Massive energy sector still has room to grow

Located beneath the Sahara Desert in the eastern part of the country, Algeria’s proven oil reserves are the third largest in Africa – an estimated 12 billion-plus barrels of exceptionally high quality crude.

Algeria is among the world’s top ten oil producers, with the United States and Europe its biggest customers. It is also one of the world’s largest producers and exporters – mainly to Europe – of natural gas, and a major exporter of crude and liquefied natural gas.

Oil and gas production is vital to the Algerian economy, accounting for 97 per cent of foreign exchange earnings, 60 per cent of government revenues and 30 per cent of GDP. It provides the country with a reliable and long-term source of energy, and contributes towards its industrialisation and economic diversification.

According to Business Monitor International (BMI), Algeria’s output of crude should rise from approximately 2,083,000 barrels per day (b/d) in 2011 to 2,654,000 in 2021. In its Q2 report on the sector, BMI also forecasts gas production will increase from 85 billion cubic metres (bcm) in 2011 to 142.4 bcm by 2021.

Production will be boosted by new projects coming on stream, and by increased output and enhanced recovery rates at existing fields.

“New oil fields are expected to enter into production by the end of 2012 and early 2013 that will enable Algeria to increase its output capacities,” says Youcef Yousfi, Minister of Energy and Mines.

I am calling for the rational use of all available energy sources. Youcef Yousfi, Minister of Energy and Mines

He emphasises the importance of planning for the future. “When we think about energy we must always think about the very long term – 30, 40, 50 years ahead. The golden rule for the oil or the gas industry is to discover reserves that are equivalent to those being depleted. We are intensifying exploration efforts.”

The country's two major fields are in the Hassi Messaoud and Berkine basins. Discoveries made in the Berkine basin led to a significant rise in production levels after 2003, but analysts say that without further new discoveries, reserves could peak this decade.

Concerned about ensuring the long-term security of energy supply, the Algerian authorities are considering how best to woo new international partners and give a boost to upstream activity.

In addition to discovering new fields, they are also interested in offshore production and in exploiting unconventional oil and gas reserves, such as shale gas, for which Algeria needs the help of companies equipped with the latest technological know-how.

Investors will pay close attention to amendments to the hydrocarbons law, which Mr Yousfi says will be introduced before the end of the year. According to the BMI: “The next version of the national hydrocarbons law is expected to improve the regulatory environment across the oil and gas sector.”

The new law could include changes to the way taxes are levied on energy projects, with foreign companies paying tax on profits rather than turnover, although this would only apply to new, high-risk projects.

One of the world’s largest oil companies, Sonatrach last year increased the value of its exports of oil and gas by 27 per cent to $71.5 billion (£45.6 billion). The company, which, accounts for 60 per cent of Algeria’s oil output, posted a net profit of DZD 767 billion (£6.25 billion), compared with DZD 706 billion in 2010.

Sonatrach recently revealed plans to invest $68.2 billion over the next four years. Abdelhamid Zerguine, CEO of Sonatrach, says most of the money will be invested in hydrocarbons exploration and production.

According to the CEO, Algeria’s hydrocarbon reserves are evaluated at 4 billion tons of oil equivalent (toe). The provisional exploration plan “should provide the primary production of oil up to 234 million toe in 2016.”

Mr Zerguine has been reported as saying that production of shale gas – a vast untapped resource – could start within three years.

According to Mr Yousfi, Algeria’s shale gas potential equals that of the United States, with possibly up to 1,000 trillion cubic feet of natural gas trapped more than 1,000 metres below the surface.

He acknowledges that help from foreign companies will be needed to extract the gas, a process requiring the high pressure injection of water, sand and chemicals into the sedimentary rock.

The Minister says: “We have considerable unconventional resources of hydrocarbons, and we are working on evaluating them. If the project is technically and economically workable, we will start producing conventional and unconventional hydrocarbons. I am calling for the rational use of all available energy sources.”

As for offshore production, it is geologically more challenging in Algeria than in neighbouring Tunisia or Libya. The Minister says: “We are evaluating the potential now, but here it is different from what is happening in Tunisia and Libya. We are up against deepwater conditions because our continental shelf is very narrow and it immerses immediately.” In terms of infrastructure, Mr Yousfi recently announced a $10 billion investment in five new refineries. On completion, they would raise Algeria’s current annual oil refining capacity from around 26 million tons to 30 million tons.