Without the vast hydrocarbons riches of its regional neighbours, Tunisia has relied heavily on policy decisions to maintain energy security. Nonetheless the country has been able to profit from its modest oil and gas reserves, especially with regard to the offshore Hasdrubal and Miskar fields in the Gulf of Gabès, which represent 65% of Tunisia’s annual gas production. While such reserves have been critical for the country’s development, sector activity has declined since 2008. Although production picked up again in 2018 and is forecast to double in 2019, there is still pressure to increase exploration. With population growth and urban expansion driving consumption levels up, investment in new transmission and distribution infrastructure will also be required.
Efforts to overhaul the country’s hydrocarbons regulations, however, have been stymied by political instability, while the development of energy projects has been slowed by social unrest across the country. A revised hydrocarbons code has yet to be passed by Parliament and the question of whether or not to tap into non-traditional oil and gas reservoirs has increasingly become a key issue of debate. Despite the challenges, progress in diversifying the energy mix has seen the state issue a host of international tenders aimed at attracting contractors into a new renewable energy programme. This is expected to help the country achieve its goal of having renewable sources account for 30% of the energy mix by 2030.
State management of the sector was put under the Ministry of Energy, Mines and Renewable Energies (Ministère de l’Energie, des Mines et des Energies Renouvelables, MEMER) in 2016 after the energy portfolio was separated from the then-Ministry of Industry, Energy and Mines. In 2018 the MEMER became attached to the Ministry of Industry and Small and Medium-Sized Enterprises. In addition to defining sector policy, the MEMER is charged with overseeing key state-owned companies. Chief among these are the Tunisian National Oil Company (Enterprise Tunisienne d’Activités Pétrolières, ETAP), which operates in the exploration, production and trading of gas and oil; the National Oil Distribution Company, which heads the distribution and commercialisation of petroleum products; and the Tunisian Company for Electricity and Gas (Société Tunisienne de l’Electricité et du Gaz, STEG), which operates 25 power plants and holds a monopoly in the marketing and distribution of electricity.
Size & Scope
Oil and gas production in Tunisia has experienced steady declines over the past decade. According to figures by the African Development Bank, oil and gas extraction accounted for 2.6% of GDP in 2017, down from 7.3% in 2008. Meanwhile, over the same period the contribution of electricity, gas and water production and distribution to GDP increased from 1.4% to 1.5%. Electricity consumption is rising at roughly 5% per year, with demand especially high in the summer months as Tunisians switch on air conditioners. As of July 2019 the country’s power-generation capacity stood at 5780 MW, the majority of which, at 5310 MW, was managed by STEG.
In March 2018 authorities announced that between 2018 and 2020 TD12bn ($4.2bn) would be issued to a handful of key projects, including two new 450-MW power stations and a 600-MW capacity underwater cable connecting Tunisia’s electricity network with Italy’s. In July 2018 STEG also signed a deal with the state-owned utility companies in Morocco and Algeria to gain access to 200-300 MW of electricity imports.
Natural gas is of particular importance for Tunisia as it is used to generate around 97% of electricity, according to figures from the MEMER. In 2018 Tunisia’s proven exploitable natural gas reserves stood at 2.3trn cu feet, according to media reports, a figure that has remained relatively stable since 2007.
Nationwide, gas consumption rose from 4927 tonnes of oil equivalent (toe) in 2017 to 5025 toe in 2018, while production declined from 5.7m cu metres per day to 5.5m cu metres per day over the same period. As such, Tunisia relies heavily on imports. In 2018, 35% of consumed natural gas came from domestic production, down from 38% in 2017. A little over half (52%) was imported from Algeria in regular commercial agreements and the remaining 13% was from transit payments for the Trans-Mediterranean pipeline that links Algeria to Sicily through Tunisian territory. However, as Italian imports of Algerian gas through the pipeline have fallen in recent years, Tunisia has seen a decrease in transit fees, leading to a rise in imports of Algerian gas, which rose by 9% in 2018, and as much as 22% year-on-year in March 2019.
