Sonatrach Steps Up Investment, Despite Lower Energy Prices
According to a March 17, 2009, article in the Financial Times, Sonatrach has increased its investment program by 41 per cent in anticipation of higher oil and gas prices. The report states that the company has increased its five-year plan from an investment of $45billion to $63.5 billion (2009-2013). The national oil company intends to increase its exports of natural gas to 100 billion cubic meters (3.5 TCF) by 2015, up 60% from current levels.
New Skikda LNG Train Delayed to 2013
March 3, 2009: Bloomberg reported that the new LNG train being built by KBR at Skikda will not be completed until 2013. In an interview, Oil Minister Chakib Khelil said that the plant is about 20% complete and procurement of 70% of materials has been carried out. Sonatrach is independently financing the plant’s construction.
Increasing Hydrocarbon Discoveries in Algeria
Algerian oil and gas discoveries are increasing in 2008, as 16 discoveries have been made year-to-date. 9 of the discoveries were made by Sonatrach, and 7 were by foreign companies working in concert with Sonatrach. StatoilHydro has been in on 2 of the gas discoveries. Other foreign E&P corporations operating in Algeria include Medex, BP, BG, and CNPC.
Algeria Toughens Stance towards European Gas Buyers, Investors
Algeria tossed Spanish-based Repsol YPF and Gas Natural out on their ears Sept. 4 when Sonatrach rescinded a natural gas contract with the firms. Both sides are accusing the other of wrongdoing.
Repsol and Gas Natural have said they will take the issue to international arbitration to seek damages. Likewise, Sonatrach is accusing the two Spanish firms of causing “massive delays and cost overruns."
In a statement, Sonatrach said, "The current dispute is a dispute among joint venture partners and results from a major industrial fiasco.”
This move is one in a long list to toughen terms for gas exports to Europe. Algeria and Spain, in particular, have been at odds over gas marketing, field development, export policies and alliances. As Spain has toughened terms for Algerian gas, the Algerian government has strengthened ties with Russia, Iran, Venezuela and other major exporters that have proposed to coalesce into a cartel.
On Aug. 28, Gazprom announced that it will open offices in Algeria. Earlier the two nations began commercial airline service between Moscow and Algiers. Combined the two countries provide more than 36% of Europe’s gas supply.
Algeria’s Khelil Still Committed to 85 BCM Exports by 2010
Despite exporting 5% less natural gas in 2006 than in 2005 – 61.6 billion cubic meters (bcm) vs. 64.7 bcm – Chakeb Khelil, the Algerian Energy and Mines Minister, said July 25 that Algeria is on track to reach its export goal of 85 bcm by 2010. Such a target will require growth of 8% per year from 2006 levels. BP reports that in 2006 Algerian exports via pipeline and LNG had slipped about 6% and 4% respectively from 2005.
But, Khelil believes two major new pipelines to Southern Europe will be opened and one expanded in the next three years. An additional 5.5 bcm will be exported annually beginning in 2008 along the Trans Mediterranean expansion through Tunisia to Italy, he told El Moudjahid. Medgaz will be completed in 2009 with 8.0 bcm and the Galsi line will be online in 2010 with another 8.0 bcm.
Medgaz Making Progress
Khelil further reported in early August that a breakthrough has been made with Spanish officials for the construction of the Medgaz line from Algeria to Spain. The project had lost momentum when BP and Total decided to sell their stakes and Endesa and Gas Natural entered merger discussions. Gas Natural was acquired by Eon and now Gas Natural is reported to be open to the MedGaz development again.
Algeria Has High Hopes for Europe
Algerian officials would like for Sonatrach to have the right to market Algerian gas direct to European customers in return for agreeing to forego destination clauses. EU laws currently prohibit Sonatrach from marketing gas within Europe. On July 11, Algerian officials agreed to scrap their destination clauses from all gas contracts between EU companies and Sonatrach. The restrictions prevented the original buyer from reselling gas outside a designated area, usually national boundaries.
Algeria also wants to export more gas through Spain at a higher price. The two countries have been locked in a dispute for two years over prices and supplies. A Spanish body has told Sonatrach to limit annual gas supplies to Spain to 1.0 bcmy instead of 3.0 bcmy that Algeria wants to sell, according to the Middle East Times.
That was after Algeria, which exports about $9 billion worth of natural gas to Spain each year, announced that it wanted to increase prices by 20%. Maintaining the current price level is leading to losses of about $300 million per year, according to Algerian officials. Negotiations have been handed over to international arbitrators.
As a peace offering, Algeria is awarding major concessions to European firms. Total, for example, has signed $4 billion contract to build a petrochemical complex in Arzew, near Oran, Algeria, in partnership with Sonatrach. The project includes the construction of a 1.4-million-metric-tons-per-year ethane cracker and three product lines.
On July 31, Sonatrach also awarded Technip a contract for the front-end engineering and design (FEED) of an ethane extraction plant in Arzew. The FEED covers two units to extract ethane from LNG produced by Trains GL1Z and GL2Z.
Gas Natural is expected to make a decision on the proposed Gassi Touil LNG export plant by the end of October.
Strengthening Ties to Other Gas Exporters
Meanwhile, Algerian officials continue to alarm EU officials by strengthening ties to other key European gas suppliers, such as Russia and Iran. On July 18, Russian and Algerian officials agreed to open direct flights between Moscow and Algiers.
On August 16, Iranian President Mahmoud Ahmadinejad arrived in Algeria to discuss natural gas cooperation. Iranian ambassador to Algiers Hussein Abdi Abyanah told Algerian newspapers that the two countries’ investment capacities are enormous.
“Algerian engineers are working in the Iranian hydrocarbon sector. Sonatrach can develop projects in Iran. Iranian companies can do the same in Algeria," he said.
Asenior Iranian oil official in June said that Sonatrach is interested in developing part of Iran's South Pars gas field. An air agreement to allow direct flights between Algiers and Tehran is anticipated.
Algerian Domestic Market Grows
With record heat in late July, Algeria set new records for gas-fired electricity consumption. Sonalgaz generated 5,809 megawatts on July 24. The rate exceeded the previous record set in 2006, due to rising air-conditioning load.
