Algeria’s national oil company, Sonatrach, recently announced a production-sharing agreement valued at approximately USD 5.4 billion with Saudi Arabia’s Midad Energy. The deal covers exploration and development in the Illizi Basin, near the Libyan border, over a 30-year term with an optional extension of 10 years.
Under the agreement, Midad will fully fund the exploration phase, allocating USD 288 million to exploration activities over the initial seven years. The contract anticipates production of up to 993 million barrels of oil equivalent, including 125 billion cubic metres of natural gas, over the project’s lifetime.
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This infusion of capital and technical partnership forms part of a broader drive by Algeria to attract greater foreign participation in upstream operations and reposition itself as a leading regional energy player. In parallel, Algeria has unveiled plans to invest USD 60 billion in its energy sector between 2025 and 2029, with 80 per cent of that sum directed towards upstream exploration and production.
The Algeria–Midad pact must be understood not simply as a commercial contract, but as a geopolitical signal. The world is in the midst of an energy realignment, accelerated by climate pressures, supply disruptions and repositioning of power among traditional exporters. Europe, reeling from the cutbacks in Russian gas flows post-2022, has increasingly looked to North Africa both for pipeline gas and as a stepping stone for new liquefied natural gas (LNG) routes.
The agreement, which aims to strengthen Saudi Arabia’s footprint in North African hydrocarbons beyond its traditional zones of influence, also gives Algeria a stronger foothold in strategic global supply chains. It allows Saudi investors to diversify risk and exposure beyond their Middle Eastern bases, while Algeria, for its part, cements its role as more than a marginal player in African energy diplomacy.
Moreover, a long-term production sharing deal spanning decades aligns the incentives of both states: Midad secures long lead-time access to hydrocarbon reserves, while Algeria retains sovereign oversight and future extension options.
For Algeria, which has historically had a cautious attitude toward foreign energy ventures, this deal marks a more open posture. It reflects growing confidence among policymakers that Algeria can manage external participation without relinquishing control.
The deal’s structure, where Midad bears all exploration risk in the early years, mitigates immediate capital pressure on Sonatrach or the Algerian state. It sends a message to other prospective investors: that Algeria is willing to align incentives and share risk. This could catalyse fresh interest in other blocks, especially when complemented by competitive bidding and transparent contract regimes.
However, this openness carries political risk. Algeria has long guarded sovereignty in its hydrocarbon sector, and domestic critics may question whether too much foreign influence threatens strategic autonomy. Success will depend on how the government balances national interest, fiscal flows, and partnership terms.
Additionally, Algeria’s broader macroeconomic health will condition investor confidence. Even as it plans to cut its budget deficit by about 35.5% in 2026, aiming to shrink it to USD 40 billion (roughly 12.4 % of GDP), the country faces pressures from elevated public spending and dependence on hydrocarbon revenues. Investors will watch whether Algeria can deliver structural reforms that support diversification, fiscal sustainability, and the rule of law.
Finally, this agreement may redefine Algeria’s relationships with other energy powers. Chinese firms like Sinopec have recently secured contracts in Algerian gas blocks (e.g. Guern El Guessa II), while European majors such as Eni continue to deepen ties (e.g. a USD 1.35 billion agreement in 2025). The Midad deal signals that Algeria is willing to keep multiple partnerships, avoiding overreliance on any one bloc.
Regional Supply & Energy Security
The location of the Illizi Basin is strategic. Bordering Libya and relatively accessible to export routes, successful development will strengthen Algeria’s ability to pipeline or liquefy gas for export markets, including Europe and the Mediterranean region. The projected output of 125 billion cubic metres of gas is nontrivial in the regional calculus of gas supply, especially as European importers seek alternatives to Russian supplies.
With additional production, Algeria may solidify itself as a central hub in a shifting Mediterranean gas grid, potentially interconnecting with pipelines from Tunisia or Morocco, linking to LNG hubs, or contributing to new hydrogen corridors. In doing so, it also enhances energy security for its neighbours who may depend on diversification of supply channels.
However, technical, logistical, and governance challenges remain. Moving gas from remote basins to global markets demands robust pipeline infrastructure, compression stations, export terminals, and regulatory alignment among states. Security considerations near border zones also bear watching; proximity to conflict zones or weak governance areas (e.g. in Libya) can become flashpoints.
There is also the question of carbon transition and stranded asset risk. In a world leaning toward renewable energies, the long-term viability of new hydrocarbon projects hinges on managing emissions, ensuring gas is treated as a transition fuel, and embedding clean energy strategies in investment planning.
What Algeria Must Get Right
To translate this deal from headline to legacy, Algeria must execute on several fronts. First, transparency in contract implementation and revenue management will be vital to allay perceptions of favouritism or rent capture. Second, strong institutional oversight, especially over environmental and social safeguards, will help attract global development capital. Third, linking the hydrocarbon push with energy transition policy (such as carbon capture, greener gas, or integrating renewables) will reduce the risk of future obsolescence.
As well, Algeria must ensure that downstream and midstream capacity can keep pace — that is, pipelines, LNG trains, and export facilities must scale to absorb growth. Finally, it must maintain balance: cultivating diversified foreign partnerships so as not to become overly dependent on any single country or firm.
If Algeria succeeds, the Midad deal could mark a pivot: from cautious gatekeeper to confident regional energy anchor.
The Sand Shifts, But Stakes Remain High
The USD 5.4 billion deal between Algeria and Midad Energy is more than a commercial contract: it is a geopolitical statement. It positions Algeria as a more dynamic player in the global energy order, invites increased foreign confidence in its hydrocarbon sector, and has the potential to reshape regional energy flows across North Africa and Europe.
Yet in order for this venture to fulfil its promise, Algeria must manage it wisely, enforcing transparency and safeguards, scaling infrastructure, balancing partners, and aligning with longer-term transition imperatives. If it does so, this turning of a page could earn Algeria not just a richer purse, but a stronger voice in the new energy equilibrium.
