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Algeria pushes $80 billion energy drive

Dec. 14, 2012 at 2:03 PM   |   Comments

ALGIERS, Algeria, Dec. 14 (UPI) -- Algeria's state energy company Sonatrach is pushing an $80 billion, five-year investment program to expand its oil and natural gas industry and is offering an incentives package to woo foreign companies to develop its shale energy resources.

The recently announced ambitious spending program is almost 20 percent more than the $68.2 billion plan unveiled in May after the long-ruling National Liberation Front scored major gains in national elections for an expanded Parliament.

The North African state's last three auctions for oil and gas exploration licenses were lackluster affairs that attracted few foreign investors, largely because of a sluggish bureaucracy, tough investment laws and, more recently, political turmoil across the Arab world.

This means that there have been few new projects coming on stream to maintain production levels, let alone boost them.

"In a country where projects delivery is notoriously slow, it is unlikely that the spending targets will be realized in full," the Middle East Economic Digest reported last week.

"But they are a statement of the government's intent to overhaul a sector that in recent years has fallen far behind its potential."

"It's a headline figure," Algeria specialist Hakim Darbouche of Britain's Oxford Institute of Energy Studies told MEED.

"The question is always whether they will achieve their targets within the timeframe they say, because of the issue of bureaucratic slowness."

Energy accounts for 97 percent of Algeria's export earnings. The country has an output of around 1.2 million barrels of oil per day, making it the fourth largest producer in Africa after Nigeria, Angola and Libya.

It has oil reserves of 12.2 billion barrels, the third largest in Africa, and natural gas reserves of 159 trillion cubic feet, the second largest on the continent.

But it's relatively unexplored, so the prospect of boosting reserves is high, providing that Sonatrach secures the foreign investment to conduct large-scale exploration.

To do that will mean relaxing the hydrocarbon law that's among the harshest in the region. The government's expected to approve a new hydrocarbons law soon to provide new incentives for international investors.

Algeria, a hawkish member of the Organization of Petroleum Exporting Countries, is a major supplier of natural gas to Europe. But the country imports large volumes of refined products -- around 1.3 million tonnes in 2011 -- because of a shortage of refining capacity.

Some $14 billion of the funds allocated for the investment program will be spent on five new refineries. Four existing refineries are being upgraded.

This will help boost electricity generation, a major problem in Algeria as it is in most Middle Eastern states where burgeoning populations and growing industrialization have outstripped demand.

In August, Algeria's government unveiled plans to invest $25 billion to boost the power sector with gas-fueled plants increasing capacity by some 12,000 megawatts.

The country's been hit by a wave of blackouts since July that has stirred widespread dissatisfaction in a state where unemployment is already high. This has led to several confrontations between protesters and police.

Algeria has largely avoided the excesses of the so-called Arab Spring in which three longtime North African dictators -- Zine el-Abidine Ben Ali of Tunisia, Hosni Mubarak of Egypt and Moammar Gadhafi of Libya -- were toppled between January and August 2011 in an explosion of revolutionary fervor that has still not dissipated.

Algerian President Abdelaziz Bouteflika and Algeria's powerful generals know this only too well.

The government has defused public anger by doling out hefty subsidies and aid packages but it's been hampered by the lack of development.

It needs to secure considerable economic development quickly if it wants to head off a serious confrontation with the population of 36 million.

Algeria's energy industry is the way to go. But political feuding is a problem.

Sonatrach has been a battlefield over the last 2-3 years in a power struggle between Algeria's powerful intelligence service and Bouteflika, with key figures linked to the president pushed out and new managers installed.

This has impeded Sonatrach's programs and the new plans appear to be an effort to expand production levels over the next few years, with shale oil development becoming a prominent feature.

But, observed MEED, "it's unlikely that Algeria is likely to shed its reputation for the slow delivery of projects anytime soon."

© 2012 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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