While Tunisia has far fewer oil and gas reserves than its neighbours in the region, it was not until the late 1990s and early 2000s that the country’s demand began surpassing domestic production. It was then that Tunisia became dependent on foreign energy imports, and began diversifying its energy mix through renewables and energy efficiency campaigns to curb consumption. Local authorities are now looking to revise Tunisia’s hydrocarbons code and further promote foreign investment in the country’s relatively small oil and gas industry, especially given the low lifting and breakeven costs. Nevertheless, developing local energy production through renewables and domestic oil and gas requires a number of reforms that have proven challenging to implement against the backdrop of post-revolutionary governmental and economic uncertainties.
Size & Scope
At the peak of its energy exports in the 1980s, the country was producing 120,000 barrels of oil per day (bpd). According to BP’s “Statistical Review of World Energy 2016”, Tunisia had 400m barrels of total proven crude oil reserves at the end of 2015. Domestic production hovered around 63,000 bpd in 2015, a 14.1% decrease from the year before, and a 40% decrease from 106,000 bpd in 2007, when production was at its peak. Based on US Energy Information Administration figures, the country also holds 2.3trn cu ft of natural gas reserves – regularly producing in excess of 65bn cu ft annually – as well as two large shale formations in the south, which could potentially yield up to 1.5bn barrels of shale oil and 23trn cu ft of shale gas. Domestic production of gas is expected to start declining by 2020, and the country already sources more than half of its natural gas needs from Algeria (see analysis).
While Tunisia satisfied 85% of its energy needs from its domestic production in 2016, an annual 5% rise in electricity demand means the country is facing increased dependency on imports as its domestic production continues to ease. Multiple solutions to the potential future energy shortage are being examined, including the more immediate solution of providing the state-owned energy provider, Société Tunisienne de l’Electricité et du Gaz (STEG), with coal and diesel generators. However, Tunisia has a long road ahead, as any plan will entail adjusting for cost recovery by increasing prices, managing social tariffs for lower-income households, as well as promoting efficiency, and curbing demand and consumption.
At the end of 2016 the Ministry of Industry, Energy and Mines (Ministère de l’Industrie, de l’Energie et des Mines, MIEM) was divided into two governing bodies: the Ministry of Industry and Commerce, and the Ministry of Energy, Mining and Renewable Energies (Ministère de l’Energie, des Mines et des Energies Renouvelables, MEMER). The latter is in charge of overseeing a number of state-owned enterprises operating across the energy sector’s value chain. Such enterprises include: the Tunisian National Oil Company (Entreprise Tunisienne d’Activités Pétrolières, ETAP), in charge of the exploration, production and trade of oil and gas; the National Oil Distribution Company (Société Nationale de Distribution des Pétroles, SNDP), in charge of the distribution of oil and petroleum products across the country; as well as STEG, which owns exclusive rights to market and distribute gas and electricity, and thus holds a monopoly on the transportation and export of Tunisian gas and electricity.
Voted into law in 1999, the first version of Tunisia’s current hydrocarbons code entered into force in February 2000. The code provides a framework for production-sharing agreements (PSAs) between ETAP and exploration and production companies. ETAP is authorised to issue four licences: the authorisation for preliminary prospective activities (excluding seismic and drilling surveys), permits for prospecting activities other than drilling, exploration permits and exploitation concessions. The code outlines a tax regime, which includes fixed taxes based on the surface area covered by a permit, a proportional royalty based on the quantity of hydrocarbons produced and a tax on profits. In April 2017 amendments to the existing hydrocarbons code, designed to make Tunisia more competitive, were adopted. The modifications focus on improving market transparency and attracting investment, and – most importantly – harmonise with Article 13 of the constitution, which stipulates that all agreements related to permits have to be approved by law and not by decree. MEMER is also looking to significantly improve the legal code for issuing tenders to make it more efficient and transparent.
Prior to the 2011 revolution, Tunisia was an attractive destination for oil and gas investment – a result of its stable, competitive and transparent bidding regime – and awarded the highest number of exploration blocks in North Africa between 2008 and 2010. However, the sector has experienced its fair share of challenges since. Frequent worker protests have affected output; disruptions to the production of the UK company Petrofac over the first nine months of 2016, for example, cost the Tunisian government $200m, according to local press reports, as it was forced to make up for the shortfall by importing gas from Algeria.
