ALGERIA. DISTRIBUTION As Sonatrach gears up for a massive boost in exports it is ready to take on all-comers
State supplier is ready for growth

New gas pipelines are under investigation, and oil exploration contracts are up for grabs

State-owned oil and gas company Sonatrach can look forward to years of growing prosperity, given Algeria’s vast reserves of oil and gas and the rising demand for both. With a ready market across the Mediterranean, the company is gearing up for a massive increase in exports.
Algeria’s huge In Salah gas field is being developed to meet European demand and the output will be marketed by Sonatrach and BP.
Sonatrach has also joined forces with Spain’s Cepsa to investigate the possibility of a new 10-15 billion cubic metres (bcm) a year pipeline between Beni Saf in western Algeria and the Spanish port of Almeira.

Cepsa and Sonatrach each hold a 20 per cent stake in the recently created venture, dubbed Medgaz. Five other European energy companies, including BP, each hold an equal share of the remainder. A decision on the pipeline is expected towards the end of the year and, if gets the green light, it will come onstream in 2006.
A final decision has yet to be made on a second pipeline, from Annaba to the Italian mainland via Sardinia. Italy’s Enel and Germany’s Wintershall have signed a contract with Sonatrach for a feasibility study. It is projected to transport a further 10 bcm of gas a year, and may be extended around the north Mediterranean coast and into southern France.

Sonatrach will also boost its output of liquefied natural gas (LNG). The government has drawn up plans to build a new four to five million tonnes a year LNG plant at Arzew. This will take advantage of the existing infrastructure of the Arzew complex, where there are already four LNG trains (production units).
The new plant, with a completion date of 2010, will be developed in partnership with a foreign company, says Sonatrach. It will form part of an integrated project, possibly involving the foreign partner in the development of an upstream gas field.

In March, Sonatrach clinched a deal to supply Spanish power generation giant Iberdrola with one bcm of natural gas a year over the next 15 years. The two companies have also agreed to negotiate another contract for an extra billion cubic metres a year that would be transported after the completion of the projected Medgaz pipeline linking Algeria to Spain.

A foreign partner is required to raise the output of LNG

The extra volumes of gas will come from the development of existing fields, including the giant Hassi R’Mel area and the In Salah field, and others such as the Ahnet project being developed by Malaysia’s Petronas and Gaz de France, and Orhoud with Anglo-Australian BHP Billiton.

Meanwhile, a new law permits the award of oil exploration contracts through open bidding. Chakib Khelil, chairman of Sonatrach and energy minister, says new exploration blocks being offered should result in at least 11 new contracts awarded this year, twice as many as Sonatrach awarded in the previous three years.
“We’ll be increasing production by 50 per cent by 2005,” he says. “On the basis of existing reserves, additional investments can add new capacity over and above that level by 2005.”

Current capacity is nearly one million barrels per day (bpd), although actual production is around 850,000 bpd. “But we’ll be producing 1.5 million bpd and we’ll export probably an additional 20 bcm of gas in 2005,” he adds.
As far as competition against the state-owned company is concerned, Mr Khelil says Sonatrach is quite capable of holding its own against the big internationals. “Sonatrach has the money and expertise, and if it does not have it, then it can buy it just like any other company in the world,” he says.
“Sonatrach has been working in the country for 40 years and knows Algeria’s geology better than anyone else. We are training lots of people in this country, because Sonatrach has the expertise.”

Mr Khelil says Sonatrach will be a major player in the marketing of natural gas. The company currently produces 85 per cent of Algeria’s total output.
“It is not because of competition that Sonatrach will change in the next 20 years. I don’t see the role of the company diminishing,” he adds.
“Sonatrach now has a permit which covers 43 per cent of the whole exploration area. We could attract partners for this 43 per cent, and probably these are the best areas we have selected.”