Tunisia’s energy balance shifted from surplus to deficit in 2000, and the country has since remained a net importer of energy. With domestic production falling and demand rising, Tunisia is looking to diversify its energy mix through renewables, higher imports and by promoting energy efficiency through a gradual scaling back of subsidies. Although there is a push taking place to unlock the immense potential of Tunisian renewables – particularly solar – gas, much of which is imported from Algeria, continues to dominate consumption. Overall, attempts to promote efficiency and alternative energies have moved slowly in Tunisia, in part due to the post-revolution uncertainty of recent years, a reflection of the a high degree of state intervention in the energy sector.
Sector Structure
A number of state-owned enterprises currently operate in the field, covering the length of the value chain. The Société tunisienne de l’électricité et du gaz (STEG) owns exclusive rights to market and distribute Tunisian gas and electricity, making it the only operator with rights to transport and export Tunisian gas and electricity and to sell these products through the grid. The Entreprise Tunisienne d’Activités Pétrolières (ETAP) is responsible for the exploration, exploitation and trade of hydrocarbons, and the Société nationale de distribution des pétroles (SNDP) is Tunisia’s national company for the distribution of oil. In addition, Tunisia is home to a range of private players, particularly in the hydrocarbons segment – including a number of international oil companies and foreign mid-cap and junior firms – as well as a domestic private power plant, which is operated by the Carthage Power Company (CPC).
RISING DEMAND, FALLING SUPPLY: While Tunisia does have oil reserves, its production levels are far below those of its larger neighbours, Algeria and Libya. Domestic oil production has more than halved from peak production levels of 120,000 barrels per day (bpd) in the 1980s.
According to Mohamed Akrout, CEO of ETAP, in conversation with the press in March 2016, national oil production fell by 13.3% between 2009 and 2015, from 81,000 to 55,000 bpd, leaving a supply deficit of 4m tonnes. According to a 2014 report by the World Bank, “A strategic vision for the Tunisian energy sector: Reflecting on priority issues,” domestic demand has increased steadily by at least 3% per year, increasing the country’s dependence on imports. In 2015 an estimated 54% of Tunisia’s gas needs were imported from Algeria, up from 51% in 2014. Rising levels of domestic consumption have been driven, in part, by energy subsidies, which consumed some 5% of Tunisia’s overall GDP in 2013.
Subsidies
Following the 2011 revolution, Tunisia’s government increased universal energy subsidies in order to address popular unrest over rising prices, but it subsequently reversed its course in 2012, marginally reducing energy subsidies with a view to gradually eliminating them, starting with industrial consumers. Energy subsidies to cement companies were halved in 2014, then cut altogether in 2015. According to the World Bank report “The socioeconomic impacts of energy reform in Tunisia,” in January 2014 the government increased the electricity tariffs on low- and medium-voltage consumers by 10%, then again by a further 10% in May 2014.
The push to reduce subsidies is a welcome one, given that the expenditures continue to weigh on Tunisia’s budget, consuming nearly 5% of overall GDP. Following the reductions to industrial consumers, the majority of Tunisia’s total government subsidies – roughly two-thirds – are allocated to household fuels. This, in turn, has a knock-on effect in terms of overall demand, with Tunisia’s energy consumption higher than in Europe, at 0.4 tonnes of oil per $1000 of income, according to the World Bank. However, while the fiscal benefits would be sizeable, the country’s ability to implement a further reduction of household subsidies is somewhat limited. Cutting subsidies completely could, according to the World Bank, lead to an increase in the poverty rate in Tunisia by at least 2.5% in the short term.
Gas Share
Natural gas has gradually overtaken oil as Tunisia’s dominant fuel. Between 1990 and 2011, its share of Tunisia’s primary energy mix increased from 28% to 55%, while oil’s share fell from 72% to 45%. Annual electricity consumption in Tunisia was approximately 3 GWh in 2014, 95% of which was generated by natural gas, according to the Ministry of Energy (Ministére de l’Energie, MOE), formerly the Ministry of Industry, Energy and Mines. The country produces around 66bn cubic feet of natural gas per year, and this currently satisfies just over half the national demand, while the other half is imported from Algeria. The Trans-Mediterranean Pipeline, also known as Enrico Mattei – a 2745-km-long natural gas pipeline built in 1983 to transport Algerian natural gas to Italy – also passes through Tunisia.
