Hydrocarbons

The energy sector is the backbone of Algeria’s economy, accounting for roughly 60 percent of budget revenues, 30 percent of GDP, and over 95 percent of export earnings. With reserves of 16 billion cubic meters of oil equivalent discovered in 1948, Algeria is the third largest oil-producing country in Africa and twelfth in the world. Only 25 percent of initial proven oil reserves of approximately 10 billion barrels of liquid hydrocarbons are considered recoverable with available processes. Half of these recoverable crude oil reserves have already been pumped and current estimates of probable remaining reserves stand at more than 400 MCM. The Energy Information Administration reported that as of 2005 Algeria had 160 trillion cubic feet (Tcf) of proven natural gas reserves, eighth largest in the world.

Algeria is a major exporter of oil and gas. It is the world’s 14th largest oil exporter and it supplies some 20 percent of Europe’s natural gas. Oil production reached 1.9 million barrels/day in 2004 (about 2.5 percent of world production) and marketed gas production stood at 225 MCM/day (about 3 percent of world production).

The hydrocarbons sector has been open to foreign participation for almost 20 years. In 2004, foreign partners accounted for slightly less than half of Algeria’s crude oil output, 14 percent for gas. However, foreign investors are required to work in partnership with the state-owned hydrocarbon company Sonatrach. The complex contractual arrangements imposed by law increasingly have hampered financing of Algeria’s investment needs in the upstream hydrocarbon sector, estimated at $70 billion for the period 2005–2015. In March 2005 Parliament adopted a new law, which promotes a more liberal operating environment by more liberal, operating environment, including:

 Simplifing the contractual framework for upstream activities (exploration, production) and introduces free entry for foreign operators in transportation and downstream activities;
 Replacing the existing production-sharing regime with a system of taxes and royalties;
 establishing investors’ rights and obligations, including Sonatrach; and
 creating a regulatory agency to tender upstream contracts, set baseline gas prices, and collect royalties and taxes; and another to issue permits for downstream activities.

This law should lead to more investment upstream, through foreign investment and by freeing Sonatrach from the obligation of owning and operating all oil and gas infrastructure, financing new pipelines, and fulfilling non-commercial roles such as regulation, tendering, and taxes and royalty management.

An ambitious development policy in the field of hydrocarbons has contributed to the creation of a solid economic base and major petrochemical, chemical and plastic industries. The national company SONATRACH maintains its monopoly on hydrocarbons but has the possibility of entering into joint venture contracts for upstream and downstream activities. Investment in the sector is growing.

Two gas pipelines connect the Sahara to Europe. The first Trans Tunisian Pipeline Company (TTPC) pipeline crosses the Mediterranean from Algeria to Sicily through Tunisia and the second goes through Morocco to Spain. Sonatrach’s network covers some 13,000 km, involving 14 oil pipelines and 11 gas pipelines. Transport capacity for Sonatrach’s pipeline network in North Africa is about 101.32 billion m3 of gas, 12.52 million tons of LPG and 79.44 million tons of oil (crude oil and condensate).

In 2005, the Italian oil company ENI and Sonatrach have reached the agreement for the expansion of the Trans Tunisian Pipeline Company. The agreement sets the increase up to 3.2 billion cubic metres of annual transport capacity starting from 2008 and up to further 3.3 annual billion cubic metres starting from 2012. The investment for the expansion of the TTPC pipeline amounts to 330 million euro and will be entirely financed by ENI.

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