ALGERIA
UPSTREAM OIL & GAS REPORT
Completed by: M. Smith, Sr. Commercial Officer, K. Achab, Sr. Commercial Specialist, and B. Olinger, Research Assistant
Tec hnic a l Ba rriers to Tra de a nd More Upc oming Events
C urrent Ma rket Trends C ompetitive La ndsc a pe
Introduc tion
Oil a nd ga s ha ve long been the ba c kbone of the Algeria n ec onomy tha nks to its va st oil a nd ga s reserves, fa vora ble geology, a nd new opportunities for both c onventiona l a nd unc onventiona l disc overy/produc tion. Unfortuna tely, the c olla pse in oil pric es beginning in 2014 a nd the tra nsition to spot ma rket pric ing for na tura l ga s over the la st three yea rs revea led the wea knesses of this ec onomic model. Bec a use Algeria ha s not mea ningfully diversified its ec onomy sinc e 2014, oil a nd ga s produc tion is even more essentia l tha n ever before to the government’s revenue ba se a nd politic a l sta bility.
Toda y’s c onjoined globa l hea lth a nd ec onomic c rises, c oupled with persistent dec lining produc tion levels, ha ve therefore pla c ed Algeria ’s oil a nd ga s industry, a nd the c ountry, a t a c ritic a l junc ture where it requires a mple foreign investment a nd effec tive tec hnology tra nsfer. One pa th to the future inc ludes underta king new oil a nd ga s projec ts in pa rtnership with interna tiona l c ompa nies (la rge a nd sma ll) to revita lize produc tion. The other pa th, ma rked by inertia a nd institutiona l resista nc e to c ha nge, lea ds to oil a nd ga s produc tion levels in ten yea rs tha t will be ha lf of toda y's produc tion levels.
After two dec a des of a utoc ra c y, Algeria ’s rec ent pa ssa ge of a New Hydroc a rbons La w seems to indic a te tha t the c ountry ma y c hoose the pa th of pa rtnership by profoundly c ha nging its ta x a nd investment la ws in the hydroc a rbons sec tor to re-a ttra c t interna tiona l oil c ompa nies. Algeria ’s new Hydroc a rbons La w inc ludes multiple mea sures to stimula te investment in Algeria 's oil a nd ga s sec tor. Firstly, it reduc es ta xes pa id by Sona tra c h a nd its pa rtners by over 20 perc ent, from 85 perc ent to 60-65 perc ent. It a lso c la rifies the roles of va rious regula tory bodies (e.g., the Minister of Energy, Sona tra c h, the Na tiona l Agenc y for the Va lua tion of Hydroc a rbons Resourc es, a nd the Hydroc a rbon Regulatory Authority. Perha ps most importa ntly, it reintroduc es the system of produc tion sha ring.
Alongside the dra fting of the new hydroc a rbons la w, in 2018, Sona tra c h unveiled a new vision a nd stra tegy, the SH2030, whic h la ys down a mbitious objec tives. For the hydroc a rbon explora tion a nd produc tion segment, Sona tra c h is pla nning to double the a nnua l output of disc overies. It is a lso a iming to inc rea se the produc tion ra te of existing fields a nd optimize well performa nc e by 2022 a nd deploy releva nt enha nc ed oil rec overy tec hnologies.
U.S. Department of Commerce | International Trade Administration | U.S. Commercial Service
trade.gov
1
ALGERIA
UPSTREAM OIL & GAS REPORT
Completed by: M. Smith, Sr. Commercial Officer, K. Achab, Sr. Commercial Specialist, and B. Olinger, Research Assistant
C urrent Ma rket Trends
La rge Reserves
By la ndma ss, Algeria is the la rgest c ountry in Afric a a nd the Ara b World. It ha s substa ntia l oil a nd ga s reserves a nd is a n OPEC member. For na tura l ga s, Algeria ha s the tenth-la rgest reserves of in the world, is the lea ding na tura l ga s produc er in Afric a , a nd is the sixth-la rgest overa ll ga s exporter. For oil, Algeria ra nks 16th in proven oil reserves a nd is a mong the top three oil produc ers in Afric a . All proven oil reserves lie onshore, a nd there is a n interest in developing offshore c a pa c ity.
In pa rtnership with Sona tra c h, Algeria ’s Na tiona l Oil C ompa ny (NOC ), Interna tiona l Oil C ompa nies (IOC s), a nd servic e c ompa nies a re c urrently involved in more tha n 30 ma jor projec ts in Algeria a t different sta ges.
