Algeria's energy sector: A quantitative analysis

Algeria's economy depends almost exclusively on hydrocarbon exports for its foreign exchange revenues. At the same time, domestic energy consumption is expected to grow rapidly in response to population increases and future economic growth. Therefore, meeting future energy needs has the potential to impose serious burdens on export availability and, therefore, on the country's development process. As a result, the purpose of this study is to understand the demand behavior of all consumers in the energy sector in the period between 1975 and 1992 and develop a demand management tool. This tool would allow policymakers to use both price and non-price instruments to control the growth of energy demand and introduce a more efficient use of energy. Based on the Cobb-Douglas production function, we estimate price and income elasticities of energy demand by fuel (oil, gas, electricity, coal) and by sector (industry, household/commercial, transportation, agriculture) using the ordinary least squares (OLS) regression technique. The results are then used to forecast energy demand using different scenarios based on various future trends in the exogenous variables. The initial business as usual (BAU) scenario highlights energy demand trends under a moderate rise in energy prices. The second category of scenarios, the subsidy phase-out (SPO), analyzes the impacts of pricing instruments on energy trends. The last category, the autonomous energy efficiency increase (AEEI), estimates the impact of technical efficiency measures. The results suggest that energy demand will be strong throughout the forecasting period (1993-2010) and that price and non-price instruments can be used to dampen it and develop a more efficient use of energy. Linking the consumption block to a supply module, the energy balance of the country is derived and the potential hydrocarbon export availability and revenues are estimated. The revenues can be substantially enhanced using the demand management tools. In addition, introducing a SPO or AEEI leads to an increase in energy efficiency and a decrease in carbon emissions. In sum, the findings highlight the importance of energy demand management on various economic and environmental indicators, potentially contributing to the development process. This management tool is even more pertinent in the case of a hydrocarbon export-dependent economy like Algeria.