The country’s limited size has also become more of a constraint in the uncertainty following the Arab Spring. Compared with other major North African oil producers, including Algeria, Libya and Egypt, the scale of reserves and production in Tunisia at the end of 2015 was modest. And while Tunisia is not the only country grappling with unrest, the larger reserves and higher yields in other North African blocks make them a more attractive gamble in an otherwise risky environment.
Nonetheless, still present in Tunisia’s upstream sector are a large number of foreign multinational operators, including Italian oil and gas multinational Eni, Austrian oil and gas company OMW, as well as smaller companies such as PA Resources, Preussag Energie, Pioneer Natural Resources, Perenco International, Chinook Energy, Winstar Resources, Lundin Petroleum, Atlantis Holding Norway, Storm Ventures International and Candax Energy. While Tunisia’s blocks may not offer the same scale as those of its regional counterparts, they are still attracting new interest. The US private equity, asset management and financial services firm, Carlyle Group, announced in May 2016 that it was going to invest $500m in Mazarine Energy, an upstream oil and gas company with assets in Tunisia, to enable the company expand further in Europe and North Africa.
The UK oil and gas company BG Group was Tunisia’s largest gas producer prior to its takeover in April 2016 by multinational oil and gas company Royal Dutch Shell, which has been active in the country since 1992. The company was responsible for more than 60% of domestic production thanks to its 100% stake in the Miskar gas field, and its 50% share of the Hasdrubal oil and gas field. Eni, one of the oldest players in the sector, has been operating in Tunisia since 1961. The company primarily operates in the Mediterranean offshore blocks near Hammamet and in the desert in the south of Tunisia. Its offshore endeavours include a 49% stake in the Maamoura and Baraka oil fields. Onshore, the company is the operator and 50% stakeholder in the Oued Zar and Djebel Group blocks. Eni also operates and holds a 25% share of the Adam block, as well as a 50% stake in the Makhrouga-Laarich-Debbech and El Borma blocks. Eni has developed 6464 sq km since 1961, and in 2014 it produced approximately 13,000 barrels of oil equivalent per day. Other notable sector players include the Austria-based OMV, which operates and holds a 50% stake in the Nawara gas field. According to MEMER, the Nawara field alone is responsible for roughly 17% of Tunisia’s domestic gas production.
Tunisia has a single refinery, operated by the Société Tunisienne des Industries de Raffinage, a state-owned refining company. The facility, located in Bizerte, produces 34,000 bpd – just enough to meet 30% of domestic demand. Tunisia had sought to build a second refinery north of Gabès, in Skhira, with initial capacity of 120,000 bpd, scaling up to 250,000 bpd; however, the $2bn project, which was financed principally by Qatar, was suspended in 2014 after production declines in Libya sparked concerns over the reliability of oil supply. However, building additional refineries is not the only action that can be taken. “Rather than investing in an expensive new refinery, investment in the energy sector should focus on revamping Tunisia’s current refinery to reduce sulphur ratios and optimise octane ratings,” Mohamed Chaabouni, managing director of Vivo Energy Tunisia, told OBG.
Another important downstream player is the Tunisian lubricant company, Société Tunisienne des Lubrifiants de Radès (STLR), a joint venture between Vivo Energy and French oil and gas company Total, which has been producing local lubricants since 1974, with a total capacity of 40,000 tonnes per year. In July 2016 the SNDP announced it had acquired a 34% stake in another lubricants firm, Société des Lubrifiants de Tunisie, as part of a tripartite agreement with OiLibya and Libya Oil Holdings. 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 the SNDP has a more than 40% market share for liquefied petroleum gas (LPG). In 2015 Total, which operated 155 petrol stations in the country, acquired a local LPG company, Sagaz, and was estimated to control around 28% of the LPG market in 2016. Meanwhile, Vivo Energy currently operates 170 Shell brand licensed petrol stations and controls an estimated 29% of the market for both LPG and retail petrol sectors, according to Vivo Energy’s Chaabouni. Agil operates 206 stations, and OiLibya and Tunisia’s StarOil are also active players in the retail market.
