Algeria upturn

With continuing investments being made in Algerian oil and gas development, both sectors have potential for increasing production capacity over the next few years.

Algeria produced an average of 1.37 million barrels per day (bpd) of crude oil in 2006, together with 445,000 bpd of lease condensate and 310,000 bpd of natural gas liquids.

Algeria averaged 2.13 million bpd of total oil production during 2006, up slightly from 2.09 million bpd in 2005 and 1.93 million bpd in 2004.

According to the Oil and Gas Journal, Algeria contained an estimated 12.3 billion barrels of proven oil reserves as of January 2007, the third largest in Africa (behind Libya and Nigeria).

Proven reserves are primarily located in the eastern half of the country – the Hassi Messaoud basin containing around 70% of the country’s total proven reserves, while additional reserves are located in the Berkine basin.

Liquefied Natural Gas

Although Algeria’s increase in oil production is promising, the main contributor to the country’s economic growth is its thriving liquefied natural gas (LNG) sector.

With the start-up of the Arzew GL4Z plant in 1964, Algeria became the world’s first producer of LNG, and is now the fourth largest exporter behind Indonesia, Malaysia and Qatar, amounting to around 13% of the world’s total.

The vast majority of Algeria’s LNG exports go to Western Europe, especially France, Spain and Turkey, but also exports largely to the US.

During 2005, Algeria exported 97 billion ft3 of LNG to the United States, some 15% of total US LNG imports for that period.

Algeria’s largest LNG export terminal is the Arzew facility, whose three facilities produce a combined 2.47 billion ft3 per day of re-gasified LNG.

As of January 2007, according to the Oil and Gas Journal, Algeria had 161.7 trillion m3 of proven natural gas reserves – the eighth-largest in the world and the second largest among OPEC-member countries (behind Iran).

Algeria’s largest gas field is the Hassi R’Mel, discovered in 1956 holds proven reserves of 85 trillion ft3, accounting for about a quarter of Algeria’s total dry, natural gas production.

Pipelines and export terminals

Algeria uses seven coastal terminals to export crude oil, refined products, liquefied petroleum gas (LPG) and natural gas liquids (NGL).

There are facilities located at Arzew, Skikda, Algiers, Annaba, Oran, Bejaia, and La Skhirra in Tunisia.

Arzew handles about 40% of Algeria’s total hydrocarbon exports, including all of its NGL, LPG, and oil condensate exports.

Algeria’s oil pipeline network facilitates the transfer of oil from interior production fields to the export terminals. Sonatrach operates over 2,400 miles of crude oil pipelines in the country.

Pipelines: Domestic system

Algeria’s domestic pipeline system centers around the Hassi R’Mel natural gas field. The largest pipeline systems connect Hassi R’Mel to LNG export terminals along the Mediterranean Sea.

Hassi R’Mel is the center of Algeria’s entire natural gas transport network, so pipelines connect to it from the country’s major natural gas-producing regions.

A 600-mile, 3.29 billion ft3 per day pipeline links the In Amenas region; a 330-mile, 774-million ft3 per day pipeline connects the in Salah region; and a 90-mile, 610-million ft3 system runs from the natural gas fields surrounding Gassi Touil.

1. Algeria/Spain Medgaz pipeline

In order to increase its gas exports, there are a number of pipeline contracts currently underway.

“The Algerian economy is 98% based on the hydrocarbon business, so the country needs foreign investments, together with international management capacities.”

Two of the main, and the most recent pipeline development projects are the Medgaz pipeline, linking Algeria to Spain, and the Trans-Saharan natural gas pipeline from Nigeria to Algeria, both due for completion in the coming years.

In July 2001, a consortium led by Spain’s Cepsa (20%) and Algeria’s Sonatrach (20%) agreed to build a natural gas pipeline linking Algeria and Europe: Medgaz. The 120-mile Medgaz will link Beni Saf, Algeria to Almeria, Spain, with an eventual extension to France.

In September 2002, the consortium completed a study of the line’s feasibility, and initial construction on the project began in June 2007.

The US $1.2 billion Medgaz, which should be completed by 2009, will have an initial capacity of 390 million ft3 per day, increasing to a maximum of 1.55 billion ft3 per day.

2. Trans-Saharan pipeline

Sonatrach and the Nigerian National Petroleum Corporation (NNPC) formed the Trans-Saharan Natural Gas Consortium (NIGEL) in 2002.

The NIGEL consortium aims to construct a 2,800-mile natural gas pipeline from Warri, Nigeria to Hassi R’Mel, via Niger.

The NIGEL pipeline would utilise the proposed Medgaz and existing Transmed pipeline to carry Nigerian natural gas to European markets.

A feasibility study on the Trans-Saharan pipeline is underway, but practical problems such as the immense length and possible sabotage are two deterrents to the project moving forward.

However, the Algerian government would like to see the US $10 billion pipeline functioning by 2015 at the very latest.

Foreign investment

Although Algeria has produced oil since 1956, industry analysts consider the country under explored, with potential for future hydrocarbon discoveries.

According to Italian energy firm Eni who operate (amongst others) the Rhourde Oulad Djemma (ROD) project in southeastern Algeria “The Algerian economy is 98% based on the hydrocarbon business, so the country needs foreign investments, together with international management capacities.”

In 2005, Algeria held its sixth licensing round for foreign development of oil and natural gas reserves. A total of 54 companies showed interest in the ten blocks being offered.

Companies that won exploration rights included BP (winning three concessions), BHP-Billiton (winning two concessions), Shell (winning two concessions), and the UAE-US joint venture Gulf Keystone (winning two concessions).

Sonatrach operates the largest oil field in Algeria, Hassi Messaoud. Located in the center of the country, Hassi Messaoud produced around 440 000 bpd of crude in 2006, and Sonatrach hopes to increase production at the field to 600,000 bpd over the next few years.

In light of the millions of dollars of investments made by foreign oil companies, operators have steadily increased their individual shares of Algeria’s oil production.

The largest foreign oil producer is Anadarko, with total production capacity of 500,000 bpd. The company operates the Hassi Berkine South and Ourhound fields in eastern Algeria, with combined output of around 450,000 bpd.

Exploration and production

Development of Algeria’s oil and gas sector has been underway for a number of years, and the number of companies investing in the country’s exploration and production sector is on the increase.

An advance of the In Salah region is crucial in Algeria’s plan to increase its natural gas production. The In Salah Gas consortium, a partnership of Statoil, BP, and Sonatrach, was the first major natural gas partnership between Sonatrach and a foreign operator.

The consortium has development rights for seven of the twelve existing fields in the In Salah region. The fields controlled by the consortium contain proven reserves of 6 trillion ft3 with potentially 10 trillion ft3 in total recoverable reserves.

Initial production at the In Salah fields began in July 2004, and once fully online, they should produce some 880 million ft3 per day of natural gas.

In June 2006, Sonatrach, BP and Statoil began producing natural gas at the In Amenas field. At peak production the field should produce around 900 million ft3 per day of natural gas, plus 50,000 bpd of condensate and LPG.

So, with the money invested in to Algeria’s oil and gas industry – although, still in its infancy, it has the potential to become one of the regions thriving energy producers, as well as a key transit corridor for LNG transportation.

According to Eni, in line with the company’s strategy to increase hydrocarbon exploration and production in Algeria, “Europe largely depends on Algeria, together with Russia, for its gas supplies, this therefore means that Algeria will be a pillar of energy security for Europe for decades to come.”