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Note: Information contained in this report is the best available as of January 2003 and is subject to change.
Despite the recent good news, Algeria continues to face serious economic, social, and political problems, including: high unemployment (officially 27%, but possibly much higher); continued political violence by Islamic fundamentalists and others; labor unrest; a large black market (possibly 20% of the country's GDP); continued weakness in the non-oil economy (a severe drought hurt the agricultural sector in 2000, and heavy flooding struck northern Algeria in November 2001, killing 764 and causing an estimated $300 million in damage); and slow progress on economic reform efforts (largely due to opposition by labor unions and the armed forces). Recently, there has been a flareup of protests by the country's restive Berber minority demanding greater autonomy, increased employment opportunities, and better living conditions. The unrest has centered on the Kabyle region of northeastern Algeria.
In late December 2002, Algeria adopted its budget for 2003, based on an extremely conservative assumption of $19 per barrel for Algerian oil (currently, world oil prices are hovering around $30 per barrel). Algeria remains highly dependent on oil and natural gas exports, which account for more than 90% of Algerian export earnings, and about 30% of GDP. The country's new budget also sets out an ambitious GDP growth target of 6.5%, a small depreciation of the dinar, and curbs on state spending. Algeria's top economic goal is to reduce the country's unemployment rate. The key to achieving this appears to be privatization (including promises to sell off 100 state firms), deregulation, restructuring of public enterprises, and attraction of foreign investment. To date, however, only slow progress has been made in these areas.
In December 2001, the International Monetary Fund (IMF) issued its annual "Article IV" assessment of the Algerian economy, urging that the government proceed with privatization and banking reform, while lowering tariffs aimed at protecting domestic industry and reducing dependence on hydrocarbons. The IMF praised the Algerian government for its strong fiscal discipline (and careful monetary policy as well), and for allowing the dinar to depreciate against the dollar. Finally, the IMF pointed out that high oil prices provide Algeria with an opportunity to make progress on implementing reforms and addressing the country's many problems.
In late 2001, an important new hydrocarbons reform bill was introduced, but progress possible stalled in 2002. The bill would open Algeria's all-important energy sector to private (including foreign) investment, although state oil and gas company Sonatrach (see below) most likely would remain in public hands. The law faces opposition from trade unions and others, and already has been watered down somewhat from its original form, while Energy and Mines Minister Chekib Khelil has stated that "it is not necessary to privatize" Sonatrach.
In December 2002, Algeria signed a cooperation pact with the European Free Trade Association (EFTA), providing for expanded and liberalized trade with EFTA members (Iceland, Liechtenstein, Norway, and Switzerland). Algeria also is pursuing membership in the World Trade Organization, with the latest negotiations concluded in Geneva during November 2002. In late 2001, Algeria and the EU reached an Association Agreement after years of negotiations, and the deal was ratified by the European Parliament in October 2002. Under the accord, Algeria is to cut tariffs on EU agricultural and industrial products over the next 10 years. In exchange, the EU will eliminate duties and quotas on many Algerian agricultural products.
President Abdelaziz Bouteflika, elected President on April 15, 1999 for a 5-year term, has attempted to implement plans for national reconciliation and economic reforms (i.e., deregulation, privatization). More than 100,000 rebels, soldiers and civilians have died in Algeria's civil war, which began in 1992 following the military's nullification of a national election won by the Islamic Salvation Party. On July 13, 1999, President Bouteflika offered amnesty to rebel groups, and on September 16 a national referendum was held in which voters approved the offer. Although the government claimed that nearly 80% of rebels (including members of the Islamic Salvation Army) accepted amnesty, the level of violence appeared to rise once again, with the most violent groups apparently stepping up attacks. In August 2000, President Bouteflika replaced Prime Minister Ahmed Benbitour with Ali Benflis. Parliamentary elections were held in May 2002, resulting in a strong showing for the president's party, the FLN.