3 in the disc overy sta ge 3 in the a ppra isa l sta ge 3 in the explora tion sta ge 7 in the development sta ge 13 produc tion sta ge 3 in upgra de/enha nc ed oil rec overy sta ge
Of the ma jor projec ts underwa y, ten a re in oil a nd ga s projec ts, 11 a re ga s/ga s-c ondensa te/tight ga s projec ts, a nd ten a re oil projec ts. Altogether, these efforts c urrently result in the produc tion of 50 million tons of oil equiva lent feet per yea r. Most of these projec ts a re in the south, nea r the c ities of Ha ssi Messa oud a nd Ha ssi R’Mel.
Dec lining Produc tion
Despite its substa ntia l reserves, Algeria n produc tion levels of oil ha ve been dec lining for the pa st dec a de. This gra dua l dec line is bec a use the ma jority of the c ountry’s produc tion stems from ma ture wells, whic h c ontinue to a ge ra pidly. C ovid-19’s impa c t on interna tiona l oil pric es, whic h resulted in a drop in pric es for Algeria ’s Sa ha ra n blend from $70 on Ja nua ry 6, 2020, to $42 per ba rrel a s of June 5, will exa c erba te this trend.
U.S. Department of Commerce | International Trade Administration | U.S. Commercial Service
trade.gov
2
ALGERIA
UPSTREAM OIL & GAS REPORT
Completed by: M. Smith, Sr. Commercial Officer, K. Achab, Sr. Commercial Specialist, and B. Olinger, Research Assistant
Sourc e: BP Statistic al Review of World Energy 2019
Due to the unexpec ted drop in oil pric es, a t the end of Ma rc h 2020, Sona tra c h a nnounc ed the group’s pla ns to reduc e its budget for the yea r 2020 by $7 billion (50 perc ent). At the time, Sona tra c h’s C EO, Toufik Ha kka r, sa id the group would reduc e a ll expenses tha t would not impa c t future produc tion levels a nd would reduc e employment expenses by roughly 30 perc ent. Then, in June 2020, Algeria 's Minister of energy welc omed the a greement of the OPEC + virtua l ministeria l meeting to susta in c uts in oil produc tion through July. Algeria hopes tha t susta ined reduc tions will help boost oil pric es c loser to $50/ba rrel for the sec ond ha lf of 2020.
New Explora tion
Even though produc tion ha s been dec lining for more tha n ten yea rs, Algeria 's territory rema ins rela tively underexplored. Sona tra c h reports tha t a bout 66 perc ent of Algeria n territory rema ins unexplored or mostly underexplored. To understa nd the ma gnitude of the c ountry’s unta pped resourc es, Sona tra c h estima tes tha t it ha s more tha n 100 undeveloped disc overies. Most of these a rea s a re in both known a nd frontier ba sins, a s well a s offshore. Rea lizing tha t its previous regula tory regime repea tedly fa iled to a ttra c t interna tiona l oil c ompa nies to new explora tion projec ts in these a rea s, Algeria overha uled its hydroc a rbons regime in Ja nua ry 2020 with the pa ssa ge of the La w on Dec ember 11, 2019.
The regula tory c ha nges brought a bout by this la w represent Algeria ’s first signific a nt a ttempt to stimula te interna tiona l investment a nd boost reserve repla c ement in more tha n two dec a des. Within the la st three months, Sona tra c h ha s a lso signed Memora ndums of Understa nding (MOUs) with Exxon, C hevron, a nd Lukoil. These MOUs c over explora tion, development, a nd produc tion opportunities in Algeria , pa rtic ula rly in the c ontext of the new Hydroc a rbons La w.
U.S. Department of Commerce | International Trade Administration | U.S. Commercial Service
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3
ALGERIA
UPSTREAM OIL & GAS REPORT
Completed by: M. Smith, Sr. Commercial Officer, K. Achab, Sr. Commercial Specialist, and B. Olinger, Research Assistant
Enha nc ed Oil Rec overy
As noted a bove, the bulk of Algeria ’s produc tion lies in ma turing fields, whic h fa c e hea vy ra tes of dec line. For 25 yea rs, Sona tra c h ha s been employing Enha nc ed Oil Rec overy (EOR) tec hniques to optimize oil a nd ga s field produc tion. A rec ent exa mple inc ludes a new $415 million ga s c ompression a nd reinjec tion sta tion with a produc tion c a pa c ity of 24 million c ubic meters per da y tha t wa s brought online in Ja nua ry 2020. The new sta tion, loc a ted six kilometers from Ha ssi Messa oud, will ena ble c rude oil produc tion to be inc rea sed via the injec tion of up to 16 million m3/d of trea ted ga s.