In lieu of transit fees, Tunisia receives 5.5% of the natural gas as a royalty. In August 2015 Tunisia signed an agreement to increase gas imports from Algeria to 2.4bn sq metres. “Tunisia’s relationship with Algeria is an important aspect of how its gas sector will evolve,” Marco Margheri, director of institutional affairs at Edison, an Italian energy firm, told OBG. “But the decision making on energy between Tunisia and Algeria is very opaque.”
Pipeline Project
Completion of a major new project, the South Tunisian Gas Project, also known as the Nawara Pipeline, was scheduled for late 2015. Due to delays, however, it is now expected to begin producing by late 2016. Beginning in the remote Nawara field, located in the Ghademes basin, in southern Tunisia, the 370-km pipeline will transport gas to markets in northern Tunisia, with a maximum capacity of 10m cu metres per day. A pipeline and gas treatment plant will also be built near Gabès. The project, which costs an estimated €1bn, is being co-financed by the European Investment Bank and the African Development Bank. It will be jointly operated by ETAP and the Austrian-owned oil and gas firm OMV, in a 50:50 concession granted by the MOE in 2010. The development is expected to significantly reduce Tunisia’s dependence on imports.
Upstream Operations
With proven oil and natural gas reserves of 425m barrels and 2.3trn cu feet, respectively, according to a 2012 energy survey by BP, Tunisia’s upstream hydrocarbons industry is modest. There is also significant shale gas potential, as the country possesses two important shale formations, both located in the Ghademes basin. The US Energy Information Administration estimates that together, these formations could hold 23trn cubic feet of technically recoverable shale gas reserves and 1.5bn barrels of technically recoverable shale oil reserves, although economically recoverable reserves are likely much lower.
While this is significantly lower than the country’s two larger neighbours, who rank among the largest producers in Africa, Tunisia was considered an attractive destination for oil and gas investment before the revolution in 2010. Between 2008 and 2010, Tunisia awarded the highest number of exploration blocks in North Africa. However, political uncertainty coupled with governmental delays in approving hydrocarbon development plans and demands for enhanced parliamentary oversight of hydrocarbons contracts have had a negative impact on investment (see analysis).
The three main foreign multinationals operating in Tunisia’s upstream hydrocarbons sector are the UK’s BG Group, Italy’s ENI and Austria’s OMV. Other players include PA Resources, Preussag Energie, Pioneer Natural Resources, Perency, Chinook Energy, Windstar Resources, Lundin Petroleum, Atlantis Holdings Norway AS, Storm Ventures International and Candax Energy. BG is Tunisia’s largest gas producer, supplying more than 60% of the country’s domestic production, from the Miskar and Hasdrubal fields in the Gulf of Gabès. BG holds a 100% share in the Miskar field, which has been its main source of natural gas. In 2009 BG added the Hasdrubal Field, in which it holds 50% share, with the other 50% going to ETAP.
ENI, meanwhile, operates the Maamoura and Baraka offshore blocks, with a 49% share in each, while onshore operations constitute the Adam block with a 25% share, Oued Zar (50%), Djebel Grouz (50%), MLD (50%) and El Borma (50%). As for OMV, in 2010 it discovered gas in southern Tunisia’s Nawara field, in which it has a 50:50 share with Tunisia’s ETAP. The two firms have partnered together to develop the field, which OMV has called a “key strategic infrastructure” project for the further development of Tunisia’s gas assets.
Since the revolution in Tunisia, frequent strikes and protests have represented a significant challenge for operators. According to recent Tunisian reports, strikes and protests cost one upstream operator, the UK’s Petrofac, 15 days of work in January 2016 alone, incurring a cost of $200,000 in lost revenue each day.
Downstream Operations
Tunisia currently has a single refinery, owned and operated by Société de Raffinage des produits pétroliers, a state-owned firm located in Bizerte, which produces around 34,000 bpd – just enough to meet 30% of domestic demand. Tunisia had sought to build a second refinery, north of Gabès at Skhira, with initial capacity of 120,000 bpd, scaling up to 250,000 bpd. However, the $2bn project – to be financed principally by Qatar – was suspended in 2014 after production declines in Libya sparked concerns over the reliability of oil supply.
France’s Total, Anglo-Dutch Shell (with its local licensee Vivo Energy), and Tunisia’s Agil are the country’s major downstream oil marketing and distribution operators, while SNDP controls over 40% market share for liquefied petroleum gas (LPG). In 2015 Total, which operates 155 petrol stations in Tunisia, acquired a local LPG company, Sagaz and is expected to control an estimated 28% of the LPG market in 2016.