Official estimates of Algeria's proven oil reserves remain at 9.2 billion barrels. With recent oil discoveries, plans for more exploration drilling, improved data on existing fields, and use of enhanced oil recovery (EOR) systems, proven oil reserve estimates are expected to be revised upward in coming years. Algeria should also see a sharp increase in crude oil exports over the next few years due to a rapid shift towards domestic natural gas consumption and planned increases in oil production by Sonatrach and its foreign partners. Approximately 90% of Algeria's crude oil exports go to Western Europe, with Italy as the main market followed by Germany and France. The Netherlands, Spain and Britain are other important European markets. Algeria's Saharan Blend oil, 45o API with 0.05% sulfur and negligible metal content, is among the best in the world.
As mentioned above, the Algerian parliament is considering a law which would restructure the state oil company, Sonatrach (and Sonelgaz, the state utility) in order to attract private international investment. One possibility would be for Sonatrach to remain the national oil company but eventually be forced to compete for new projects. Non-core subsidiaries of Sonatrach also could be privatized if the law passes. In January 2001, Algeria's oil and gas industry labor unions announced their opposition to any government plans to open up the country's hydrocarbon sector to foreign investors.
In coming years, it is likely that Algeria's oil production capacity will be increasing rapidly. Already, Algeria plans to raise its crude oil production capacity to 1.5 million bbl/d by 2004 (and 2 million bbl/d within 10 years), and has begun pressing its case for a higher OPEC quota. Much of Algeria's increased production capacity will come from foreign independent oil companies, such as Amerada Hess (the El-Gassi field), Anadarko (Berkine, Ourhoud), Burlington Resources (Block 405), BHP Billiton (ROD), and Cepsa (Ourhoud).
By far, the largest oil field in Algeria is Hassi Messaoud, located in the center of the country, which produces about 400,000 bbl/d of 46o API crude, down from 550,000 bbl/d in the 1970s, but up from 300,000 bbl/d in 1989. The Hassi Messaoud area contains an estimated 6.4 billion barrels, or about 70% of the country's proven oil reserves. Sonatrach operates Algeria's other major oil fields, including Rhourde el-Baguel (Algeria's second largest oil field, located to the northeast of Hassi Messaoud), Tin Fouye Tabankort Ordo, Zarzaitine (30,000 bbl/d), Haoud Berkaoui/Ben Kahla, el-Gassi el-Agreb and Ait Kheir. The Hassi R'Mel gas field (north of Hassi Messaoud, south of Algiers) also produces around 18,000 bbl/d of 46.1o API crude.
In April 2000, Amerada Hess announced that it had acquired (for $55 million) the Gassi el-Agreb Redevelopment Project from Sonatrach. Amerada Hess will form a joint operating company with Sonatrach, to be called Sonahess, and will invest $500 million over 5 years to enhance recovery from the el-Gassi, el-Agreb, and Zotti fields. Currently, the three fields produce around 30,000 bbl/d, and the redevelopment project aims to increase production to 45,000 bbl/d by late 2003.
Algeria's oil sector, unlike that of most OPEC producers, has been open to foreign investors for more than a decade. One of the largest joint ventures in Algeria is the partnership between Anadarko, Lasmo and Denmark's Maersk Oile to develop the Hassi Berkine South oil field. Oil from the field's Block 404 was first produced in May 1998, and the field had production capacity of around 285,000 bbl/d as of mid-2002.
BHP has stated that it will spend $190 million on oil field development at the "ROD" integrated oil development project in the Berkine Basin in eastern Algeria. Production is expected to commence in 2004 at 35,000 bbl/d, and peak at 80,000 bbl/d. In July 2000, several companies (Burlington Resources, Talisman, and Sonatrach) announced that they would develop the MLN field in Block 405a. MLN is expected to produce around 35,000-40,000 bbl/d when completed. Exploration success rates in the Berkine Basin have been high, and several billion barrels of oil may lie within 15 miles or so of the area.
In early January 2003, Sonatrach announced that it had brought the 1-billion-barrel Ourhoud oil field online, ahead of schedule, with initial production of 75,000 bbl/d. The field, which is slated to reach 230,000 bbl/d by the end of February 2003 when all three oil treatment trains come online, is divided into three blocks operated by Anadarko (Block 404), Cepsa of Spain (Block 406a), and Burlington Resources (Block 405). When it reaches full capacity, Ourhoud will raise Algeria's crude oil production capacity from 1.1 million bbl/d to 1.3 million bbl/d. Total development costs at Ourhoud total $1.3 billion.