Although the MEMER claimed that Tunisia will double its gas production and reduce its reliance on Algerian exports by 30% by the end of 2019, delays to the $700m Southern Tunisian Gas Project (STGP) may impact these targets. The development, also known as the Nawara Project, includes a central processing facility at the Nawara well site for the pre-treatment of gas and a 370-km pipeline linking the fields to a processing plant in Gabès.
Slim Feriani, the minister of industry and small and medium-sized enterprises, told local media in January 2019 that he expects natural gas output to more than double from 30,000 barrels of oil equivalent (boe) in 2018 to 65,000 boe once the STGP comes on-line at the end of 2019. The joint venture between Austrian firm OMV and ETAP was due to begin operations in mid-2019, but as of August 2019 there had been no further announcements on the project’s progress.
With the exception of 2018, the country’s oil production has experienced a gradual decline since 2008. According to the “BP Statistical Review of World Energy 2019”, Tunisia’s oil production stood at 50,000 barrels per day (bpd) in 2018, up from 48,000 bpd in 2017. These figures indicated a reverse in the decade-long trend that saw production fall by 63% from a 2008 high of 96,000 bpd. The BP report also found that in the same period Tunisia’s proven oil reserves decreased from 600m barrels to 400m barrels.
The Hasdrubal oil and gas field and the Miskar gas field account for 62% of hydrocarbons production. However, existing reserves have a limited lifespan, with these two fields in particular declining in production by nearly 10-15% per year. This has prompted the government to call for accelerated exploration efforts. “Our conventional reserves are set to finish in 15 to 20 years at current levels of production. That is why, we need new discoveries,” Ridha Bouzaouada, president and managing director at Compagnie Franco-Tunisienne des Pétroles, told OBG. “We must continue to explore, but we first need to establish the appropriate regulatory framework.”
Even without vast hydrocarbons reserves, Tunisia has been able to attract international firms over the years with competitive business regulations and highly trained human resources. As of March 2019 there were 58 concessions operating in the country, 37 of which were in production; as well as 21 active permits, 19 of which were for exploration and two for prospecting. These covered a total area of just under 60,000 sq km.
However, the social instability that followed the 2011 revolution, coupled with the collapse of international oil prices in 2014, has made it harder to secure new investment. While higher oil prices in 2017 and 2018 spiked investor interest in exploration, they could potentially impact the Tunisian budget by increasing subsidy costs. “The ideal price for Tunisia is between $50 and $70 per barrel,” Bouzaouada told OBG. “Prices are currently hovering between these points, which is why we have had companies declare their interest in Tunisian oil.”
Non-conventional gas resources could offer additional potential to increase capacity. Two shale formations in the Ghadames Basin in southern Tunisia are estimated to hold up to 23trn cu feet of shale gas and an additional 1.5m barrels of shale oil. Significant shale resources are also believed to be present in the Pelagian Basin, on the eastern coast of Tunisia and Libya. “If non-traditional gas reserves are confirmed, we could have sufficient resources for at least the next 50 years,” Bouzaouada told OBG.
Establishing a long-term development roadmap could help put the sector on a more stable course. However, political instability has affected policy-making, and several ministries and government agencies have had staff and leadership changes. The hydrocarbons sector has been no exception and a large number of production licences are set to expire. This creates the potential for legal uncertainty in some of the most critical oil and gas production areas, including the Miskral gas field concession, which will expire in 2022. “Half of our existing hydrocarbons concessions will expire in the coming years. This is why we now need to evaluate how best to continue exploration,” Bouzaouada told OBG. “Current regulations recognise the preferential right of current concession holders but we need to put the necessary processes in place.”
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. Current sector regulation remains anchored in legislation from 2000, which established the basis for production-sharing agreements between the state and private companies. Such agreements are signed with ETAP, which is mandated to grant four different types of licences to private companies depending on their activity: a licence for preliminary prospective activities excluding 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 levy on the company’s profits.
Tunisia’s most recent constitution, passed in 2014 as a consequence of the 2011 revolution, led to the need to reform hydrocarbons regulations. In April 2017 a small set of amendments to the code were approved, specifically formulated to comply with Article 13 of the constitution, which 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.
