ALGERIA. INTRODUCTION Liberalisation is set to unlock the sector’s potential
Stepping into the breach

With its huge reserves, Algeria promises to supply the EU’s growing gas shortfall

The oil and gas industry of Algeria is poised to become a major supplier to Europe, engendering at the same time closer relationships between the north African country and its not so distant neighbours. In particular, Algeria’s massive gas reserves look set to supply Europe for decades to come.
Major new discoveries have prompted the government to liberalise the sector and allow the big international players to bid openly for exploration blocks, form joint ventures or operate as independent producers. Interest from foreign investors is increasing, as service providers will be needed to manage the logistics, pipeline engineers to become involved in several proposed projects, and other support services to provide backup to the industry.

The government’s ambitious export goal of 60 billion cubic metres (bcm) of gas a year by 2000 was comfortably achieved and the latest export target of 85 bcm a year by 2010 looks very realistic. Although Russia is still the main source of imported gas in the EU, importing Algerian gas is a relatively inexpensive alternative, particularly for southern European countries.
Portugal, for example, a recent convert to natural gas, relies on Algeria for 80 per cent of its supplies. Spain imports 61 per cent of its gas from here, while Italy buys about half its estimated demand of around 56 bcm from Algeria.
With its huge known reserves – and with more discoveries almost inevitable, given the successful strike rate in recent years – Algeria is set to play a much greater role in trans-Mediterranean markets.

Two major factors which have helped boost Algeria’s gas industry are Europe’s switch to gas-fired power generation, coupled with growing concern about the environment.
Development of the huge In Salah gas field and two others – Ohanet and In Amenas – will add a further 22 bcm to Algeria’s gas capacity by 2005. Two more trans-Mediterranean pipelines are under consideration for the export of this output.
Algeria is also the world’s second-largest exporter of liquefied natural gas (LNG), providing 26.8 bcm – or 20 per cent of the world total – in 2000. Europe, once again, was the biggest importer, with France taking 10.9 bcm, and Spain and Italy buying 4.3 bcm and 2.5 bcm respectively. Algeria also supplied 1.3 bcm to Turkey and 1.2 bcm to the United States.

Analysts predict that EU gas demand, which was 255 bcm in 1990, will rise to 455 bcm by 2010. This is a conservative estimate, as other predictions show higher growth in demand among the Mediterranean countries, driven mainly by electricity generation.
Eurogas, a company which has a presence in Russia, Tunisia and Canada, even predicts that the EU will experience a growing gas shortfall, driven by the combination of growing demand and declining domestic production. Thus Eurogas predicts that the EU, which currently imports 40 per cent of its energy needs, will be importing 56 per cent by 2010 and 71 per cent by 2020.
State-owned gas and oil company Sonatrach is set to become a major player in gas exports (see page 4). If Sonatrach and the state-owned company, Sonelgaz, form partnerships with European companies, the prospects for Algerian natural gas look excellent.

Meanwhile, the emergence of Algeria’s new number two oil region, the Berkine basin, has “significantly altered the location of [the country’s] reserves”, according to a new study. The giant Hassi Messaoud producer remains Algeria’s biggest field, however, and may offer great potential for enhanced oil recovery (EOR) work. Messaoud still accounts for 55 per cent of total reserves, while the Berkine basin now accounts for about 30 per cent.
Moves to liberalise Algeria’s exploration regime have attracted a number of international oil companies to the country that were previously excluded. This has been the key to unlocking the potential for much-increased production of oil and the expansion of natural gas. Between 1987 (the year of the first major revision in the oil law) and 2000, some 45 exploration contracts were signed with 27 companies from 20 countries.

‘Fully open, competitive, transparent’ Chakib Khelil

Energy minister Chakib Khelil says the new oil law, which was in preparation for two years, is important because it fits in with government policy on the opening up of Algeria’s economy and its transformation into a market-driven global player. The minister adds that when negotiations are complete – probably by the end of the year – Algeria will become an associate member of the EU. It is also aiming to join the World Trade Organisation.
“Algeria is reforming its state-controlled economy to become a fully open, fully competitive, transparent economy,” he says, adding that privatised state enterprises will have to improve their management in order to compete.
“But this will provide them with opportunities for public enterprises to show that they really can perform, that they can be efficient, that they can find oil and increase their production,” he adds.