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COUNTRY PROFILES
Algeria
Energy Investment Prospects
The hydrocarbons sector is the backbone
of the Algerian economy, accounting for roughly 60% of budget
revenues, 30% of GDP, and over 95% of export earnings. Algeria's
financial and economic indicators improved during the mid-1990s,
in part because of policy reforms supported by the IMF and
debt rescheduling from the Paris Club. Algeria's finances
in 2001 benefited from the spike in oil prices and the government's
tight fiscal policy, leading to a large increase in the trade
surplus, the near tripling of foreign exchange reserves, and
reduction in foreign debt. The government continues efforts
to diversify the economy by attracting foreign and domestic
investment outside the energy sector, but has had little success
in reducing high unemployment and improving living standards.
Real GDP growth is expected to reach 4,4%
in 2002, following estimated growth of 3,8% in 2001, and 2,5%
in 2000. Algeria is expected to have an important growth by
reason of increase of oil and gas production.
The total primary production is going to
grow 74,96 Mtoe (annual growth rate: 4,06%) in the first decade
(2000-10) and 11,08 Mtoe (annual growth rate: 0,48%) in the
second decade (2010-20). The final demand is expected to grow
during the next two decades: 9,48 Mtoe (annual growth rate:
4,66%) in the first decade and 8,50 Mtoe (annual growth rate:
2,88%) in the second decade.
In early January 2002, Algeria adopted a
19,1 billion € budget for 2002, based on an assumption of
22 € per barrel for Algerian oil.
· Oil
Although oil was first discovered in Algeria at the Hassi
Messaoud oil field in 1956, Algeria is considered to be under-explored.
Algeria's National Council of Energy believes that the country
still contains vast hydrocarbon potential. Over the last three
years, mainly foreign companies have made significant oil
and gas discoveries. Official estimates of Algeria's proven
oil reserves remain at 9,2 billion barrels, ranking it in
the top 10 worldwide. However, with the recent oil discoveries,
plans for more exploration drilling, improved data on existing
fields, and use of enhanced oil recovery (EOR) systems, proven
oil reserve estimates are expected to be revised upward in
coming years. Algeria should also see a sharp increase in
crude oil exports over the next few years due to a rapid shift
towards domestic natural gas consumption and planned increases
in oil production by Sonatrach and its foreign partners. Algerian
oil accounts for one-fifth of EU oil imports in 2001. Approximately
90% of Algeria's crude oil exports goes to Western Europe,
with Italy as the main market followed by Germany and France.
The Netherlands, Spain and Great Britain are other important
European markets. Algeria's Saharan Blend oil, 45o API with
0,05% sulfur and negligible metal content, is among the best
in the world. In the last 5 years Algeria invested 16,4 billion
€ on oil sector, as well as on upstream gas sector and main
gas transportation grid.
The oil production is going to grow 41,60
Mtoe (annual growth rate: 5,11%) in the first decade (2000-10)
and 4,00 Mtoe (annual growth rate: 0,37%) in the second decade
(2010-20). The gross inland consumption for oil is expected
to grow during the next two decades: 2,20 Mtoe (annual growth
rate: 2,21%) in the first decade and 2,10 Mtoe (annual growth
rate: 1,73%) in the second decade.
It is estimated that 23-28 billion € in
investment will be needed in the oil sector during the two
next decades on the basis of the economic growth in the Algeria.
The government has plans to increase production of crude oil
and lighter products. [1]
Although Algeria has experienced a significant
influx of foreign investment in the recent years, it still
has many oil fields in need of additional foreign capital
and EOR (Enhanced Oil Recovery) investment. Halliburton has
an eight-year contract to provide EOR services and boost production
at Hassi Messaoud, for instance, which saw production fall
sharply beginning in the mid-1980s. Algeria's second largest
oil field, Rhourde El Baguel, has already received foreign
investment to boost its production capacity. Rhourde El Baguel
contains about three billion barrels of oil, of which less
than 450 million barrels has been produced since 1963. In
February 1996, Arco (now owned by BP) signed a 1,3-billion
€ production sharing agreement (PSA) with Sonatrach to increase
production at the field. BP expects to raise the field's output
from 27.000 bbl/d to 125.000 bbl/d by 2010. [15]
· Gas
Commercial production of natural gas began in 1961. Algeria
has the fifth-largest reserves of natural gas in the world
- 4.750 Bcm proven reserves - and it is the second largest
gas exporter, accounting for one-fifth of EU natural gas imports
in 2001. Sonatrach estimates that Algeria's ultimate gas potential
is around 5.779 Bcm. With the start-up of the Arzew GL4Z plant
in 1964, Algeria became the world's first LNG producer. In
recent years, Algeria's competitive position in the LNG business
has suffered due to rivalry from Asia and cheaper alternative
energy prices. In fact, Algeria's LNG complexes have been
producing below their design capacities due to the growing
disadvantage of their higher-cost operations. Algeria was
the second largest exporter of LNG in 1998, with 22% of the
world's total LNG, exported mainly to Western Europe and the
United States. Algeria currently has 4 LNG plants, with annual
production capacity of 34 Bcm. Algeria's total natural gas
export capacity, via pipeline and LNG tanker, is over 56,7
Bcm per year. In the last 5 years Algeria invested 350 million
€ on transportation and distribution projects in the domestic
market.