According to the MIEM, Tunisia’s energy production grew by 5% year-on-year (y-o-y) from January to April 2015, from 5204 to 5473 GWh. Independent power producers (IPPs) generated 1085 GWh in that month, while STEG produced the remaining 4361 GWh – including 3543 GWh from natural gas. In April 2014, 96.3% of the country’s electricity came from natural gas, while 3.5% came from wind power, and 0.2% from fuel and gas oil. A year later, those numbers were reported as 85%, 3.7% and 10.8%, respectively. Demand for electricity similarly increased by 5% y-o-y in March 2015. The bulk of demand comes from low-voltage clients, who represented 48% of all electricity sales in March 2015, while medium-voltage clients made up 42% of the market and high-voltage clients, mainly consisting of industrial clients, accounted for the remaining 10%.
However, even with increasing power generation capabilities, Tunisia may still face challenges in meeting energy demands. One possible solution in the short to medium term is a submarine transmission link to Italy, which could be used to tap into excess gas-fired power generation. The 192-km submarine cable between northern Tunisia and southern Sicily could provide Tunisia with between 600 and 1200 MW from existing plants in Italy, some of which are mostly idle.
Following the 2011 revolution, Tunisia’s government increased universal energy subsidies in order to address popular unrest over rising prices, but it subsequently reversed course in 2012, marginally reducing energy subsidies with a view to gradually eliminating them, starting with industrial consumers. Energy subsidies to cement companies, for example, were halved in 2014, before being cut altogether in 2015. The government twice increased taxes on electricity for low- and medium-voltage clients by 10% in May 2014. Cutting subsidies forms a major part of the government’s energy efficiency project, and while they are helping eliminate market distortions, they are also prompting concern from energy-intensive consumers – including manufacturing industries facing increasing overhead costs. However, despite the government’s progressive attempts to reduce and eliminate them, energy subsidies continue to cost 5% of the overall GDP.
In addition to reducing subsidies, Tunisia is looking to increase its energy efficiency by 3% per year from 2013 to 2020. To achieve this, electricity demand will need to be reduced by an average of 1.4% per year, according to the World Bank. “Tunisia has always been a regional pioneer in terms of energy efficiency,” Néjib Osman, energy and climate change expert from the National Agency for Energy Conservation (Agence Nationale pour la Maîtrise de l’Energie, ANME), told OBG. “Tunisia has been working on controlling its consumption levels since the late 1980s in anticipation of future energy deficits,” he added. Prior to 2011, Tunisia implemented an energy conservation strategy to progressively reduce demand by implementing new laws, creating a national fund to control energy, and using a series of financial incentives and mechanisms to entice the public to switch to thermal water heaters and install photovoltaic (PV) solar panels. Thanks to such initiatives, the country was able to reduce its energy intensity by 2.5% over the course of six years, from 2005 to 2011. However, during the period of political uncertainty following the 2011 revolution, Tunisia’s national energy efficiency drive stagnated. “Between 2011 and 2015 energy efficiency policies were maintained, but a lack of economic growth caused a decrease in energy efficiency,” Osman told OBG. Nevertheless, a law on renewable energy was passed in May 2015 that set out goals for the 2015-30 period. “However, many of the orders needed for implementation, such as a decree on contract typologies, are still missing. These are required to make this legislation sustainable,” Osman added.
In June 2016 a memorandum of understanding (MoU) on energy efficiency was signed between South Korea and Tunisia to allow cold accumulation – a type of thermal energy storage – to be used during peak demand periods. According to a statement by Ameur Bechir, director-general of STEG, cold accumulation will help cool water and store it for later use in air conditioning systems, which are a significant contributor to the nation’s energy consumption bill.