Despite previous investments in EOR, Sona tra c h's new lea dership understa nds tha t a dditiona l investments in more c utting-edge forms of EOR a re needed improve oil rec overy fa c tors a nd slow the ra te of dec line. C ompa red with neighboring c ountries in the Middle Ea st, Algeria ’s reservoirs tha t require EOR tec hniques ha ve a n estima ted rec overy fa c tor of less tha n 20 perc ent, c ompa red with 34 perc ent in the region.
Signific a nt G a s Produc tion
Abunda nt na tura l ga s reserves domina te Algeria 's hydroc a rbon portfolio c ompa red to c rude oil. After produc ing na tura l ga s for severa l dec a des, Algeria ha s rea c hed a point where its ga s ba la nc e is fa c ing c ha llenges. Sta gna ting na tura l ga s produc tion a nd a ra pid domestic ga s c onsumption growth ha ve c ombined to c onstra in the c ountry's ga s export potentia l.
Sourc e: BP Statistic al Review of World Energy 2019
U.S. Department of Commerce | International Trade Administration | U.S. Commercial Service
trade.gov
4
ALGERIA
UPSTREAM OIL & GAS REPORT
Completed by: M. Smith, Sr. Commercial Officer, K. Achab, Sr. Commercial Specialist, and B. Olinger, Research Assistant
Rec ent efforts to mitiga te produc tion dec rea ses inc lude the Southwest G a s Projec t, whic h c onsists of the Regga ne Nord, Timimoun, a nd Toua t projec ts, a ll of whic h a re a t the fina l sta ges to sta rt produc tion. For exa mple, the Toua t field rea c hed the first produc tion in ea rly September 2019, with the projec t c onsisting of 19 development wells a nd a ga s trea tment pla nt with a ga thering network a nd export pipelines. Produc tion a t this site will ra mp up to a pea k of 4.7bc m. The development of the Southwest G a s Projec t is signific a nt for Algeria 's a bility to meet c ontra c ted exports a nd rising domestic dema nd, whic h grew 5 perc ent yea r-overyea r between 2008 a nd 2018.
As the gra ph on the previous pa ge demonstra tes, Algeria ’s ga s produc tion trends ha ve fa red muc h better tha n oil over the la st dec a de. Despite c ha llenges posed by the movement of the ma rket to spot pric ing a nd a surplus of na tura l ga s globa lly, ga s produc tion will likely inc rea se gra dua lly in the short a nd medium-term tha nks to investments a t the Ha ssi R'Mel field. Over the long term, however, produc tion will ma inly be a ffec ted by whether a dditiona l efforts a re ma de to mitiga te produc tion dec rea ses a nd by the sta bility of dema nd from ma inla nd Europe, pa rtic ula rly Spa in a nd Ita ly.
Sha le G a s
Algeria is estima ted to hold the third-la rgest a mount of tec hnic a lly rec overa ble sha le ga s resourc es in the world. Sona tra c h c ommissioned its first sha le ga s explora tion well in the Ahnet Ba sin in In Sa la h in Dec ember 2014, a nd explora tion ha s stopped a nd sta rted severa l times sinc e. These fits a nd sta rts a re bec a use sha le ga s exploita tion ha s been a c ontentious issue a t both the na tiona l a nd c ommunity levels, with multiple demonstra tions protesting a ga inst sha le ga s in the south of the c ountry. C onc erns a bout sha le ga s projec ts a re often ec onomic a l a s well a s environmenta l, with some lea ders questioning the profita bility of sha le ga s produc tion in the Algeria n c ontext due to wa ter sc a rc ity a nd a la c k of domestic expertise in this a rea .
Despite the c ontroversy surrounding sha le ga s, shortly a fter entering offic e, Algeria 's first new president in more tha n 20 yea rs, President Abdelma djid Tebboune, sta ted his belief tha t sha le ga s development is a nec essity for Algeria . While the President did not give a spec ific timeline for introduc ing sha le ga s development, he sa id tha t the government would deba te option "onc e we ha ve overc ome the c urrent situa tion" (e.g., referring to overc oming the c ountry's politic a l insta bility tha t bega n the yea r prior). Tebboune sees the revenues from sha le ga s a s a mea ns to a void ta king on foreign debt. So while sha le ga s produc tion ma y not be in pla y in the short term, the government is beginning pla ns to develop its sha le reserves.
