What impact will the increase in oil production have on Algeria?

Oil and gas prices fell after the easing of production control by OPEC countries. A hurdle to be overcome for Algeria, in search of foreign currency and growth.

OPEC has just decided to relax the voluntary oil production cuts as of 1^st April 2025. The members of the Organisation are thus reaffirming their decision to proceed with a gradual and flexible return to the voluntary adjustments of 2.2 million barrels per day.

This decision, announced on 3 March, led to a fall in prices: the barrel of Brent fell to under $70, and the price of gas fell to almost $42 per MWh. The immediate impact is the decline in the profitability of many gas projects, which strongly affects the foreign exchange earnings of countries dependent on hydrocarbon rents.

The thirteen members of OPEC are Algeria, Angola, Saudi Arabia, Congo, the United Arab Emirates, Gabon, Equatorial Guinea, Iran, Iraq, Kuwait, Libya, Nigeria and Venezuela, with Brazil having joined them as a member in January 2024. The ten other OPEC+ member countries are Azerbaijan, Bahrain, Brazil, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Sudan, South Sudan and Russia.

According to the International Energy Agency, OPEC represents 34% and OPEC+ 51% of world oil production. This decision must be seen as the influence of the two largest producers: Russia and Saudi Arabia, which produce more than 10 million barrels per day.

What impact will a drop in the price of hydrocarbons have on the economies of all the populous countries such as Algeria?

Algerian production will increase in April 2025 to reach 911,000 barrels per day, compared with 13 million for the United States and 11 million each for Russia and Saudi Arabia. Current Algerian exports are 500 000 barrels per day for oil and more than 100 billion cubic metres of gas. The fall in prices will affect Sonatrach’s foreign exchange earnings if prices fluctuate between $6O-65 per barrel.

Insufficient economic growth

Production fell in 2024 to 98.41 billion cubic metres of gas, compared with 105.24 billion in 2023. Sonatrach’s revenues fell from $60 billion in 2022 to $50 billion in 2023, and probably to $44 billion in 2024, when the average price was between $75 and $77 a barrel. These falls will inevitably have an impact on Algeria’s financial equilibrium: we must avoid the euphoric discourse that led to the scenarios of past years that no Algerian wants.

Hence the importance of a new policy combining energy efficiency, the development of renewable energies and an increase in production. We must compensate for this fall in prices and take into account the  increase in American production as well as Russian gas when the  war in Ukraine ends.

In Algeria, unemployment affects more than 14% of the working population. Faced with very strong demographic pressure – Algeria could have more than 50 million inhabitants in 2030 – 350,000 to 400,000 jobs need to be created per year. This requires growth of at least 8% per year over the next few years.

In 2023, the industrial sector accounted for around 4% of GDP, compared with more than 17% in 1978. We are witnessing a tertiarisation of the economy (low productivity segments with a dominance of retail trade), and an extension of the informal sphere. The amount of currency in circulation outside the banking system reached nearly $60 billion in 2023, compared with $54.75 billion a year earlier.

The large, capital-intensive projects announced by the government – if they were to be completed on time and without additional costs – will not reach their break-even point until six years after their completion.

The restructuring of public enterprises has cost the Treasury around $250 billion over the last thirty years. Sonatrach provides 97% of the country’s foreign currency revenue. The budget deficit has risen from $30 billion in 2022 to $46 billion in 2024 and is forecast to reach $63 billion out of a total expenditure of $128 billion in 2025.

The State must set an example

One of the solutions to these budgetary tensions would be to draw on foreign exchange reserves, estimated at $70 billion at the end of 2024. Resorting to non-targeted import restrictions accentuates shortages and the slide of the dinar. Printing money increases inflation, which threatens social cohesion.

It will be necessary to monitor the impact of the fall in prices on the distortion of the dinar exchange rate compared to that of the parallel market. This distortion could worsen. The official exchange rate of the euro at the beginning of March 2025 was 135 dinars, and that of the parallel market was 250 dinars, a difference of more than 85%, compared with only 25% to 30% at the beginning of the 2000s.

Strategic planning and greater rigour are needed. The State must set an example. Adaptation strategies are necessary to configure a powerful and efficient economy in the face of the profound upheavals that the world is experiencing today.

Abderrahmane Mebtoul is a university professor and expert in the oil sector.