The implementation of new rules for the sector will require coordination between stakeholders and populations living near production areas. “We need to establish a proper communications strategy,” Bouzaouada told OBG. “There have been some improvements but progress has been slowed by political infighting and populist rhetoric against the energy industry, particularly around elections,” he added.
Change is also taking place in the power sector driven to a large extent by the need to increase production capacity. While domestic electricity production expanded from 15,263 GWh in 2010 to 19,245 GWh in 2018, supply has not been able to up with growing demand. STEG, which controls around 92% of power-generating capacity, is therefore working with private companies to bring capacity on-line.
In mid-2017 STEG and Japanese contractor Mitsubishi Hitachi Power Systems signed an agreement for the construction of a 450-MW power plant in Radès. The project, set to cost TD800m ($277.9m), will be financed through a loan by the Japanese International Cooperation Agency. Meanwhile, Italy-based power engineering company Ansaldo Energia announced in April 2018 it had come to an agreement with STEG to build a 625-MW combined-cycle power plant in Mornaguia, in northern Tunisia. Construction on the TD700m ($243.1m) plant began in July 2018 and is expected to take 22 months to complete.
In March 2018 it was announced that STEG would be constructing two 450-MW combined-cycle power plants in Skhira, although as of July 2018 conclusive plans had yet to be finalised. The first phase, or Skhira 1, is expected to involve the building of one plant as a regular engineering-procurement-construction project, while Skhira 2 will likely see the second plant developed and operated by an independent power producer (IPP). “It may make more sense to do the whole project through the IPP format,” Saïd Mazigh, general manager at Carthage Power Company, told OBG. “The private sector has the capacity to handle the project. Additionally, this would give a strong signal to the energy sector and attract investment into other sectors across the economy.” Carthage Power Company operates a 471-MW combined-cycle gas power generation plant in Radès.
Rationalising energy consumption is an important component of the national strategy to reduce the energy deficit, which currently stands at around 50%. The government has promoted the installation of solar panels for residential housing since 2010. According to local media, 100 sq km of Tunisia’s roofs have the potential to produce 17bn KW of electricity each year. In line with the government’s ambitions to increase power-generation capacity by 1900 MW by 2023, STEG aims to position itself as a partner to IPPs in the case of industrial installations.
In addition, STEG is working with electricity self-suppliers in order to meet growing demand. The suppliers are encouraged to produce more energy during July and August when electricity consumption is at its peak. STEG then buys the excess electricity from those suppliers at higher rates, offering around three or four times more than the ordinary price. Self-sufficiency is estimated to reduce distribution costs from 16% to 6% compared to traditional energy production.
“Tunisia is using the latest technology to produce electricity,” Sahbi Amara, Africa director at UK-based Clarke Energy, told OBG. “The country is now benefiting from quad-generation systems, which are some of the most advanced gas-fired, engine-driven power plants in the world.” However, realising the full potential of self-production will require a review of the framework governing the sector, which currently limits the sales of IPP excess production to 30%.
In February 2019 the European Bank for Reconstruction and Development announced it would provide grants totalling $931,200 to help restructure key elements within STEG. The support will be channelled towards improving existing electricity transmission and distribution networks, preparing the network for the expected rise of renewable energy production, improving overall governance at the firm and ensuring that STEG can abide by international financial reporting standards. “It is important that the government is focusing on increasing generation capacity now,” Mazigh told OBG. “As we expect that economic growth will improve in the coming years, we need to plan the country’s energy supply with a longterm perspective and understand how energy supply and the country’s industry capacity are related.”
Making Tunisia’s energy infrastructure work more efficiently will help determine the country’s future economic performance. Domestic natural gas production has proven a boon for local development, but as reserves dwindle more exploration will be needed to reduce dependency on energy imports. One potential solution is non-conventional hydrocarbons reserves, although the issue will require a broad discussion that includes local populations.
Efforts to raise the contribution of renewable energy are becoming increasingly integrated with existing generation capacity; however, renewable energy projects will likely require higher levels of foreign direct investment. While social and political instability has impacted the implementation of certain projects, public and private sector players are aware of the industry’s key role in supporting the economy.