Algerian Gas: A Scary Opportunity?
Algeria, which is the only Maghreb country along with Morocco to have kept rising since late 90s, is a place of opportunities. At the same time, it is probably the most mysterious North Africa country to read. Little news comes from there.
Its reality is not simply twofold, it is much more complicated. The country is the 35th most populated country on Earth and it has the largest defence budget in Africa. It possesses a civil nuclear research program and operates two research reactors.
On an energy level, it maintained a good reputation among investors till the attack carried out in January 2013, in which forty people lost their lives. Despite four BP’s employees having died in the attacks, the company remained committed to its operations in the country.
The UK’s company said last week it had returned some staff to Algeria. Now it has people back at ln Salha, but no expatriates were back to ln Amenas, the southern gas plant attacked by militants last year.
The BP case clearly indicates that investors keep one foot inside and one outside. And that seems to be the most sensible approach.
ONE STEP INSIDE
“Our area is full of opportunities and uncertainties as a result of changes,” said an Algerian official speaking under the Chatham House Rule (participants are free to use the information received, but cannot reveal the identity of the speakers).
During the Middle East and North Africa Energy 2014 conference, Algerian officials suggested that the country is going through a continuous adaptation of the institutional and legal framework to maintain the country’s reputation as a reliable partner.
Despite an increase in total domestic energy consumption that peaked 50 million tons of oil equivalent (Mtoe) per year and a parallel decrease in net exports since 2005, the country reaffirmed its intention to maintain its export capacity.
Algeria is trying to maintain its international role in two ways. Firstly, it designed in 2011 an ambitious solar program, through which it aims at reaching “one third of power generation by 2030.” Secondly, it is gradually opening the doors to foreign companies.
Algerian officials did indeed report a higher number of producers and Sonatrach, the largest company in Africa, could soon have new partners.
“Algeria is still underexplored with respect to mature regions,” said one panellist at Chatham House.
Moreover, the country has exceptional shale gas reserves. According to last EIA report, Algeria is the third country in the world for technically recoverable shale gas resources after China and Argentina.
Asked whether Algiers could have problems tapping those resources due to the dry weather, country’s officials told Natural Gas Europe that this is not the case.
“We have plenty of water,” one official said during the conference organized by Chatham House in January.
The legislation hurdle does not seem too high to overcome, as the energy law passed last year introduced incentives for foreign companies and benefits for investments in unconventional hydrocarbon.
It comes as little surprise that the country aims at achieving 152 bcm in 2018, up from 82 in 2011. The country has for sure the experience and the infrastructure to do so.
A couple of weeks ago, the country also launched an energy bidding round with 31 fields on offer for companies to reverse declining output and reach its target for 2018. According to officials, some licences included also perimeters for shale oil and shale gas.
ONE STEP BACK
But the problem of the country is that it gets most of its output from mature fields and it needs foreign investments to develop new reserves. The last bidding round in 2011 awarded only two contracts out of the 10 offers.
In this sense, Algeria needs to attract foreign investors, but might have problems doing so. As said, it is really difficult to read the country and this might decrease the confidence of foreign investors. The political instability of its neighbours does not play into its hands.
The country is bordered in the northeast by Tunisia, in the east by Libya, in the west by Morocco, in the southwest by Western Sahara, Mauritania, and Mali, in the southeast by Niger, and in the north by the Mediterranean Sea. Geography speaks for itself.
In addition, doubts about the quality of its gas are on the rise. In late January, Italy temporarily cut its import by 80%, as the methane transported by the Transmed pipeline was excessively wet.
If Algeria wants foreign companies to step in, reputation is a central part of the game. Cheating is a short-term solution. It simply makes the picture even more complicated, increasing the risk perceived by investors.
Sergio Matalucci