Although Algeria has experienced a significant influx of foreign investment in recent years, it still has many oil fields in need of additional foreign capital and EOR investment. Halliburton has an eight-year contract to provide EOR services and boost production at Hassi Messaoud, for instance, which saw production fall sharply beginning in the mid-1980s. Algeria's second largest oil field, Rhourde El Baguel, already has received foreign investment to boost its production capacity. Rhourde El Baguel contains about three billion barrels of 42.6o API oil, of which less than 450 million barrels has been produced since 1963. In February 1996, Arco (now owned by BP) signed a $1.3-billion production sharing agreement (PSA) with Sonatrach to increase production at the field. BP expects to raise the field's output from 27,000 bbl/d to 125,000 bbl/d by 2010.
In July 2002, Sonatrach awarded six new exploration contracts as part of Algeria's third licensing round. Companies receiving blocks included Anadarko (Berkine Basin Block 403c/e); Petrovietnam (Oued Mya blocks 433a-416b); RWE-DEA, Cepsa and Edison (Reggane blocks 351c-352c); Gaz de France (Sbaa Basin blocks 352a-353); TotalFinaElf and Cepsa (Timimoum blocks 325a-329); and Cyprus-based Medex Petroleum (Illizi blocks 226-229b and 242). In November 2001, a tender for development of five oil and natural gas projects in the Illizi Basin received 14 bids from foreign companies such as BP, TotalFinaElf, Amerada Hess, and BHP Billiton. Besides Illizi itself, projects include Zarzaitine, El Adeb Larache, Rhourde Nouss, Tinrhert. Two other companies working in the Illizi basin include Ireland's Tullow Oil and Japan's Teikoku Oil (Block 222b).
Sinopec reportedly was awarded a $525 million contract in October 2002 to help increase the crude oil recovery rate at Zarzataine, near Hassi Messaoud. In November 2002, the Kuwait Foreign Petroleum Exploration Company (KUFPEC) and Anadarko announced a partnership to explore the Berkine Basin. KUFPEC has not been active in Algeria for over 10 years.
Although Algeria has a substantial petrochemical and fertilizer industry, low capacity utilization rates mean continued reliance on imports. The majority of Algeria's petrochemical plants are located at Annaba (a 550,000-ton- per-year (t/y) - ammonium phosphate fertilizer plant and ammonium nitrate and nitric acid complex), Arzew (365,000 t/y ammonia, 146,000 t/y urea, and 182,500 t/y ammonium nitrate), and Skikda (a 130,000 t/y high-density polyethylene unit, 120,000-t/y ethylene cracker, and a substantial aromatics complex). Sonatrach has undertaken a number of petrochemical and fertilizer expansion projects, including a new methyl tertiary butyl ether (MTBE) complex and a polyester resin complex.
Algeria uses seven coastal terminals for crude oil, refined product, NGL, and liquefied natural gas (LNG) exports. These are located at Arzew (Algeria's largest crude oil export port), Skikda (Algeria's second largest crude oil export port), Algiers, Annaba, Oran, plus the Tunisian facilities of Bejaia and La Skhirra. Arzew handles about 40% of Algeria's total hydrocarbon exports (including all of its NGL exports), and Algeria has ambitious plans for the port area. Among other things, the government would like to build a petrochemicals complex at Arzew, as well as a condensate refinery and desalination plant. Work also needs to be done to maintain and upgrade Arzew's crude oil loading capacity. A refurbishment project on the port began in 1998. Skikda port is limited to 80,000-ton tankers and will require dredging and other maintenance work in order to accommodate larger tankers.