The gas production is going to grow 33,30
Mtoe (annual growth rate: 3,24%) in the first decade (2000-10)
and 6,70 Mtoe (annual growth rate: 0,54%) in the second decade
(2010-20). The gross inland consumption for gas is expected
to increase during the next two decades: 11,00 Mtoe (annual
growth rate: 4,41%) in the first decade and 7,30 Mtoe (annual
growth rate: 2,11%) in the second decade. It is estimated
that 26-33 billion € in investment will be needed in the gas
sector during the next two decades. [1]
Development of the In Salah region is one
of the lynchpins in Algeria's plan to increase its natural
gas exports. In February 2000, BP Amoco and Sonatrach signed
a 2,5 billion € deal to develop seven of the twelve existing
fields in the region. Production from the region originally
was expected to come online in late 2004, after the drilling
of up to 200 production wells and construction of a 1-billion
€, 48-inch pipeline link to Hassi R'Mel. However, progress
has been slowed due to several factors, including EU rules
on natural gas re-exports and slow natural gas demand growth
in potential importing countries such as Spain, and production
now is expected to begin in 2005.
Besides In Salah, two other important Algerian
natural gas and condensates projects are Ohanet and In Amenas.
Ohanet is being developed - at a cost of 1 billion € - by
Australia's BHP (with a 45% share), Woodside Petroleum (15%),
Japan Ohanet Oil and Gas, Swiss-Swedish ABB, and U.S.-based
Petrofac. Production from Ohanet is expected to begin in 2005,
and is to include natural gas, natural gas liquids, and liquefied
petroleum gas (LPG). BHP is to operate the fields in partnership
with Sonatrach. The 900 million € in Amenas project is due
to come on stream in 2005 and to produce over 19,81 m3 per
day of natural gas. [16]
· Electricity
Algeria's electricity demand is growing at a rapid, 5% annual
rate, and will, according to Sonelgaz (Algeria's state power
company), require significant additional capacity in coming
years. In the last 5 years Algeria invested 1,5 billion €
in the electricity sector. Algeria has 6,40 GW of installed
power generating capacity. The electricity generation is going
to grow 26,06 TWh (annual growth rate: 7,31%) in the first
decade (2000-10) and 20,23 TWh (annual growth rate: 3,37%)
in the second decade (2010-20).
This means that there will be required 18-28
billion € of investments on new generating capacity, plus
transmission and distribution infrastructure (i.e., lines
and sub-stations). In order to accomplish this, Algeria's
government hopes to attract foreign capital. [1]
An electricity and gas new law entered in
force in February 2002. The main objectives of the law are:
- Introduction of competition.
- Promotion of an independent and autonomous regulatory
body.
- Introduction of a stable and incentive framework to attract
private capital.
- Restructuring of Sonelgaz (utility of electricity and
gas distribution).
- New operators under a license for generation and concession
for distribution.
- Introduction of third part access (TPA).
- Unbundling Sonelgaz activities and transformation of
Sonelgaz into joint-stock company.
The installed capacity of thermal plants
is 6,12 GW and it is going to increase 4,92 GW (annual growth
rate: 6,08%) in the first decade and 5,95 GW (annual growth
rate: 4,41%) in the second decade.
The new plants will use mainly natural gas.
So it is estimated that 8-13 billion € in investment on thermal
plants will be needed during the next two decades. The IPP
projects, planned to be built between 2004 and 2010, are the
following. [1,17]
- For the combined cycles: Skikda 2x380 MW CC whose start
up is scheduled by 2005-2006, Hadjret Ennous 600 MW CC planned
by 2006-2007, Koudiat Draouech 2x600 MW planned by 2007-2008,
Terga 2x600 MW planned by 2009-2010, Hadjret Ennous 600
MW CC in 2010.
- And for the gas turbines: Hassi Messaoud 123 MW GT planned
by 2004-2005, Arzew 3x120 MW GT and Desalination (IWPP)
planned by 2005, Msila 200 MW (extension of an existing
plant).
Otherwise, a project of 1.200 MW dedicated
for exports is planned by 2005-2010. As a consequence of the
promulgation of the law on Electricity and gas distribution,
the time table for the reform sector priorities will be as
follows:
- Launching of the system Operator (Dispatching) by 2005.
- Launching of the market Operator within a period of five
years after the promulgation of the law, maybe before 2007.
- Opening of the electricity and gas markets at 30% as
a minimum, three years after the promulgation of the law
at the latest, i.e. on by 2005.
Algeria has 0,28 GW of installed hydro-power
generating capacity and this figure is not expected to grow.
On the other hand, the wind energy generating
capacity is going to grow rapidly. The wind-power installed
capacity is 0,5 MW and it is going to approximate to 0,20
GW in 2010 (annual growth rate: 82,06%) and 0,80 GW in 2020
(annual growth rate: 14,87%). So, it is estimated that investments
of 0,7-1,1 billion € will be needed in this sector during
the next two decades. The government is expected to spend
0,7-1,1 billion € in investment on transmission and distribution
projects for these plants. [1]
· RES
The use of solar systems in the final demand is going to grow
during the next period. So, many solar systems are expected
to be manufactured during the next two decades. It is estimated
that 0,7-0,9 billion € in investment on installation of solar
systems will be needed during next 20 years.
· Solids
Algeria imports a small quantity of solids, which is used
mainly in industry. There is not expected any important change
in this status.
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