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Algeria Struggles to Realize Natural Gas Potential

3 novembre 2009

PARIS — Despite ambitious plans to expand natural gas exports, Algeria risks seeing its share of the European market dwindle as it struggles to develop new fields and attract foreign investment, analysts say.

The country wants to increase its natural gas exports to 85 billion cubic meters, or three trillion cubic feet, a year by 2013, from almost 60 billion in 2007. The minister of energy and mines, Chakib Khelil, told the French magazine Arabies in April that Algeria would be investing $5 billion to increase its gas transportation capacities by 50 percent.

“The dots are slowly connecting,” in building the infrastructure, said Craig McMahon, lead analyst on North Africa for Wood Mackenzie.

But beyond that are questions of supply. He and other analysts note that Sonatrach, the government-owned company that controls the majority of natural gas production and wholesale trade, has relied on natural gas from the huge field Hassi R’Mel for decades. While the field is not expected to run dry anytime soon, experts say that if exports are to be dramatically expanded or even maintained over the long run, alternative fields need to be developed.

“They’ve been very ambitious,” Nikos Tsafos, a gas analyst for PFC Energy, said, “but they haven’t made a lot of progress on the upstream side.”

Hassi R’Mel will remain the hub for the expanded export infrastructure. New domestic pipelines will link fields in the southwest to Hassi R’Mel, from where gas can be transported internationally.

“A number of projects need to move into development phase,” Mr. McMahon said, for this export infrastructure to become functional and efficient.

Algeria has become more open to foreign investment in recent years, recognizing the benefits of such cooperation. And international companies like BP and Total have been increasing their activity in the country.

Sonatrach also has been reaching out to new investors like Gazprom, the Russian natural gas giant, and Chinese companies like Sinopec.

But analysts say complicated restrictions, like conditions for the development of infrastructure around fields, continue to discourage many potential partners. A round of license awards to develop potential fields last December — the first under a 2006 law giving Sonatrach a minimum 51 percent share in all natural gas and oil exploration contracts awarded to foreign companies — attracted far less interest then had been expected.

While companies understand that the 2006 law leaves little room for changes in ownership conditions, Mr. McMahon said, unattractive financial terms are the real cause of hesitation. And in the months since the disappointing round, the Algerian authorities have not been overly responsive to investor concerns, he said.

“There have since been some changes but not as much as was hoped for,” Mr. McMahon said.

Algeria is preparing for its next bidding round, set for December 2009. Sonatrach and the Algerian Ministry of Energy and Mines did not respond to requests for comment.

The Algerian authorities have just approved a joint development plan for the Timimoun natural gas project, for which Total of France, Sonatrach and the Spanish company Cepsa have formed a consortium. The sizable new field in southwestern Algeria is expected to reach production of about 160 million cubic feet per day, according to a Total press release dated Oct. 7. Total did not respond to queries for additional comments.

BP has two main natural gas fields in Algeria, near the towns of In Salah and In Amenas in the central and eastern parts of the country, which are run in partnership with Sonatrach and StatoilHydro. Sonatrach alone takes the natural gas to market.

BP also has an exploration program in Bourarhat, close to the In Amenas field, with plans to build three wells in the next three years, said Robert Wine, a BP spokesman. The company has plans to invest $2 billion over five years, he said, but he added that anything beyond that figure depended on conditions offered by the government.

StatoilHydro, of Norway, holds the Hassi Mouina license to explore a giant potential field in central Algeria, in the Sahara, where several finds are being evaluated, according to a spokesman, Kai Nielsen. He described relations with the Algerian government as very good, but declined to comment on specifics. “We consider Algeria in a long-term perspective,” he said.

Both natural gas and oil are vital to the Algerian economy. Hydrocarbons account for 97 percent of Algerian exports, according to the Energy Information Administration of the United States. , and Algeria was the sixth largest natural gas producer in the world for 2007.

Indeed, there is no other sector in the country anyway near developed enough to fuel the economy in the way that hydrocarbons do.

Dr. Salah Mouhoubi, an economist who has often worked with the Algerian government on economic projects, estimates that the country can rely on its natural gas reserves for another 40 years to fuel the economy, provided that prices rebound.

But the big investment in export infrastructure will serve only to maintain Algeria’s share of the European market, since any increase will be outrun by rising demand. Algeria’s share of the wider European market, including Turkey, has been flat over the past decade, Mr. Tsafos said, at 9 percent to 10 percent.

The repeated halting of supplies to Ukraine by Gazprom in recent years has stoked fears of the possible effects of the Russian company’s forming an alliance with Sonatrach of Algeria. The two countries, along with Norway, are the main suppliers of natural gas to Europe, providing almost half of the Continent’s imports.

The Sonatrach-Gazprom relationship, however, waivers between competition and cooperation. Mr. Tsafos argued that there was so far little progress in terms of tangible partnerships.

The two companies signed a memorandum of understanding in 2006, and Gazprom opened an office in Algeria in 2008. In January, the two signed an agreement for a joint exploration and production project in the El Assel area near the border with Morocco.

Partnership agreements between the government-owned Sonatrach and Chinese companies remain “relatively modest,” Mr. McMahon said.

Still, the European Union is expected to remain Algeria’s main customer. Projects under way to build new pipelines or expand existing ones to Italy and Spain should be completed in the next few years, along with any additional infrastructure for exporting natural gas in liquid form.

Source: New York Times 19.10.2009

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