Algeria's largest gas field is the super-giant Hassi R'Mel, which initially held proven reserves of about 85 Tcf. Hassi R'Mel accounts for around 1.35 billion cubic feet (Bcf) per day, or about a quarter of Algeria's total dry gas production. The remainder of Algeria's gas reserves are located in associated and non-associated fields in the southeast, and in non-associated reservoirs in the In Salah region of southern Algeria. The Rhourde Nouss region holds 13 Tcf of known reserves in the Rhourde Nouss, Rhourde Nouss Sud-Est, Rhourde Adra, Rhourde Chouff, and Rhourde Hamra fields. Smaller gas reserves are located in the In Salah region (5-10 Tcf) as well as at the Tin Fouye Tabankort (TFT)(5.1 Tcf), Alrar (4.7 Tcf), Ouan Dimeta (1.8 Tcf), and Oued Noumer fields. Four plants at Arzew and Skikda, owned by Sonatrach, liquefy gas for export.
Algeria's natural gas pipeline export capacity includes around 900 Bcf/y via the 667-mile Trans-Mediterranean (Transmed, renamed Enrico Mattei) line from Hassi R'Mel via Tunisia and Sicily to mainland Italy, and 350 Bcf/y via the 1,013-mile Maghreb-Europe Gas (MEG, renamed Pedro Duran Farell) line via Morocco to Cordoba, Spain, where it ties into the Spanish and Portugese gas transmission networks. Given that over the past decade, natural gas has been the fastest growing fuel source in the EU, with natural gas - mainly imported -- expected to account for 26% of EU energy consumption by 2010, Algeria has plans to increase its natural gas export capacity significantly in coming years. In August 2001, Sonatrach awarded ABB a $93 million contract to build a natural gas compressor station on the Pedro Duran Farrell (MEG) line in order to raise capacity to 460 Bcf/y by late 2004 (and 650 Bcf/y by 2006). There also are plans to expand Transmed capacity to more than 1 Tcf per year.
One complication in Algeria's natural gas export strategy to Europe has been EU liberalization, which has complicated the legality of traditional "destination clauses" for gas deliveries. Such clauses prevent the offtaker of the gas from reselling it to another EU state, and this has complicated Algeria's attempts at signing agreements with EU purchasers, such as ENEL.
In late July 2001, Spain's Cepsa and Algeria's Sonatrach agreed to move ahead with a new natural gas pipeline (Medgaz) linking Algeria directly to Spain. Since then, several other companies -- BP, Endesa, Eni, Gaz de France, and TotalFinaElf -- have acquired 12% shares in Medgaz. In September 2002, the consortium completed a study of the line's feasibility.The 350-530 Bcf/y Medgaz line most likely would go from Hassi R'Mel through the port of Arzew to Almeira, Spain. Medgaz could be operational by 2006. In November 2002, Cepsa said that it had signed a letter of intent to purchase 35 Bcf/y of natural gas via Medgaz.
In December 2001, Sonatrach signed a deal with Italy's Enel and Germany's Wintershall on a feasibility study of another new natural gas pipeline, this one from Algeria under the Mediterranean Sea to Sicily and onwards to the Italian mainland and also southern France. Initial capacity on this line could be in the 280-350 Bcf per year range. Possible routes include one to Sardinia and Corsica, entering mainland Italy at La Spezia. An alternative route would run through Sardinia to the Italian mainland at Castiglione della Pescaia.
Another possibility that has been mentioned recently is a Trans-Sahara natural gas pipeline from Nigeria, across the Sahara, and north through Algeria to the Mediterranean coast. The pipeline could cost $5-$7 billion and utilize the Medgaz line to Spain.
Aside from exports to Italy, Spain, Portugal, etc., Algeria has a policy of using its natural gas reserves as a source of domestic energy and as a raw material for the petrochemical industry. Algeria consumes around 400 Bcf of natural gas per year. Approximately 95% of the country's electricity is generated by natural gas.
Development of the In Salah region is one of the lynchpins in Algeria's plan to increase its natural gas exports. In February 2000, BP Amoco (now BP) and Sonatrach signed a $2.5 billion deal to develop seven of the twelve existing fields in the In Salah region, including the Garat al-Bafinat, Teguentour, Krechta, Reg, In Salah, Hassi Moumeme, and Gour Mahmoud fields. These fields contain estimated dry natural gas reserves of 5 Tcf, with a potential for 10 Tcf total. In addition, the joint venture, called In Salah Gas, will appraise existing wells and explore for new gas reserves in the In Salah region. In Salah Gas is the first major natural gas joint venture between Sonatrach and a foreign partner. Production from the region originally was expected to come online in late 2003, after the drilling of up to 200 production wells and construction of a $1 billion, 48-inch pipeline link to Hassi R'Mel. However, progress has been slowed due to several factors, including EU rules on natural gas re-exports (see above) and slower-than-expected natural gas demand growth in potential importing countries such as Spain, and production now is expected to begin in 2004. Main engineering work on In Salah is to be performed by Japan's JGC; U.S.-based Kellogg, Brown, and Root; Bechtel; and Sonatrach subsidiary Enefor.
