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Algeria: Another threat to Europe’s energy security

Algerian President Abdelaziz Bouteflika casts his vote in the country's recent presidential elections in el-Biar suburb of Algiers on April 17, 2014.
Bechir Ramzy | Anadolu Agency | Getty Images
Algerian President Abdelaziz Bouteflika casts his vote in the country's recent presidential elections in el-Biar suburb of Algiers on April 17, 2014.

Investors are watching Moscow and Kiev as the West worries about Russia squelching natural exports to Europe. But that conflict is not the only potential threat to European energy security—there's also Algeria.

Algeria is the fourth-largest natural gas supplier to Europe and the world's ninth-largest producer overall. It also happens to be home to growing social discontent, especially among its youth.

Young Algerians, who form the vast majority of the OPEC country's population, essentially skipped the Arab Spring of 2011 and 2012 but are calling for change amid rampant unemployment and the re-election of a septuagenarian president that they see as out of touch.

"I know I will be unemployed for at least two years after I graduate," said Amine Arabi, a 21-year-old Algerian college student, who will graduate in 2016. "We've had enough of this government…we want change."

Youth unemployment in Algeria stands at a staggering 25 percent, according to the International Monetary Fund. Arabi said students like him receive a scholarship of 4,000 Algerian dinars, or about $50, every three months: "How can we live off of that?" he asked.

Arabi and other Algerian youth boycotted the national elections, which took place April 17, and in which the country's 77-year-old president, Abdelaziz Bouteflika, was re-elected for a fourth term. Voter turnout was 51.3 percent of the 23 million registered voters and Bouteflika received 81 percent of the vote, according to the Interior Minister.

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Bouteflika won despite widespread speculation about his physical health—he suffered a stroke last year and has appeared sickly in public. Bouteflika's main opposition called the election a fraud.

Algerians have taken to the streets to protest for change in recent months, but have run up against effective police opposition. That hasn't stopped Algerians from taking to social media to denounce the government. Most recently, on April 20, people across the country went to Twitter, with pictures and videos portraying police brutality during protests.

"This current regime is going to completely destroy our country because they have failed to reform and diversify our economy," Kamal Benkoussa, an Algerian politician who pulled out of the presidential election, told CNBC. "They have failed to improve our education system. They have failed to improve our health system."

Benkoussa withdrew his candidacy because he decided he had no chance of winning after Bouteflika announced he would run again.

Algeria's economy, with 3 percent annual GDP growth, is supported mainly by the oil and gas industry, which contributes 98 percent of exports. But declining oil reserves and increasing domestic consumption pose a threat to Algeria's stagnant economy.

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In 2011, Algeria produced 2.9 trillion cubic feet (TcF) of dry natural gas. Most of the North African nation's gas is exported to the European Union, according to U.S. Energy Information's latest figures. Italy was the largest recipient of dry natural gas exports, taking in 62 percent of Algeria's exports of this kind. France was the largest destination for liquid natural gas exports, accounting for 34 percent of exports.

Algeria has been bandied about in European circles as part of a solution to reduce the continent's dependence on Russian gas. Spain's Minister of Foreign Affairs and Cooperation visited Algeria this month to talk about the possibility of increasing Algerian gas exports to Europe through Spanish pipelines that connect Algeria and Spain.

Threat of disruption

Investors need not look far for an example of a North African nation reducing or entirely cutting off energy exports following civil unrest—especially in the last three years.

"We've seen in Libya that gas exports have stopped through LNG because of the actual uprising. The same situation could happen in Algeria," said Kartik Misra, senior analyst at analysis and research firm Energy Intelligence.

Misra was quick to note that for now at least, Algeria isn't nearly as critical as Russia when it comes to gas supplies. "The impact will be a little bit less than Russia because Algeria is not the heaviest exporter in natural gas, and their share in the European market has been going down in recent years," he said.

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But the threat of that supply being disrupted is very real, and it could take forms other than unrest among Algeria's youth. Another factor that could destabilize Algeria would be if Bouteflika "dies within the next five years, which is very likely, and they have to choose a replacement—that could lead to things," said Michael Willis, a professor of North African politics at the University of Oxford.

Another threat that scholars see is insurgent violence. Last year, an al-Qaeda-affiliated group attacked the Amenas gas facility in Algeria. On April 20, Islamist insurgents killed 11 Algerian soldiers. Algeria went through a vicious civil war in the 1990s between the government and Islamist rebels that killed tens of thousands.

"Algerians are worried about the ability of terrorists to attack the energy facilities and to hurt the country's economic prospect, both stopping the flow of gas and oil, and depressing foreign direct investment in that sector," said Isobel Coleman, senior fellow for U.S. Foreign Policy. "Algeria is an important energy supplier to Europe. It could lead to some short-run dislocations."

Algeria sidestepped the Arab Spring by using its oil fortune to hush people's cries over high food prices, but that money is running out, said former presidential candidate Benkoussa.

"Sooner rather than later, the government will have to cancel all the subsidies, and a lot of people will suffer even more," said Benkoussa. "When you raise a society to the point that they're too dependent on subsidies, when you decide to cut these back, this is where you start some tension or some social unrest, and these can be triggered very quickly."

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Although memories of the recent civil war linger among most adult Algerians, who credit Bouteflika for bringing peace, it's not the same story for Algeria's young people, who have little or no recollection of the brutality of the '90s.

"I see in my friends and my surroundings that everybody has had enough, and something will trigger a protest, but I don't know what that trigger will be," Arabi said. "I feel that the revolution will come soon."

By CNBC's Silvana Ordoñez

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