Abdelghani Henni asks: Could the uprising in North Africa have a positive impact on energy investment in the region despite the momentary disruption?
North African countries possess all the components to be a prominent hub in the global downstream production sector, not least a favourable abundance of feedstock combined with proximity to European markets.
However, bureaucracy and slow implementation of projects remians the familiar story. With the current turmoil in the region, local governments should show greater willingness to develop a productive downstream sector.
Making good use of gas is a practical solution to creating the much needed jobs for young people, plus real domestic wealth creation.
North Africa consists of five nations, Morocco, Algeria, Tunisia, Libya and Egypt. While Algeria and Libya have huge gas reserves, Egypt is struggling to meet self sufficiency in gas, though it exports gas through a pipeline to Israel.
It also imports butane gas from Algeria and Saudi Arabia to meet the increasing demand for domestic usage, mainly for cooking and heating.
During the recent unrest in Egypt, which led to the collapse of the regime of former president Hosni Mubarak, a gas pipeline from Egypt towards Jordan and Israel was a subject to sabotage.
Consequently, gas export to Israel was halted and at the time of going to press this had not resumed, while local Egyptian authorities said that it would resume exports to Jordan soon.
Egypt signed a deal with Israel to export 1.7bn cubic meters per year of gas for 20 years, with a preferential price between $0.7 and $1.5 per million btu, while the cost price is $2.65.
A number of chemical plants in Egypt have been forced to shut down and stop operations altogether. Producer TCI Sanmar closed its 200 000 tonne/year caustic soda plant at Port Said on 29 January because riots in the local area had made it impossible to operate. EPC’s 120 000 tonne/year caustic soda plant in Alexandria did not shut down.
Methanol producer Methanex temporarily closed its office in Cairo and evacuated international staff and their families until further notice, prompted by safety and security concerns, in early February.
Methanex CEO Bruce Aitken said commissioning activities at the company’s new 1.3m tonne/year joint venture EMethanex methanol plant at Damietta had been curtailed and the site was currently staffed at “minimal levels”.
According to shipping agents, the 192km-long Suez Canal remained largey unaffected and operated as usual.
In Libya, protests began in Benghazi, on the Eastern coast of the country, and spread to oil well located on Southern Tripoli. Security forces quickly controlled the fire and arrested six Libyan people in connection.
Downstream projects in the country haven’t progressed since the announcement of the $54bn master plan to construct two energy cities at Al Brega and Ras Lanuf, which includes petrochemicals and refineries back in October 2009.
A 600 000t/y ethylene project in joint venture between NOC Libya and Dow Chemical also faces delays, though the Energy Minister Dr Shokri Ghanem told RPME that they were expecting to sign the contracts by end of first quarter 2010.
Libya produces 330 000 t/y of ethylene and 180 000tonne per year of HDPE and 80 000 tonne per year of LLDPE.
In his speech on February 21st, the son of Muammar Al Gaddafi, Saif Al Gaddafi warned that oil production will be halted and the country may enter into a civil war if protests continue.
In Algeria, despite the country passed through instability for almost a decade in 1990s, upstream and downstream operations haven’t been affected during that period, as the government intensified security on its operational assets.
With recent unrests in surrounding countries along with the increase of unemployment, the Algerian government needs to move from focusing on gas export to adding value to it. “As to Algeria’s choices of exporting gas or exporting petrochemicals, it is likely that they would do both,” says Al Troner, president of Asia Pacific Energy Consulting.
After years of natural gas exports driving the economy, Algeria has launched US$28bn programme to invest in the downstream sector. Sonatrach, the national oil company, has launched various projects including fertilizer, petrochemicals and refining projects.
Taking advantage of the abundance of natural gas, Algeria has launched three major fertilizer projects with foreign partners including Suhail Bahwan from Oman, Orascom Industries from Egypt and Fertiberia from Spain.
The project with Orascom Industries is expected to start commercial production in July this year, according to Samir Sami, project manager at the Sorfert Algerie Fertiliser Company, the JV between Orascom and Sonatrach.
When completed, its fertilizer projects will produce 3.6m t/y of ammonia and 2.9m t/y of urea.
“Algeria will control 5% of the world’s fertilizer production after completing the three projects,” said the ex-energy minister Chakib Khelil during the signature ceremony of the $1bn JV between Sonatrach and Fertiberia.
Algeria’s petrochemicals industry is progressing at a lethargic pace. The progress of the ethane cracker project in Arzew on the Western coast of the country is slow and witnessed delays due to the corruption scandal that hit Sonatrach in 2010.
Governmental decisions affecting the ownership of the project have also hampered progress, as new regulations oblige local companies to hold the majority stake in any project with a foreign partner.
As consequence, Qatar Petroleum took a 10% stake in the 1.4m ethane cracker project in Arzew, while Sonatrach holds 51%, and Total 39% (initially 51%).
The cracker will have 1.4m t/y of ethane capacity, and will produce 1.1m t/y of ethylene, along with MEG, HDPE and LLDPE. It will be fed by LNG 1 and 2 plants.
The same situation faces the 1million t/y methanol project, after Almet consortium led by Lurgi and Al Qurain Petrochemical Company won the project in 2007.
The refining sector in Algeria much more active compared to petrochemicals. A multi billion dollar contract was awarded to Technip recently to upgrade the refinery in Algiers, and the government called bidders to submit offers for the FEED study of a refinery in Tiaret.
Tunisia and Morocco’s, economies are mainly based on agriculture and tourism, due to the lack of adequate hydrocarbon reserves. However, unrest in these two countries may affect the operations of the gas pipelines which link Algeria to Europe.
Arabianoilandgas.com reported in February that Tunisia may consider an augmentation of fees paid for the passage of the pipeline through its territory.
Morocco said in 2008 that it preferred to get part of the gas in exchange for allowing for the passage of the pipeline instead of receiving money. Morocco has experienced a rise in domestic consumption along with soaring energy prices in the recent years.
Though instability in the North Africa could be devastating on the general business climate in the short term, an opportunity presents itself. If vital lessons are learnt from these protests, long term prospects remain attractive.
Protests breakout
17th Dec: Mohamed Bouazizi set himself on fire in Tunisia, This act became the catalyst for the 2010–2011 Tunisian revolution, which led to the collapse of Ben Ali regime just one month later.
11th Jan: Protest in Algeria as a result of increased sugar and cooking oil prices by almost 100%. The authorities react quickly and decrease prices.
25th Jan: Protest in Egypt starts in Tahrir Square led after 17 days the President Hosni Mubarak to step down on February 11th.
16th Feb: Protests start in Libya, and police kill more than 200 in Benghazi. Libya teeters on brink of civil war.
