its energy sector have been few and far between in recent years and the collapse in commodity prices has hit it hard.

With all this in mind, the first ever bilateral business forum between the EU and Algeria was held on May 23-24 in Algiers, and was heralded by all as a huge success.

Understandably the focus was on energy.

The vast majority of Algeria's foreign currency revenues come from its oil, gas and LNG exports (and for now it has no other big industries that can bring in the dollars and euros), while the EU relies on Algeria to meet a small, but still notable, share of its energy demand.

In 2015, Algeria supplied a little under 10% of the EU's total gas consumption, while three countries — Italy, Spain and Portugal — need Algerian gas to meet up to one third of their demand.

At the Algiers forum, the main figureheads for the two sides — EU Commissioner for Climate Action and Energy Miguel Arias Canete, and Algerian energy minister Salah Khebri — were full of respective praise.

Canete stressed the reliability of the North African country as a gas supplier to the EU, while Khebri said he wanted the relationship between the two to progress from commercial to strategic.

"We have never had a problem with Algeria — it is a reliable supplier. We don't want gas to be used politically, and to that end Algeria has always been impeccable," Canete said.

Canete's comments were likely a reference to Russia, which has been accused of using gas as a political weapon in the past to try to put pressure on countries in Europe, especially eastern Europe.

"We need Algeria's gas," Canete added, much to Khebri's delight, no doubt.

Mutual backslapping aside, though, Algeria is facing some major challenges that it must overcome to maintain its position as what Canete called a "preferred partner" for the EU.

The main issues that Algeria needs to tackle head-on are threefold: stagnant gas production, out-of-control domestic gas demand growth and little-to-no appetite for investment in new exploration.

"There is a lot of work to do to attract investment," Canete said, stressing though that the EU would try to help foster a "spirit of collaboration."

Some analysts are even predicting that given a lack of upstream investment and sky-rocketing domestic demand, Algerian gas exports could dry up altogether at some point in the future.

So what can Algeria do? Well already, Algerian President Abdelaziz Bouteflika in February issued a new national policy that calls for the rationalization of domestic gas consumption through an increased focus on renewable energy for power generation.

It has lofty ambitions for renewable energy — the plan is to have a renewable capacity of 22,000 MW by 2030, the equivalent of 27% of its electricity output.

In addition, the government is promising attractive terms for its next bidding round for new exploration acreage after the previous three were deemed outright failures.

The energy ministry is now also optimistic that it can boost gas production as new projects already under development come on stream.

But once those are all online toward the end of the decade, there could then be a big drop-off given natural decline at the major Hassi R'Mel field and other mature projects.

"We have established that declining — or, at best, stagnating — gas production is, under prevailing conditions, an incontrovertible trend," the respected Oxford Institute for Energy Studies warned in a paper this month.

"Anticipated developments of small and costly reservoirs would hardly stem the decline unless [it] is rapidly contained," it said.

So while Brussels may be happy to toast Algeria's gas supply reliability for now, the glass may start to run empty a little further down the line.