Shell, meanwhile, an operator in Tunisia since 1992, and via its licensee distributor Vivo Energy since 2011 and currently operates 170 petrol stations and controls an estimated 29% of the market share for both LPG and retail sectors, according to Mohamed Chaabouni, managing director of Vivo Energy. In addition, Agil, a Tunisian company, operates 206 stations, while Oil Libya and Tunisia’s StarOil are also active in the market.
For most downstream operators 2015 was a profitable year, with two exceptions: jet fuel and fuel sales to hotels. Sales of both declined sharply in mid-2015 following the terrorist attacks at Bardo and Sousse, which caused cancelled flights and numerous hotel closures throughout the country. However, other segments have been largely stable. “We’re developing other activities, such as shops for food and services in our gas stations,” Mathieu Langeron, CEO of Total Tunisie, told OBG. “Tunisia remains a good place for us to be, and we’re optimistic for the country.”
Compulsory stock obligations are a persistent challenge for downstream distributors. A law passed prior to Tunisian independence requires every distributor to keep 60 days worth of compulsory stocks on hand should a fuel crisis arise, and applies to both fuels and LPG. Downstream operators say this requirement is double that of most other countries and presents unnecessary logistical hardships.
Indeed, restrictive regulations appear to be a significant challenge for investors. “The downstream market is highly regulated in term of prices, so firms need to differentiate themselves with their products, their logistic channels, their location and their amenities,” Naoufel Aissa, vice-president of lubricants for Vivo Energy, told OBG. “Regulation makes it difficult to be profitable.”
Parallel Market
Fuel smuggling from Libya has constituted another difficult challenge for downstream operators. Smuggling distorts market volumes, most notably in Tunisia’s south where, according to some estimates, as much as 50% of the petrol purchased is smuggled. The parallel market slowed on the back of global low oil prices in early 2015 and supply issues in Libya but picked up again in the latter half of the year. “The first six months of 2015 were excellent because the parallel market decreased,” Langeron told OBG. “But just after summer, fuel smuggling had a big comeback. We can only carry out our investment plan if this parallel market decreases.” Downstream operators, through their industrial association, Petroleum Professionals Grouping, have lobbied the Tunisian government to further enhance security, approve margin increases and reduce smuggling but, thus far, enforcement has been marginal, slowed by the country’s porous borders and the central role that smuggling holds in poorer border-town economies.
Electricity
In 2014 the total installed capacity of grid-connected renewable power was 322 MW, made up of 245 MW of wind energy, 62 MW of hydropower and 15 MW of photovoltaic (PV). According to the MOE, in 2014 thermal sources accounted for 97% of electricity generation, with gas accounting for 95% and oil accounting for 2%. Renewables, primarily wind power and hydro-power, accounted for around 3% of the overall energy mix. Production of electricity from fuel and gas oil, as well as from wind, both rose in 2014, while production from natural gas and hydro dipped. Total consumption of electricity in 2014 was 14,760 GWh, according to STEG.
Tunisia’s primary power producers are STEG, which controls an estimated 73.1% of the market and CPC, which controls 16.8% of the market. Though CPC is an independent power producer (IPP), it still must sell its power through the grid, as STEG maintains distribution and marketing rights for electricity generated by IPPs. Smaller firms include Industries Chimiques de Gafsa, Societé Engrais de Gabes, and Industries Chimiques Maghrébines. Operators have emphasised the need for the government to adopt a more growth-conducive regulatory structure and a clearer strategic vision for the future energy mix. “Our direction is still unclear,” Ali Hjaiej, director of development at Clarke Energy Tunisia, told OBG. “Will Tunisia import more natural gas, turn toward renewables or start generating energy from coal? Debating is good, but at some point we need a clear vision that enables investors to look 10 or 15 years ahead.”
Companies like Clarke Energy from the UK are also taking steps to promote cogeneration – which can effectively reduce energy consumption by up to 30% – in Tunisia, as a useful method for industries to help reduce gas consumption and weather future subsidy cuts.
Though more cogeneration plants, such as the Vitalait plant, which opened in December 2014, are coming online, more needs to be done in order to meet the government’s targets for cogeneration growth. “The target is 300 MW per year, Hjaiej told OBG. “But we are only at 80 MW per year now. Raising awareness and offering increased incentives would help to improve energy efficiency.”
Going Solar
With an annual irradiation rate 20% higher than the most irradiated sites in Europe, solar potential in Tunisia is high. Due to this factor, there are some large-scale solar initiatives in the works that could expand renewables’ share in the energy mix.
