70% of Algeria’s investment program over the next three years targeted at upstream activities
Algeria’s national oil and gas company, Sonatrach, plans to spend $64 billion, or 70% of its total investment program from 2015 to 2018, in upstream activities to reverse the decline in crude oil and natural gas production in Algeria, according to a release from the Energy Information Administration (EIA). Sonatrach set a goal to increase gross hydrocarbon output from 1,429 MMBOE in 2014 to 1,649 MMBOE by 2019.
Algeria is the third-largest oil producer in Africa, after Nigeria and Angola, and the largest natural gas producer in Africa. However, production of both crude oil and natural gas has both been declining over the past decade. Algeria has large proved crude oil and natural gas reserves and is connected to world markets through natural gas pipelines. Algeria also has a large shipping fleet that sends LNG from several liquefaction plants to customers in Europe and elsewhere.
Proved crude oil reserves totaled 12.2 billion barrels in 2014, with an additional 9.8 billion barrels of undiscovered oil and natural gas liquids resources estimated by the U.S. Geological Survey (USGS), and nearly 6 billion barrels of technically recoverable shale oil resources. Proved natural gas reserves totaled 159 Tcf in 2014, with an additional 49 Tcf of undiscovered natural gas resources estimated by USGS and more than 700 Tcf of technically recoverable shale gas.
In an attempt to reverse its declining production, the Algerian government amended its law regarding foreign investment in hydrocarbons in order to attract more investment. In 2014, Sonatrach offered 33 blocks located in four sedimentary basins with high shale gas and oil potential. The auction resulted in contracts with international majors like Repsol (ticker: REP) and Shell (ticker: RDSA). By law, Sonatrach takes a mandatory majority share (at least 51%) of any resulting projects.
During the past three years, Sonatrach intensified its exploration activities by drilling 275 oil and natural gas wells and by seismically mapping large areas of the country, with an estimated investment of $30 billion. Sonatrach’s first two vertical shale exploratory wells drilled in 2012 confirmed the potential for shale gas.
Although the government seeks to reduce the country’s dependence on oil and natural gas revenue, it has also made repeated calls for more investment in the sector. However, civil unrest and some opposition to the commercialization of shale resources may present obstacles to attracting foreign investment. Security also remains a serious concern, with attacks on natural gas processing plants in 2013 in Illizi Province, near Algeria’s eastern border with Libya.