Algeria: Lots in the pipeline

It is hardly surprising that Sonatrach is the driving force for Algeria’s economy. The state-owned energy company that was set up in 1963 to exploit the country’s hydrocarbon resources and carry out research, exploitation, pipeline transportation, processing and marketing of hydrocarbons, is one of the true giants on the world energy stage. Working as a majority partner in joint ventures with foreign companies such as BP and Repsol in Algeria, it carries out its activities in four main fields: upstream, downstream, pipeline transportation
and marketing.

Given that Algeria is the third-largest oil producer in Africa, after Nigeria
and Angola, and the largest natural gas producer in Africa, the company has, over time, rolled out several measures to curb spending, to counter the downslide in oil prices and the global economic slowdown. Among others, it is asking service suppliers for a discount on prices before initiating a new energy strategy to meet domestic demand, foreign contractual obligations and other
fiscal challenges.

“The evolving domestic and external environment obliges us to adapt our
organization…so we can meet our goals to increase production and reserves,” said Amine Mazouzi, Sonatrach’s chief executive officer.

The restructuring, aimed at reducing costs, covers several sectors, i.e., the development of renewable energies, promotion of energy efficiency, supply of natural gas, investment opportunities and incentives for foreign partners, to name but a few.

The latest drive is a result of new energy equations. With the global energy demand slowing down, oil producers around the world, including Algeria, are working to reduce costs and diversify their energy portfolios.

“The new charter will enable Sonatrach to focus on its core business, facilitate efficient management and promote visibility and transparency,” oil and gas development consultant Mohamed Said Beghoul stated.

Algeria’s proven natural gas reserves account for 4.58 trillion cubic meters and its oil for 1.58 billion cubic meters. Mazouzi has pledged a “sizeable increase in production” as the country looks at ending more than a decade of stagnation in energy production. Algeria also has enormous potential for shale gas development, including favorable geology. According to a study commissioned by the US Energy Information Administration (EIA), it may be holding the third-largest amount of shale gas resources in the world. When he outlined the government’s priorities in 2014, Prime Minister Abdelmalek Sellal cited shale gas exploitation as necessary “to ensure Algeria’s energy security”.

To increase oil and gas production, the government is investing heavily in this sector. “Sonatrach will invest $3.2 billion from 2016 to 2020 to boost its transport capacity, including $530
million this year,” said Arbi Bey Slimane, Sonatrach’s vice-president for pipeline transportation.

Furthermore, gas transportation has grown from simple local supply systems to international and pan-continental
networks. A network of export pipelines links the gas fields to terminals for the export of natural gas. The pipeline transportation network includes 14 pipelines with a total length of 8,629km, with a carrying capacity of 142 billion cubic meters.

Sonatrach aims to significantly expand its market share in the US and Asia, and this capacity is greatly increasing to meet the growing demands. “We will build 1,650km of pipeline and six compression and pumping stations by 2020. Our goal is to transport output from new fields located in the South East and South West,” Slimane said.


Attracting foreign investment 

The government has also opened up Sahara’s gateway for international partners. Foreign investors have been invited to increase oil and natural gas
reserves and explore new territories, such as offshore areas in the Mediterranean Sea and onshore areas containing shale oil and natural gas resources.

Algeria’s oil and natural gas industries are governed by the Hydrocarbon Act of 2005. The original 2005 legislation was more favorable to foreign involvement than its predecessor, which was passed in 1986. However, amendments to the bill were made in 2006 and some of the favorable terms were reversed. In the 2006 amendments, Sonatrach was granted a minimum equity stake of 51 percent in any hydrocarbon project and a windfall profits tax was introduced for international oil companies (IOC).

In 2013, Algeria revised parts of the Hydrocarbon Law in an attempt to attract foreign investors to new projects. A subsequent revision provided broad tax incentives for investment, as well as further incentives and guidelines for exploiting unconventional gas resources.

The 2013 amendments also introduced a profit-based taxation as opposed to revenue-based taxation and lowered tax rates for unconventional resources. The amendments also allow for a longer exploration phase for unconventional resources. Also, the constitutional reforms passed in February this year focus on economy and the role of oil and gas industry in Algeria’s growth.

In addition, the government has taken several measures, over time, to increase security at all its oil and gas facilities to pre-empt terrorist attacks from neighboring Mali, Tunisia and Libya.

There is no doubt that these measures are sending out the right signals and giving foreign investors much-needed confidence about future investments in energy, including shale gas. In light of all this, Algeria is negotiating a new deal with the European Union, because Europeans are seeking to be less dependent on Russian energy.

Slimane observed that Algeria would remain a stable gas supplier for Southern Europe. “The volume exported in 2015 increased by two million tons of equivalent petroleum (TEP) to reach 99 million TEP. The two million were delivered to southern Europe,” he said.


Renewable energy program

The renewable energy development program has a national character, affecting the majority of sectors. It is to be implemented, by both public and private operators, with the support of the Ministry of Energy and Mines.

Algeria is committed to the promotion of renewable energy in order to provide comprehensive and sustainable solutions to environmental challenges and to the problems concerning the conservation of the energy resources of fossil origin.

This plan is motivated by the huge potential in solar energy and other resources. “Algeria is blessed with such resources; it certainly shouldn’t ignore them,” Salim Mouici, country director, Baker Hughes Algeria, said.

The promotion of solar power and photovoltaic systems has been taken up as top priority. Algeria also plans to install some experimental units to test the various technologies in renewable energies, such as biomass, geothermal energy and desalination of brackish water.

The Algerian government has created a green momentum by launching an ambitious program to develop renewable energies and promote energy efficiency across the country.

The program consists of installing up to 22,000 MW of power-generating capacity from renewable sources between 2011 and 2030.

The government’s willingness to promote renewable energies is also reflected in the establishment of a commission for renewable energy, accountable to coordinate the national effort in this area. In this program, renewable energies are at the heart of Algeria’s energy and economic policies.

It is expected that nearly 40 percent of electricity produced for domestic consumption will be from renewable energy sources by 2030. Algeria is aiming to be a major player in the production of electricity from photovoltaic and solar power, which will be drivers of sustainable economic development. The objective is to promote a new model of growth.

Projects facilitating the domestic production of electricity are a crucial element of Algeria’s strategy. There are specific programs aimed at developing a solar industry, which is to be integrated into a training and capitalization program, which will ultimately enable the use of local engineering and establish efficient know-how.

But that’s not all. The renewable energy program is also expected to generate several thousands of direct and indirect jobs in the near future, helping reduce the tension and social movement that has disrupted the energy policy.