In May 1997, In Salah Gas sealed its first natural gas sales deal with Italian electricity generator Enel. The deal enables In Salah Gas to take over an existing contract to supply Enel with 141 Bcf/y of gas. Sonatrach will continue supplying the Italian power giant with natural gas supplies until In Salah is ready. The deal represents In Salah's first step towards achieving its sales goal of 318-388 Bcf/y. Besides Enel, the venture is also marketing gas to other potential clients in Europe, Turkey and North Africa.
Besides In Salah, three other important Algerian natural gas and condensates projects are Ohanet, In Amenas, and Gassi Touil. Ohanet is located in the Illizi province on the northern edge of the Sahara desert about 60 miles west of the Libyan border. Ohanet is being developed -- at a cost of around $1 billion -- by Australia's BHP (with a 45% share), Woodside Petroleum (15%), Japan Ohanet Oil and Gas, Swiss-Swedish ABB, and U.S.-based Petrofac. Production from Ohanet is expected to begin in late 2003 or 2004, and is to include natural gas, natural gas liquids, and liquefied petroleum gas (LPG). The development project includes construction of a natural gas processing plant, with capacity of 30,400 bbl/d of condensate, 27,700 bbl/d of LPG, and 665 million cubic feet (Mmcf)/day of natural gas -- as well as a pipeline. BHP is to operate the fields in partnership with Sonatrach.
In November 2002, Sonatrach and BP signed a deal to develop natural gas production in the In Amenas region. The $1.8 billion project is due to come onstream in 2005 and to produce around 900 million cubic feet per day of "wet" (i.e., associated wtih oil) natural gas, plus 50,000 bbl/d of condensate and LPG. The project also includes construction of three pipelines to carry the hydrocarbons to the Sonatrach distribution system at Ohanet.
In May 2002, Algeria issued and international tender for development of Gassi Touil, which is believed to contain natural gas reserves of 9 Tcf.
Liquefied Natural Gas (LNG) Exports
In 1999, Sonatrach completed a total renovation of its LNG facilities, raising the country's LNG production capacity to around 1 Tcf per year. This refurbishment program focused on the 378 Bcf/year Arzew GL1Z, 378 Bcf/year Arzew GL2Z, and 230-Bcf/year Skikda GL1K plants. Also, Algeria's original 260-Mmcf/d Arzew GL4Z, or "Camel," plant, which was slated for decommissioning by 1997, has been refurbished to keep the plant operational for reserve purposes until at least 2003. Prior to refurbishment, operational capacity of the Camel plant was 163 Mmcf/d, or 62%. Sonatrach plans to expand its exports, especially to Europe. In September 2001, Spain's second largest power company, Iberdrola, purchased a spot LNG cargo from Algeria, the first such purchase by a Spanish utility. In addition to regasification terminals at Barcelona, Cartagena, and Huelva, the Middle East Economic Digest reports that Sonatrach is constructing a new LNG receiving facility at Ferrol, in northwestern Spain.
In January 2002, legislation passed by Algeria's parliament ended Sonelgaz's monopoly over electric power generation, converted the company into a joint-stock company, and cleared the way for Algeria's first independent power projects (IPPs). However, further legislation which would allow Sonatrach to operate along commercial lines is stalled at the moment. Possible IPPs include: 1) the 2,000-MW, combined-cycle Hadjret En Nouss plant at Skikda, scheduled for completion in 2003-4, with 1,200 MW of the plant's capacity slated to serve export markets in Europe and 800 MW slated for domestic consumption; 2) the 1,200-MW Terga plant near Oran Tipasa, scheduled for completion in 2005-6; and 3) the 1.200-MW, combined-cycle Koudiat Draouch plant near Annaba, scheduled for completion in 2006-7. In the nearer term, the 440-MW Hamma natural gas turbine plant in Algiers is moving ahead toward commissioning in early 2002. The plant is being built by Ansaldo Energia. Private financing is also planned for a three-by-100-MW gas turbine unit at Hassi Messaoud. Future plans include natural-gas-fired power plants at Ain M'Lila, Arzew, M'Sila, Tighemt, and more.