As authorities look to develop renewable energy as a way to meet growing domestic consumption needs in line with international climate change and sustainable development principles outlined at the 2015 COP21 UN Conference on Climate Change wind energy is among the priorities. The wind segment is not new to Tunisia, with two existing turbine farms and a total installed capacity of 224 MW. Tunisia sourced 3.7% of its domestic power generation in April 2015 from wind power, and ongoing innovation in the segment largely suggests its role in the energy mix could significantly increase in the coming years. Tunisian start-up Saphon launched the first prototype of its bladeless wind energy converter on April 8, 2016. According to the company, the turbine’s bowl-shaped sail is able to capture double the amount of wind energy as a conventional turbine, and is capable of converting 80% of wind power into energy. By comparison, traditional wind turbines convert around 59% of wind power into energy.
Another potential avenue for energy generation is solar. Originally drafted in 2009 and revised in 2012, the Tunisian Solar Plan looks to increase the share of renewable energy on the national grid to 30% by 2030 – with 15% coming from wind power, 10% through PV and 5% through concentrated solar energy. “In addition to this, Tunisia is looking to reduce its greenhouse gas emissions by 41% by 2030,” ANME’s Osman told OBG. “This means that we will emit 41% less greenhouse gas yet maintain the same level of GDP.” Tunisia has been home to small-scale solar production since the 1980s, but the technology was mainly geared towards helping individual households reduce their electricity bill. The country has a 20% higher solar radiation level than the most radiated areas in Europe, varying from 1600 to 1750 KWh per sq metre of sun radiation annually. The total capacity of solar PV was 15 MW at end-2014 and consisted 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 over 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. However, a new project should significantly boost solar generation. The TuNur project, which will create Tunisia’s first large-scale solar farm, and is set to open in the Tozeur governorate in 2018, in an area of the Sahara Desert with an annual solar radiation level of 2500 KWh per sq metre. The 10-MW concentrated solar power plant will generate 9400 GWh of renewable and dispatchable electricity per year, which will be transmitted via undersea cable to Germany, Switzerland, France and the UK. Not only will the plant contribute to increasing energy security in Tunisia and North Africa, but it will also help address renewable energy demand in Europe. Stakeholders include the TuNur Development Company; UK-based clean energy investors Low Carbon; Franco-Tunisian green investors Glory Clean Energy and the Maltese investment firm Zammit Group. It is expected save up to 16m tonnes of oil equivalent per year, or 1.5% of the domestic consumption. Construction began in early 2017 with an extension in the works to increase capacity to 20 MW. The STEG-issued international tender to build the TD15bn (€6.4bn) plant was won by Japanese company and general contractor Takaoka Engineering.
Although the authorities have expressed interest in welcoming additional IPPs and building more privatised power plants, in 2011 investor interest hit an all-time low. “There have been no projects since the revolution. Financing and regulations are not an issue here; the problem is the lack of a visible and credible five- to 10-year energy strategy for Tunisia. This has been delayed and modified following each of the many government changes since the revolution,” Ali Hjaiej, business development director of Clarke Energy, told OBG. “In order for the power sector to truly develop and grow, STEG needs to let producers produce and agree on a tariff that works for all,” he added.
Attracting more IPPs and placing a larger share of power generation into the hands of private players could improve the quality, technology and efficiency of the sector. Major energy stakeholders agree that holding public tenders would help attract new investment. The authorities are still ironing out some regulatory issues, particularly regarding the difficulty in privatising the sector and continued government involvement through subsidies. “The sector’s development is stinted by the lack of openness in the solar market. Current regulations are such that it takes up to one year to ultimately obtain only a 30% subsidy on solar panels,” Khaled Nasraoui, deputy CEO of Tunisian solar panels manufacturer Aurasol, told OBG. “The market needs to be more open, with less government intervention.”
Confronted with a growing energy deficit, Tunisia is looking at different ways to improve its energy supply while conforming to international standards on climate change. As domestic production eases, further amendments to the legislation surrounding the hydrocarbons sector to make it more attractive to investors is likely. Tunisia is also looking to reduce its carbon footprint by 41% by 2020, and increase energy efficiency by 3% per year between 2013 and 2020. Coupled with the target of producing 30% of its energy through renewables by 2030, the country is committed to diversifying its energy sources and reducing its supply gap.