Situated between two energy-producing giants, Tunisia has not been as fortunate as some of its regional neighbours in terms of hydrocarbons resources. While comparably modest, the country’s oil and gas reserves have nonetheless provided an important contribution to economic growth and development. However, a lack of promising new discoveries has compounded concerns regarding the rapid depletion of proven oil and gas reserves in recent decades.
Witnessing an increase in domestic energy consumption during the 1990s and 2000s, authorities began looking to diversify production through investment in renewable energy generation sources and reigning in wasteful consumption habits. This coincides with efforts to encourage further hydrocarbons exploration, which has been restrained by social and political instability at times. Now a process to overhaul the hydrocarbons code is under way, along with projects to build new generation capacity via thermal and renewable sources.
Tunisia’s oil production and exports have experienced a gradual decline over the past decade. According to the June 2017 “BP Statistical Review of World Energy” report, oil production stood at 63,000 barrels per day (bpd) in 2016, down from 85,000 bpd in 2010 and 106,000 bpd in 2007. Over the decade to 2016, total proven crude oil reserves fell by one-third, from 600m barrels to 400m barrels.
Tunisia also has exploitable natural gas reserves of about 2.3trn cu feet. Natural gas output was an average of 5.7m standard cu feet per day (scfd) in October 2017, compared to 6m scfd in the same month of 2016. Tunisia’s exploitable gas reserves currently meet around 40% of the country’s needs, with the rest imported from Algeria. Part of these imports act as transit payment for the Trans-Mediterranean pipeline that links Algeria to Sicily through Tunisian territory.
The Hasdrubal and Miskar fields, located off the coast in the Gulf of Gabés, account for roughly 60% of the country’s total hydrocarbons reserves and 40% of total known oil resources. Existing reserves have a limited lifespan, however, prompting the government and sector stakeholders to call for accelerated exploration efforts to search for new resources.
Given the amount of present proven reserves, industry experts believe that Tunisia has 17-20 years worth of oil reserves left and 20-22 years worth of natural gas at current exploitation rates. However, additional resources are expected to be found. “Sometimes, under an area that is already producing, we discover new resources. About 50% of the country is still not explored, especially in the centre, north-east and the far north,” Ridha Bouzaouada, general manager at Compagnie Franco-Tunisienne des Pétroles, told OBG. “Thus, there will be many opportunities for new exploration that could positively impact known reserves.”
A considerable amount of oil and gas reserves is also believed to be located in two shale formations in the Ghadames Basin in southern Tunisia. According to 2015 figures, the area can contain as much as 1.5m barrels of shale oil and 23trn cu feet of shale gas. Additional reserves are thought to exist in the Pelagian Basin on the eastern coastal mainland as well. Authorities are currently studying the potential benefits and costs of domestic shale exploration.
Around 97% of Tunisia’s electricity is produced by natural gas, with the remaining 3% of needs met by renewable energy generation. The total installed electricity capacity increased from 5224 MW to 5480 MW between 2015 and 2016, after the commissioning of two new gas turbines at the Bouchama power plant, supplied by GE.
Under the Renewable Energy Action Plan 2030, published in late 2016, authorities announced a target to expand renewable energy production to 30% of total generation by that year. However, given the small contribution of renewable energy at present, the goal will require a rapid acceleration of new generation projects. Reforms to the energy sector’s regulatory environment will also be needed to enable Tunisia to attract new investors to renewable projects.
The sector’s organisational structure was adjusted in 2016, with governance over energy affairs split from the former Ministry of Industry, Energy and Mines and incorporated as the new Ministry of Energy, Mining and Renewable Energies (Ministère de l’Energie, des Mines et des Energies Renouvelables, MEMER). The new body sets sector policy and oversees several public firms that are integral players in the local energy arena, such as the Tunisian National Oil Company (Entreprise Tunisienne d’Activités Pétrolières, ETAP), which focuses on exploration, production, and trade of gas and oil, and the National Oil Distribution Company (Société Nationale de Distribution des Pétroles, SNDP-AGIL), charged with the distribution of petroleum products throughout Tunisia. Another key entity is the Tunisian Company for Electricity and Gas (Société Tunisienne de l’Electricité et du Gaz, STEG), the state-owned monopoly firm for the marketing and distribution of electricity domestically.
In an effort to attract fresh investment into hydrocarbons production, oil and gas exploration rules are set to undergo structural changes in the near term. For almost two decades the industry has been regulated by legislation from the year 2000, which established the necessary structure for production-sharing agreements between the Tunisian government and private firms. Such agreements are signed with ETAP, which is also mandated to grant four different types of licences to private companies depending on their activity: a licence for preliminary prospective activities (this excludes seismic and drilling surveys), permits that cover prospecting activities other than drilling, exploration licences and exploitation concessions. The 2000 code also established fixed tax rates that are dependent on the area for which a permit is allocated, proportional royalties that can vary based on the volume of hydrocarbons production and a tax on the company’s profits.