In May 2001, Sonatrach and Sonelgaz established a joint venture -- the Algerian Energy Company (AEC) -- to export electricity. Among other projects, AEC is examining the feasibility of establishing a trans-Mediterranean power link to Italy, with the study expected to be completed in July 2003. In December 2001, Sonelgaz signed a joint venture agreement with Italian power grid manager GRTN on the possibility of constructing an undersea power cable to export electricity to Europe via Sardinia or Sicily. In November 2001, Sonelgaz signed a similar deal with Spain's power group Red Electrica de Espana to build an underwater power line between Algeria and Spain. Currently, Algeria has two links to the Moroccan electricity grid and supplies over 550 gigawatthours (GWh) of electricity to Morocco.
Sonatrach has a $107 million contract with Anadarko and Italy's GE Nuovo Pignone to build the country's first privately financed natural-gas-fired power plant at Hassi Berkine. GE Nuovo Pignone, a subsidiary of General Electric, will also provide a gas treatment system, liquid fuel gas turbine storage and services.
In July 2002, Sonatrach and Sonelgaz formed a new, renewable energy joint venture company, called New Energy Algeria (NEAL). NEAL will look at development of solar, wind, biomass, and photovoltaic (PV) energy production. One project reportedly under consideration is a 120-MW hybrid natural gas/solar power plant and a wind/diesel/PV facility at Timimoun.
Sources for this report include: Africa Energy Intelligence; Africa News; Africa Oil and Gas Bulletin; Africa Research Bulletin, AFX.COM, The Age (Melbourne); AP Worldstream; APS Review Gas Market Trends; APS Review Oil Market Trends; The Australian; Business Wire; CIA World Factbook 2002; CWC Africa Energy Alert; Dow Jones International; Economist Intelligence Unit; Energy Day; Europe Information Service; Financial Times; Middle East Economic Digest (MEED); Middle East Economic Survey (MEES); Middle East Executive Reports; Middle East News Online; Oil and Gas Journal; Petroleum Economist; Petroleum Intelligence Weekly; PR Newswire; U.S. Energy Information Administration; Weekly Petroleum Argus; World Gas Intelligence; World Markets Online.
President: Abdelaziz Bouteflika (since April 1999)
Prime Minister: Ali Benflis (since August 2000)
Independence: July 5, 1962 (from France)
Population (7/02E): 32.3 million
Location/Size: North Africa/919,595 sq. miles, more than one-quarter the size of the United States
Major Cities: Algiers (capital), Constantine, Annaba, Arzew, Skikda, Oran, Ghardaia, Bechar, Ouargla, Touggourt
Languages: Arabic (official), French, Berber dialects
Ethnic Groups: Arab (84%), Berber (16%), European (less than 1%).
Religions: Sunni Islam (state religion) 99%, Christianity and Judaism 1%
Defense (1999E): Army (105,000), Navy (7,000), Air Force (10,000), Paramilitary Forces (181,200). Total armed forces: 303,200.
* The total
energy consumption statistic includes petroleum, dry natural gas, coal,
net hydro, nuclear, geothermal, solar, wind, wood and waste electric
power. The renewable energy consumption statistic is based on
International Energy Agency (IEA) data and includes hydropower, solar,
wind, tide, geothermal, solid biomass and animal products, biomass gas and
liquids, industrial and municipal wastes. Sectoral shares of energy
consumption and carbon emissions are also based on IEA data.
For more information from EIA on Algeria, please see:
EIA: Country Information on Algeria
Links to other U.S. government sites:
The Center for
Middle Eastern Studies - Algeria
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File Last Modified: January 16, 2003
Contact: Lowell Feld