In 2005 the Tunisian Solar Programme (PROSOL), a joint initiative between the Tunisian National Agency for Energy Conservation, STEG, the UN Environment Programme and the Italian Ministry for Environment, Land and Sea, was launched to provide financial support for the developing solar thermal market. Under the scheme, domestic customers can secure a loan to purchase solar water heaters, with a capital cost subsidy covering 20% of system costs provided by the government. In 2012 the government announced its commitment, under the Tunisian Solar Plan, which was launched in 2009, to raise Tunisia’s share of renewable energy to 30% by 2030 (see analysis) and, in line with this, Parliament passed a law in May 2015 which is designed to boost private sector investments and liberalise regulations to facilitate the production, network access and export of electricity generated by renewables. Also in 2012, Tunisia joined the Germany-based DESERTEC initiative, which seeks to build a “super-grid” that will transmit solar and wind energy from North Africa and the Middle East to Europe.
Wind
Tunisia possesses two wind farms with a combined 250 MW of installed capacity, which generate an estimated 2.9% of Tunisia’s electricity mix, according to 2014 figures released by the Ministry of Industry, Energy and Mines. The turbines were gifted to Tunisia by Spain, but are currently experiencing some operational difficulties. STEG has said it would be better to build new turbines, but the Tunisian government has not laid out any concrete plans for modernising existing wind farms or constructing new ones. Despite the challenge, wind power still has the potential to play a significant role in the future energy security of the country. While the sector still faces hurdles, further development will certainly continue.
Progress
The total capacity of solar PV was 15 MW at the end of 2014 and comprised almost entirely of small-scale private residential installations whose capacity ranged from 1 KW to 30 KW. As of early 2015, Tunisia possessed just three operational PV installations with a capacity of at least 100 KW: a 211 KW installation operated by the state-owned National Water Distribution Utility; a 149 kW installation in Sfax; and a 100 KW installation in the Korba region, all connected to medium voltage supplies.
However, a new project should significantly boost solar generation: the TuNur project, which will create Tunisia’s first large-scale PV farm, a 10-MW plant, is expected to open in the Tozeur governorate in 2018. The concentrated solar power plant will generate 9400 GW per hour of electricity, annually. In 2015 STEG sought bids for the project, which is currently at the tendering stage. Plans for the project include exporting solar power to Italy via a 600-km subsea cable, connecting to energy grids in Europe.
Private Sector Impact
The push to increase solar production has had positive knock-on effects for the overall economy. Although liberalisation in the generation segment is limited due to STEG’s control of the generating, transmission and distribution market, there are efforts afoot to improve the attractiveness of Tunisia for IPPs.
“Discussions in parliament now concern how to oblige STEG to give opportunities to independent producers to find good prices. In other words, how to make incentives for renewables production appealing,” Hjaiej told OBG.
Furthermore, the rise in domestic solar energy demand has led to an increase in local manufacturing. Currently, some 30 companies are distributing and installing solar panels in Tunisia, four of which are also involved in exporting. Aurasol, a local company, began selling goods on the domestic market in 2013 and, according to its corporate figures, it now holds a market share of 17%.
Outlook
Despite challenges, Tunisia’s efforts to establish a more efficient, diversified energy portfolio could move forward in 2016. The split, in January 2016, of Tunisia’s Ministry of Industry, Energy and Mines, and the subsequent formation of the MOE, could serve to refocus attention, previously shared with industry and mining, back on the energy sector. Operators have expressed frustration that most parliamentarians and many ministry officials lack energy expertise, but say creation of a separate ministry could help develop technocratic know-how, fostering more productive policy-related exchanges between elected parliamentarians, public companies and private energy operators.
Additionally, Tunisia’s upcoming municipal and local elections, slated for late 2016 or early 2017, could potentially reinforce power at the local level, enhancing communities’ control of utilities and, in turn, improving the efficiency of power distribution. “Many of Tunisia’s local communities are short of energy or highly indebted to STEG,” Martin Baltes, an energy expert at German international aid agency GIZ, told OBG. “Introducing another political player into the mix, with municipal councils controlling more of their budgets, could help push power down the pyramid and reduce inefficiency related to STEG’s highly centralised monopoly.”
It is also true that if the new ministry is able to deliver a more cohesive sector strategy, as called for by industry players, this could help address the current shortfall in energy demand, reduce the country’s reliance on imports and help it to tap into the underutilised potential of its hydrocarbons and renewable resources. These steps, if taken in a serious and methodical manner, will have a significant effect on the country’s future.
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