Despite the roiling of the region in 2011, North Africa’s gas industry in particular shows promise. Meanwhile, the industry can only watch and wait as the Libyan conflict continues.
Abdelaziz Bouteflika has been cowed into repealing Algeria’s long-standing emergency laws. Hosni Mubarak has been deposed and is facing prosecution.
Ben Ali, glamour puss wife and gold bullion in tow, has fled Tunisia in disgrace. Civil war continues in Libya, with Muammar Gaddafi losing the country he treated as his personal property to rebel fighters town by town.
It’s something of an understatement to say that a lot has changed since Oil & Gas Middle East’s 2010 survey of upstream activity in North Africa.
Each oil and gas producing North African country has experienced a different version of Arab Spring, presenting unique challenges to the companies operating in the region. North Africa produces 4.9% of the world’s oil and gas, the bulk of which comes from Algeria and Libya.
Algeria
Bouteflika, president since 1999, appears to have pacified the population by lifting the country’s 19-year-old state of emergency and putting the country’s huge foreign exchange reserves to work. The county has accumulated savings in it’s the oil stabilization fund (FRR) estimated at around $150 billion in 2010.
In March Bouteflika announced $156 billion in spending on new infrastructure projects between now and 2014, plus $130 billion on projects already under way, according to the Economist.
In September 2010 the government began to impose technology transfer requirements on foreign investors, with a focus on oil & gas sectors. Similar requirements are slated to become more common and more demanding. There are concerns that the government’s policy of capturing knowledge and ownership stakes from foreign investors will intensify in a bid to create jobs.
The Algerian economy grew by 3.3% in 2010 and is forecast to grow by 3.6% in 2011, according to MEED. The hydrocarbons sector is the backbone of the economy, accounting for roughly 60% of budget revenues, nearly 30% of GDP, and over 97% of export earnings.
At 1.8 million barrels per day (bpd), Algeria is the third-largest oil producer in Africa, behind Nigeria and Angola. The country has proven reserves of 12.2 billion barrels of oil, 0.9% of the world’s total.
State-backed hydrocarbons firm Sonatrach was rocked by a consultancy and security contracts corruption scandal in 2010. The firm has since bounced back, and in June settled long-running dispute with Spanish utility firm Gas Natural for $1.9 billion. Investors remain somewhat wary, but oil & gas contractors have seen some stellar awards.
Youcef Yousfi, Algeria’s Energy Minister, wants to increase Algeria’s gas reserves in the next three years.
The flagship EPC contract in the country last year was awarded to Petrofac. The London-based giant is to develop the Garet el Befinat, Hassi Moumeme, In Salah and Gour Mahmoud gas fields in the south of the country under a $1.2 billion lump sum turnkey EPC deal.
The In Salah plant will includes a new central gathering and production facility and 300km pipeline to the existing Krechba export facility. When competed the two train facility is slated to produce 16.8 million cubic metres of gas per day.
Sonatrach and Eni are to develop unconventional gas supplies, including shale gas, under a long-term contract disclosed in May.
Egypt
In Egypt, food subsidies, rocketing prices and collapsing growth have combined into a deadly cocktail that promises to give the new government a stinging headache as the celebrations following Mubaraks departure subside.
Future governments – whether democratic, Islamist, secular or military – may look to reverse progress in economic liberalisation and competitive taxation in a bid to promote fiscal stability.
Oil and gas accounts for approximately 12% of Egypt’s GDP, with gas making up the majority as oilfields pass peak production. Crude oil production has generally been in decline for the last decade with 2010 production down 0.6% on 2009.
Oil is found primarily in the Gulf of Suez and in the Western Desert. While Egypt exports oil and oil products – petroleum and related products (including bunker and aviation sales) amounted to approximately $11.4 billion in fiscal year 2008-2009 – the country is a net oil importer, with its production of 736,000 bpd outweighed by consumption of 757 bpd.
The country is a vital conduit between the huge oilfields in the Persian Gulf and markets in Europe, via the Suez Canal and SUMED pipeline. Despite concerns there has been little disturbance at the channel.
To compensate for dwindling oil revenue, the Mubarak government encouraged exploration and production of natural gas, a policy a new government is likely to continue in a bid for fiscal stability. Proven reserves stood at 2.2 tcm in 2010, against reserves of 1.4 tcm in 2000. Gas production has nearly tripled from 21 billion cubic meters (bcm) in 2000 to 61.3 bcm in 2010.
Many exploration and production companies fled Egypt after political unrest broke out, though there are exceptions. Dana Gas – whose CEO, Ahmed Al Arbeed, was interviewed in last month’s issue – continued exploration and production activity right through the crisis.
This yielded a discovery in the Abu El Naga-2 field in West El Manzala which on test yields 14.1 million cubic feet of natural gas per day.
Arbeed says sticking it out through the unrest has led to strengthened relations with local stakeholders, including key Ministries. Egypt is Dana Gas’s primary focus, with the company producing 250 million of cubic per day of gas, a figure Arbeed hopes to increase to 400 million. “We are very optimistic that Egypt seems to be coming out of its period of unrest now,” he says. The firm is also targeting Algeria.
Libya
The outbreak of civil war has seen Libya’s oil production tumble from 1.7 million bpd in 2010 to around 160,000 bpd and falling, according to Platts’ May 2011 survey.
Libya’s state-owned National Oil Company has been hit by international sanctions preventing the export of crude. Most oil fields were abandoned by international oil companies as soon as fighting broke out anyway, and they are unlikely to return to production until the war ends and security is assured.
In early April the rebels exported a single 1 million barrel shipment of sweet crude to Qatar, in exchange for cash and banking facilities. Rebel exports have halted since troops loyal to Gaddafi attacked oilfields. Nouri Burruien, head of the ersatz rebel National Oil Company, says it will take around a year for pre-crisis levels of production to resume.
Oil will be of significant importance to whatever new government (or governments) emerges from the conflict: before the outbreak of war the country’s oil resources account for approximately 95% of export earnings, 75% of government receipts, and 25% of GDP, and Libya sits on oil reserves of 46.4 billion barrels, 3.4% of the world’s total.
