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Algeria: a top African energy producer

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According to Algeria’s national oil company Sonatrach, which controls about 80% of the country’s oil and gas production, two-thirds of the Algerian territory remains underdeveloped or unexplored and estimates there to be 100 undeveloped discoveries. Image credit: Azzedine Rouichi on Unspalsh

Algeria: a top African energy producer 

When Europe began searching for alternatives to Russian oil and gas following that country’s invasion of Ukraine, one of the producing countries they focused on was Algeria.

By NJ Ayuk

The decision made strategic sense from both a supply and access standpoint. Algeria is the world’s tenth largest global gas producer and fourth largest gas exporter, and only Russia and Norway were already supplying Europe with more energy.

Most of Algeria’s flows to Europe travel by tanker to liquefied natural gas (LNG) plants in France or by pipeline to Spain, Portugal, and Italy.

More specifically, the Maghreb-Europe pipeline transports Algerian natural gas through Morocco to Spain where it connects to the Spanish and Portuguese gas grids while the Trans-Mediterranean pipeline carries gas from Algeria to Sicily and Italy through Tunisia.

In 2022, Spain and Italy each met one-quarter of their annual gas demand from Algeria, and Italy will be getting even more gas from Algeria this year, for a total of 25 billion cubic meters (bcm).

Algeria also has supply relationships with the U.S. and China, but it was Europe’s growing dependence on Algerian energy — oil as well as gas — that helped snap Algeria’s economic slump, a downturn brought on by the pandemic and subsequent oil price shock.

Pathways to Potential (Algeria: a top African energy producer) 

Oil and gas dominate the Algerian economy. The sector represents nearly one-fifth of the country’s GDP. And while that means the nation and its social spending are vulnerable to market volatility, the post-pandemic, post-invasion rebound in energy prices have helped finance an uptick in hydrocarbon exploration, production, and export.

According to Algeria’s national oil company Sonatrach, which controls about 80% of the country’s oil and gas production, two-thirds of the Algerian territory remains underdeveloped or unexplored and estimates there to be 100 undeveloped discoveries — promising circumstances given that many of its producing basins are mature or in decline.

Under the leadership of CEO Toufik Hakkar, the company has rolled out a USD40-billion, five-year plan to take advantage of both upstream and downstream potential. Of the total amount, about three-quarters, or USD30-billion, is earmarked for exploration and production. The investment in exploration is already paying off, welcome news considering Algeria hasn’t experienced an increase in hydrocarbon reserves since 2010.

In the first quarter of 2022 alone, Sonatrach made six hydrocarbon discoveries in the Algerian Sahara, bringing to 41 the total since 2020.

Among the newest finds are gas condensate in two reservoirs in the Illizi Basin near the Libya border; gas potential in a reservoir in Béchar Basin in northwestern Algeria; and crude oil in the northern region of the Berkine Basin, a discovery made in partnership with Italian oil company Eni, which has been in Algeria since 1981 and is the largest international oil company (IOC) operating there.

None of those came close in magnitude to the massive find near the giant Hassi R’Mel field and its infrastructure, however.  Algeria’s largest gas discovery in two decades, it is believed to hold as much as 12 trillion cubic feet of reserves. Sonatrach is fast-tracking development with hopes that production there will not only replace Russian gas for Europe but will further shore up Algeria’s shaky financial regime.

In an email interview with S&P Global, Hakkar said the company “expects to supply the gas market with more than 110 bcm per year through 2027 to meet both domestic and export demand.”

New Laws, New Partners (Algeria: a top African energy producer) 

In addition to Eni, Sonatrach has established partnerships with other international majors, America’s Occidental, France’s TotalEnergies, and China’s Sinopec, among them. The International Trade Association says there are currently more than two dozen IOCs working on upwards of 30 significant projects in Algeria.

Many of those deals followed passage of Algeria’s hydrocarbons law in December 2019, which reversed a decade of damage caused by earlier regulations that imposed high taxes on foreign oil companies and made contract-sharing with Sonatrach unpalatable, if not unprofitable.

By contrast, the new law, aimed at creating an enabling environment for foreign investment, reduced tax rates, removed customs duties and taxes on exploration and production equipment brought into the country, and improved regulatory conditions.

It also put all authority for the country’s oil and gas sector contracts into Sonatrach’s hands, eliminating the former contractual regulator, ALNAFT. New rules also allow an IOC to enter into one of three types of contracts — either a participation agreement, a production sharing agreement, or a risk service agreement. Previously, IOCs could only enter into an outdated production-sharing system.

Future Unclear? (Algeria: a top African energy producer) 

Obviously, new discoveries and regulatory reforms are incredibly good news for Algeria and its economy —and, potentially, for a Europe trying to wean itself off Russian energy.

But it’s too early to tell what the lasting impact will be. For example, “The State of African Energy Q1 2023 Report” describes how OPEC+ production cuts have affected Algeria, which joined OPEC in 1969 and considers itself duty-bound to follow the organisation’s quota-capping directives.

To learn more about Algeria and how its oil and gas sector will fare going forward, download the “AEC’s The State of African Energy Q1 2023 Report,” which will be available soon at https://EnergyChamber.org.

NJ Ayuk is Executive Chairman, African Energy Chamber (https://EnergyChamber.org)

Source: African Energy Chamber

Algeria: a top African energy producer

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Algeria: a top African energy producer 

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