As an OPEC member and major gas exporter, Algeria has plans to develop its shale gas reserves and offshore production to secure a long-term supply of energy for both exports and the domestic market. In 2012 state-owned energy company Sonatrach began to drill for shale gas in the Ahnet basin, located south of In Salah in the south-west of the country. Two additional locations are scheduled to be drilled before the end of 2012. Tests, also carried out by Sonatrach, in three provinces covering 180,000 sq km have revealed that Algeria may sit on as much as 600trn cu feet (tcf) of shale gas at a recovery rate of 20%, according to statements made by Sonatrach’s CEO, Abdelhamid Zerguine. If confirmed, the find will be four times the size of Algeria’s current conventional gas reserves. Sonatrach wants to heavily invest in shale gas exploration under its investment plan for 2012-16, and as part of this it intends to drill some 160 wells.

HUGE POTENTIAL RESERVES: The Energy Information Administration’s “Annual Energy Outlook 2012” estimates that with 1275 tcf China has the most shale gas in the world, followed by Argentina (774 tcf) and Mexico (681 tcf). Algeria’s potential deposits are therefore important and could, if proven, catapult the country into the top 10 countries globally in terms of shale gas reserves. Imed Benmalem, general manager of petroleum services firm Copre Sud, told OBG, “Aside from its conventional resources, Algeria has large resources of unconventional hydrocarbons, such as tight reservoirs for oil and gas, as well as shale deposits.

While the shale gas revolution has delinked oil and gas prices in the US, largely due to increasing deregulation of markets, diversification and the resulting reduction in dependence on gas for export revenues would likely reduce this risk for Algeria. Successful production would make Algeria a front-runner in the region.

Regional screening studies and the evaluation of results from several wells in Algeria, as carried out by Sonatrach, seem to confirm estimates of the country’s shale gas reserves. International organisations, such as the International Energy Agency, have also reported that the country’s shale gas resources are sizeable.

A number of conditions already present in Algeria would support the development of shale gas. The western basins are increasingly undergoing drilling and hydraulic fracturing due to the exploitation of several fields there, such as Ahnet and Tinhert. In the eastern basins the availability of infrastructure, surface facilities and a pipeline network with significant capacity offer opportunities for developing shale gas in a more cost-effective way. Spanish firm Repsol has stated that the eastern basins have “excellent potential”, whereas the western basins have “middle potential”.

SECURING WATER: Another requirement for the production of shale – large amounts of water – seems to be met as well. Research teams from the British Geological Survey and the University of London have confirmed that there are huge volumes of water from aquifers extending over large areas from the eastern part of Algeria to the western basin of Ahnet. The teams recently mapped aquifers and groundwater in Africa and presented their finding in a paper in April 2012, saying, “The largest groundwater volumes are found in the large sedimentary aquifers in the North African countries Libya, Algeria, Egypt and Sudan. For Algeria, aquifer litre per second production is ‘very high’.”

Known more commonly as fracking, shale gas exploitation requires huge volumes of chemically treated water and sand pumped under high pressure into the ground to fracture subterranean formations, which then release the gas. A single well may use up to 15m litres of water for each operation. Unlike conventional gas, shale gas lies within mature, organic-rich rocks, making exploitation much more difficult. Environmental concerns over its extraction include the production of huge amounts of wastewater and the potential to trigger earthquakes.

However, the oil and gas industry has a long history in Algeria, and little opposition is expected. While Algeria has indeed witnessed a number of protests during the Arab Spring, they have mainly targeted issues such as unemployment, rising costs of living, corruption and the lack of service delivery during the summer of 2012. So far opposition to the possible environmental consequences of fracking among the public has been muted or non-existent. The government has also expressed confidence that it will be able to mitigate the ecological and economic risks of hydraulic fracturing by making use of the best technologies in the sector. Algeria fully expects to exploit shale gas as an additional means of securing sufficient energy supplies for the future. In September 2012 Algeria approved much-anticipated changes to its hydrocarbons law (see analysis). Although details remain sketchy, the amendments are supposed to provide more incentives for investing in unconventional reserves. According to a press release from the president’s office, “The Council of Ministers examined and approved a project to modify the 2005 Hydrocarbons Law with tax incentives to encourage the exploration and exploitation of hydrocarbons in development areas requiring complex means.” Foreign energy firms have recently been cautious about investing in Algeria, as the tax regime imposed by the existing framework is deemed unfavourable. But this perception was beginning to change as details on the new law emerged in late September 2012, which could be good news for the shale gas segment. “There is a lot of shale gas in the country and we believe that Algeria has the capability to change things,” Tarik Mokrane, Shell’s Algeria country chairman told OBG.

COLLABORATION: In May 2011 Sonatrach and Italian energy company Eni signed a cooperation agreement to explore and develop unconventional oil and gas reserves in Algeria, with shale gas being the main focus of the agreement. Sonatrach also signed a production-sharing contract with independent oil and gas exploration and production company Talisman Energy to explore and develop several fields in eastern Algeria that are set to begin production in 2013. In the initial stages of the programme, studies targeting the Berkine and Illizi basins will be carried out. In 2012 Talisman also expects to spend about €20.5m on exploration, including plans to develop a number of wells. As of the end of September 2012 Royal Dutch Shell also signed a contract with Sonatrach to explore shale gas in the Mouydir basin. Within the next 12 months, the two companies expect to have finalised a study that includes further details on reserves. The agreement came after a few months of negotiations and may lead to additional joint ventures down the line. Talks on shale gas exploration are also under way with ExxonMobil.

Reviving interest in oil and gas exploration is becoming increasingly urgent as the past three licensing rounds in 2008, 2009 and 2011 attracted little interest. Domestic demand, particularly for gas, is also rising rapidly, and known oil reserves will last just under 20 years at current production levels, according to BP. Sonatrach believes that interest in Algeria’s shale gas potential is on the rise, and is targeting foreign firms.