The country’s most recent constitution, passed in 2014 as a consequence of the 2011 revolution, led to the need to reform the hydrocarbons regulations. In April 2017 a small set of amendments to the code was approved, specifically to comply with Article 13 of the constitution, which now requires new contracts for the exploitation of the country’s natural resources to be reviewed by a parliamentary committee. This represents a change from the previous system, in which a technical commission at the MEMER was the sole group responsible for evaluating any deal between foreign energy companies and the state.
Although procedures that underscore the importance of hydrocarbons reserves as part of a country’s strategic resources are common across several states, some observers believe this change might leave hydrocarbons contracts more vulnerable to partisan disagreement in the future. “Now approval of hydrocarbons deals goes to the Parliament, so the decision has become sort of political, because after the technical commission it must be passed by the energy commission of the Parliament,” Fethi Zouhair Nouri, professor of economic sciences at the University of Tunis, told OBG.
However, given the need to attract additional investment into hydrocarbons exploration, authorities are working on a more comprehensive re-shaping of the sector’s regulatory structure. A new hydrocarbons code is set to be discussed by Parliament in 2018, one stakeholders hope is more efficient and flexible for the rapidly changing conditions of the industry. Also under consideration is the establishment of regulations for the potential exploration of shale oil and gas reserves in the future, although the topic of whether the state should tap into those resources remains up for debate.
The relatively small amount of hydrocarbons resources has not prevented foreign players from investing in Tunisia. Firms are attracted by comparative advantages in the domestic business climate and security situation, as well as the large pool of qualified human resources. However, instability after the 2011 revolution, coupled with lower global oil prices since mid-2014, has slowed new investment in exploration and related activities. Frequent and prolonged labour protests that have led to interruptions in production have equally dampened expectations of a quick sector rebound. According to ETAP in its October 2017 energy report, oil production contracted by 18% in the first 10 months of 2017, compared to the same period a year earlier, while natural gas production declined by 5%.
Tunisia had issued 21 active exploration permits and 42 valid concession permits as of December 2017, according to ETAP data. Authorities are expecting five new exploration wells to be drilled in 2018, two onshore and three offshore. Tunisia is also likely to benefit from the pick up in global oil prices since mid-2017, which is spiking new interest in exploration.
In addition to developing a solid exploration industry, Tunisia is looking to establish more downstream capabilities. The stateowned Tunisian Company of Refining Industries operates the sole domestic refinery. The Bizerte-based facility has a capacity of 35,000 bpd, which covers roughly one-third of the country’s needs.
Several solutions to increase refining capacity have been put forward, including an expansion of the existing refinery and the possibility of building a new unit near the southern city of Gabés. Plans to construct a $2bn refinery were revived in 2012 after Qatar Petroleum initially won a bid for the project in 2007. However, the programme was dropped in 2014, mainly due to the political and economic situation in Libya, which made securing the necessary oil supply for the new refinery problematic.
On the consumer side, there were 820 petrol stations in Tunisia as of February 2017, with gas prices set by the state. France’s Total, SNDP-AGIL, Libya Oil Tunisia and Vivo Energy, licensee of Royal Dutch Shell, are the main providers. The market has been increasingly affected by the illegal distribution of petroleum products. While this has long been the reality in the regions bordering Algeria and Libya, the problem has recently become more acute. “It seems that informal trading has grown, accounting for as much as 20% of the market today, although it is difficult to have an idea of its true size,” Nabil Smida, president and general manager of SNDP-AGIL, told OBG.
Another estimate, published in regional media, put the share of Tunisia’s informal fuel trade at as high as 30% of the total market. Besides the negative impact on the country’s legal distributors, the parallel market is estimated to cost the state an annual TD500m (€192m) in lost tax revenue. “Although it is possible to battle against the parallel market and reduce it to 10% of fuel consumption, Customs entities, the police, the ministries of energy and commerce, and the private sector all need to work together to have an integrated strategy,” Mohamed Chaabouni, managing director of Vivo Energy, told OBG.
According to data from the MEMER, electricity production in Tunisia was 18,165 GWh in 2015 and 18,143 in 2016. The bulk of generation in 2016 was fuelled by natural gas, which produced 17,623 GWh of electricity, or 97% of the total. This was followed by wind power at 475 GWh and hydro power at 45 GWh. Combined-cycle electricity generation rose from 57% of total production in 2015 to 65% in 2016.
