As well as holding the 10th-largest gas reserves in the world, Algeria is also the top natural gas producer in Africa, with a total of 83.3bn cu metres (bcm) in 2014. Hydrocarbons have been one of the main drivers behind the country’s economic development, and according to the IMF they account for around 95% of Algeria’s export earnings, nearly 30% of its GDP and 60% of government revenues.
Rising Consumption
Sharp increases in domestic gas consumption, which rose from 20.4 bcm in 2003 to 50 bcm in 2013, have stretched production and placed a strain on export revenues. In response, the government has set out plans to increase Algeria’s gas output by 13% by 2019 as a means of maintaining strong export revenues and fuelling continued economic growth. As financial pressures mount, the government may also need to re-evaluate the €910m per year subsidy regime to help curb demand and boost revenues.
The country’s prime minister, Abdelmalek Sellal, stated in May 2015 that “the continued exploitation and monetisation of hydrocarbons is a strategic objective. Our potential is not sufficiently explored and put into production.”
With most of Algeria’s gas coming from depleting mature fields, the government is expected to now place greater focus on identifying conventional resources close to producing reservoirs and ensuring maximum recovery at currently producing fields. These projects include the South-west Gas Project and the In Salah field expansion.
Shale Potential
As its conventional gas resources are declining, the government has high hopes over Algeria’s shale gas potential. According to the US’s Energy Information Administration (EIA), Algeria’s shale gas reserves are the third-largest in the world, behind China and Argentina. The national oil company, Sonatrach, which is responsible for approximately 80% of the country’s hydrocarbons production, will be leading these efforts in conjunction with global oil majors including Shell, Statoil, Eni, Repsol, Engie and Anadarko, among others.
However, major bottlenecks need to be solved in order to put new fields on-stream by their expected dates. Difficulties in attracting foreign investors and major infrastructural gaps, as well as important delays in government approvals, are problems that need to be addressed.
Declining Production
Despite a small rise in natural gas production in 2014 to 83.3 bcm, up from 81.5 bcm a year earlier, overall gas production in Algeria has been largely decreasing since its peak of 85.8 bcm in 2008.
The Hassi R’Mel gas field, which is located in Laghouat Province, is the largest in the country, accounting for more than half of total gas output. This field is among the largest in the world, with recoverable reserves estimated at 85trn cu feet (tcf). Its output dropped from 75 bcm in 2008 to around 55 bcm in 2012, essentially due to the intense exploitation of the field.
Other important producing fields include BP’s In Salah project, with production of 9 bcm per year, and the Alrar, Hamra and Rhourde Nouss gas fields. The In Amenas gas complex, which produced approximately 7.8 bcm per year in 2012, was attacked in January 2013 by a militant group, forcing its temporary shutdown. Activities in the In Amenas complex, which represented 12% of the country’s total natural gas output, resumed in September 2014 and full production was re-established in early 2015.
New Investment
Over €36bn will be invested in the coming years on developing conventional resources in an attempt to boost Algeria’s natural gas output. Around 20 new fields are expected to start production in the country before 2020, seven of them as part of the South-west Gas Project. This project, which is being handled jointly between Sonatrach and international oil companies including Total, Repsol and Engie, is expected to add up to 16 bcm per year of gas output by 2018.
The In Salah project expansion in the southern Sahara region, which is a joint venture between Sonatrach and BP, is due in 2016 and is expected to ensure that the current level of natural gas output of 5.7 bcm per year is maintained.
Sonatrach is also set to launch production at the Tinhert field, which will produce up to 14m cu metres of natural gas in 2017, and at the Hassi Mouina and Hassi Ba Hamou gas fields the same year. Other projects include Reggane, which has expected output of 12m cu metres by 2017, the development of fields near Djebel Mouina Sud and Bir Berkine in 2016, and satellite projects of the Ahnet and Menzel Ledjmet Sud Est fields in 2019.
New Frontiers
Alongside efforts in production and enhanced recovery at producing fields, Algeria is also trying to significantly increase exploration activities to grow its reserves. The sector is continuing to look at ways to reduce costs, and the use of relatively expensive enhanced recovery techniques does not seem to align with the sector’s current needs and realities.
Sonatrach has invested €26.8bn over three years in the drilling of 275 exploratory oil and gas wells, and in the seismic mapping of large areas. In the medium to long term the company foresees pursuing exploration activities both offshore, in the Mediterranean Sea, and onshore, to find and develop shale oil and gas deposits.
Algeria has technically recoverable reserves estimated at 707 tcf of shale gas, which is located in several areas, including the Ahnet, Mouydir and Reggane Basins in the desert, the Illizi and Ghadames-Berkine Basins in the south-east, and the Tindouf and Timimoun Basins in the south-west.
In May 2014 the Council of Ministers gave formal approval for the development of shale oil and gas, and the Ministry of Energy plans to invest up to €62bn over the next 20 years to develop shale gas resources. Sonatrach successfully drilled Algeria’s first unconventional well in early 2015 at the shale gas pilot project in the Ahnet Basin, in In Salah. However, most shale gas deposits are located in remote locations and many bottlenecks remain, including the lack of transportation and associated infrastructure, water scarcity, protests by locals concerned over the environmental impact of fracking, the slow pace of government approvals and security concerns.
Attracting Foreign Investment
In the short term, the Algerian oil and gas sector will need to attract more foreign investors as a means of bringing capital and technology to develop its resources and boost production. While the government has been making efforts to bring in foreign investors since the enactment of the 2005 Hydrocarbons Law and its amendments in 2006 and 2013, there has been scant improvement. In the 2014 bidding round, only four out of 31 blocks – located in four sedimentary basins with major shale gas and oil potential – were awarded, to Repsol, Shell, Statoil and Dragon Oil-Enel. A similar situation occurred in previous rounds: in 2011 only two blocks were awarded out of 10; in 2009 it was three out of eight, and in 2008 only four out of 16.
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