Algeria hopes to become Europe’s main shale gas supplier, potentially introducing tax breaks to incentivise gas exploration by large multinationals.

The North African country has proposed tax breaks for companies coming into the country to undertake gas exploration – as it is widely thought that Algeria may house significant reserves of shale gas under the extensive Sahara desert.  The International Energy Agency has put estimates of Algerian shale at 231 trillion cubic feet, giving the country new added importance on the global gas market.

The proposed tax incentives are currently being debated by the country’s parliament, and it is expected that approval will be given in the near future – potentially as soon as next week.

With this in mind, Algeria has launched into a string of discussions with multinationals with a view to securing exploration contracts.  Eni SpA, Royal Dutch Shell Plc, and Talisman Energy have already reached agreements with Algeria to commence explorations once the tax breaks are finalised; while discussions with Exxon Mobil Corp are still underway.

Europe currently purchases gas from Russian provider OAO Gazprom, which currently sells gas at roughly triple the price of other supplies such as the US, given that it links its prices to oil prices.  As such, an alternative provider charging lower costs for the supply of gas to Europe could stand to steal the market.

Were the estimated 231 trillion cubic feet of shale gas recovered and piped to Europe, Algeria could quite easily meet demands from the E.U. for another ten years, and could earn the North African country in the region of $2.6 trillion according to current pricing trends.

Algeria is currently well-positioned to take advantage of its shale gas reserves, as other countries on the African continent currently face obstacles to the recovery of shale reserves.  Libya – which has substantial reserves – is hindered in recovery by continued spates of warring; while South Africa only partially allows the use of hydraulic fracturing in gas production processes, as such significantly slowing the rate of recovery.

It is in this context then, that the President of Algeria, President Abdelaziz Bouteflika has plans to import hydraulic  fracturing technologies in order to maximise on Algerian shale recoveries, reports Reuters.