The majority of electricity is produced by STEG, which accounted for 15,255 GWh of generation in 2016, according to the entity, although the stateowned utility also manages the country’s small amount of wind and hydro power capacity. Additionally, Carthage Power Company, an independent power producer (IPP), has run a combined-cycle gas power plant with an installed capacity of 471 MW since 2002. Domestic electricity consumption has more than tripled between 1990 and 2016, rising from 5000 GWh to 15,890 GWh, according to the MEMER, with government data pointing to an annual 6% increase in demand. This has put pressure on current generation capacity, prompting the need to establish new power plants.
Related to the production and distribution of electricity, reducing the country’s energy expenditure will require tackling the issue of subsidies. Tunisia’s hefty energy subsidy bill has been a concern for several years now, but rising electricity consumption and occasional peaks of popular discontent have made the subject especially difficult for authorities to address.
After the government broadened universal energy subsidies to appease the public’s concerns about inflation after the revolution, Tunisia began to reverse these allocations in 2012. Subsidy reductions first affected industrial consumers, such as cement producers, which saw a 50% decline in subsidies in 2014 and their complete removal in 2015.
While these actions are necessary to reign in spending, they result in a difficult balance between investors, consumers and the state. “Higher prices make investments more attractive to oil and gas investors, but burden the state in terms of the subsidies they pay – when the prices increase, so do the subsidies,” Bouzouada of Compagnie Franco-Tunisienne des Pétroles told OBG.
Expanding generation from renewable energy sources has become critical, as environmental concerns play a bigger role in the government’s energy policy, alongside the industry-wide goal to reduce production costs. “Tunisia must diversify its sources of energy into renewables to ensure its energy autonomy. Solar projects offer significant potential as a result of the country’s topography, which includes part of the Sahara,” Said Mazigh, general manager of Carthage Power Company, told OBG. “However, solar panels do not generate electricity continuously. Therefore, this energy must be adequately transported and stored.”
In 2015 an updated renewable energy law was approved to attract private investment into the segment, and in 2016 the MEMER announced plans to install 1 GW worth of renewable energy capacity between 2017 and 2020. This step represents the first phase of the Renewable Energy Action Plan 2030. Projects to meet the action plan’s objectives, namely having renewable sources constitute 30% of the total energy supply by 2030, will involve both wind and solar generation, and will require IPPs to expand capacity and sell their electricity to STEG.
According to the MEMER, of the roughly 302 MW of installed renewable energy generation capacity in 2016, over two-thirds came from wind turbines. STEG operates two wind farms in the country. The first was inaugurated in 2000 in Sidi Daoud and, after several enlargements, has a current total generation capacity of 55 MW. A second park with production capacity of about 190 MW began operations in Bizerte in 2012.
Additional wind farm projects are likely to be undertaken in the near term. In May 2017 the government opened a tender for the construction of wind and solar power facilities with a total generation capacity of 210 MW. The projects, forecast to cost a total of TD400m (€153.6m), will comprise 70 MW of solar and 140 MW of wind generation capacity. In November 2017 the government announced that 69 contractors had been pre-selected to participate in the projects, with the final awards expected to be published around mid-2018.
The tender allows for 10 MW of photovoltaic solar generation to be attributed in multiple projects with a maximum capacity of 1 MW each, as well as an additional 60 MW to be distributed among solar power generation plants with a maximum capacity of 10 MW each. For the wind-based electricity capacity, the government tender designated 120 MW to be divided into projects with a maximum of 30 MW of capacity, and the remaining 20 MW to be broken into smaller projects with capacities of up to 5 MW each.
The government has also revived the Tunisian Solar Plan, which was initially established in 2010 and later revised in 2012. Included within the plan is the project to establish a 10-MW photovoltaic generation plant, currently under way in the southern region of Tozeur. Being developed by Italian firm Ternienergia, the plant will cost €12.5m. Another generation project, the €5bn TuNur solar power plant, is expected to begin construction in 2019 in Tunisia’s south-west and focus on exporting the bulk of its electricity to European markets (see analysis).
Enabling the development of renewable energy projects, however, will require more agile support from domestic financial markets. “Our banking system is not used to financing these types of projects. We need to encourage the banking system to take on the renewable energy segment,” the University of Tunis’ Nouri told OBG. “Because energy projects offer returns over a longer period than industrial ones do, banks are less likely to participate in them.” This means that in most cases, IPPs aiming for a slice of renewable energy projects in Tunisia will likely need to rely on overseas financing in the near term.
Despite its comparably lower volume of hydrocarbons reserves, Tunisia has largely been able to effectively allocate them to meet its development needs. However, as its oil and gas reserves diminish, the long-term energy strategy will increasingly rely on diversified sources. Although an uptake in exploration efforts may yield new exploitable reserves, an acceleration of renewable energy generation will be required to reduce the country’s vulnerability to energy shocks. Equally challenging and necessary will be to continue reducing subsidies and eliminating market distortions. Increasing energy security will likely remain the sector’s primary priority, and drive public and private investment over the medium term.