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Economics & Development | Global Arab Network
Sonatrach: Algeria legislating for unconventional deposits
Global Arab Network - - Amina Murtada
Wednesday, 10 October 2012 11:23
Although Algeria has struggled to attract significant interest in recent bidding rounds, the potential for new shale deposits will increase the country’s already considerable allure, especially if proposed revisions to the hydrocarbons law are passed, Global Arab Network reports according to OBG.

Officials from Algeria’s state-owned energy company, Société Nationale pour la Recherche, la Production, le Transport, la Transformation, et la Commercialisation des Hydrocarbures (Sonatrach) estimate that shale gas reserves could be as high as 2trn cu metres based on tests conducted on 180,000 sq km in three provinces, while the US Energy Information Agency puts the country’s conventional natural gas reserves at 4.5trn cu metres.

Keen to tap the potential of its gas reserves while also addressing the challenge of dwindling investment growth in the sector, Algeria’s government laid out its proposals in January to amend the 2005 National Hydrocarbons Code, which restricts foreign investment in energy exploration and extraction projects.

The proposed amendment, which is one of eight major legislative packages set to be reviewed this autumn, is currently before Algeria’s newly re-elected parliament.

Details of the proposed revisions to the code have yet to be made public. However, government representatives and officials from Sonatrach have indicated that the new framework will provide incentives for exploration of non-conventional resources that go beyond those offered for conventional oil and gas.

The CEO of Sonatrach, Abdelhamid Zerguine, has confirmed that the proposals include tax breaks and a greater share of cost and risk to be assumed by the oil operator. Under the current code, Sonatrach shares none of the risk in conventional resource exploration projects. The revised code is also expected to set out new opportunities for foreign oil companies capable of contributing the required expertise and technology, together with a clear definition of shale resources and a framework for investors who make shale discoveries while seeking conventional resources.

If shale gas reserves prove to be as high as initial estimates, they would significantly increase Algeria’s resource outlook and help the country address the problem of declining output in its maturing oil and gas fields.

Foreign investment in new exploration projects has slowed in recent years following an amendment to Algeria’s Hydrocarbons Code introduced in 2006 which stipulated that Sonatrach must hold a majority stake in all exploration and extraction joint ventures.

The restrictive investment climate was widely thought to be behind a fall in interest from foreign companies in the last three tender rounds. While four new blocks were awarded in 2008, the number dropped to three in 2009 and fell to just two in 2010.

With shale gas exploitation both costly and technology-intensive, the state has recognised that the participation of foreign companies is critical if Algeria is to develop the technology needed to grow the industry and cultivate a capable workforce. The government will now be hoping that its decision to revise the Hydrocarbons Code once again will galvanise new investment and exploration as it looks to secure adequate output in the medium term.

Several countries, including the US, the UK, China, Ukraine and Poland, are turning to shale gas exploration as technological advances make such resources more profitable. The extraction of shale gas requires the injection of water, sand and chemicals into sedimentary rock at high pressure in a process known as hydraulic fracturing, or “fracking”.

Despite the complicated nature of the operations, non-conventional resources have considerable potential for Algeria, given sustained high global gas prices and promising estimated reserve levels.

Exploratory drilling for shale gas has already begun in Algeria with some positive results, raising hopes of further discoveries. Irish oil and gas firm Petroceltic International (PCI) successfully employed hydraulic fracturing on its Ain Tsila field in south-eastern Algeria in 2011. The operation boosted flow rates at its AT-7 well to 4.9m standard cu ft per day (mmscf/d) and more than doubled the pre-fracture flow rate at the AT-8 well from 15.4 mmscf/d to 38.6 mmscf/d.

In 2011, Sonatrach signed international agreements with Canada’s Talisman Energy and Italy’s Eni to explore its non-conventional resources. Based on prior assessments, Eni confirmed the potential for shale gas reserves in Algeria, saying the partnership would assess the technical and commercial feasibility of their development. Sonatrach also announced in July that after entering into discussions with Royal Dutch Shell and ExxonMobil, it expected to ink partnership agreements with both companies for shale gas exploration by the end of the year.

While the development of shale gas resources in Algeria will require considerable investment and additional technological capacity, it will also create plenty of opportunities for foreign oil companies to engage in joint ventures if the volume of reserves proves to match Sonatrach’s initial estimates. The government’s move to amend its legislation is a sign that it plans to make the most of new opportunities in non-conventional resources as it seeks out ways of driving the hydrocarbons industry in the medium term. (OBG)

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