Algeria has struggled to keep up with its manifold challenges throughout this year – still trying to clear the rubble of the Bouteflika regime, it continuously needs to placate an ever-demanding populace while COVID-19 is draining the country’s budget,and as OPEC+ oil production cuts brought total output levels to multi-year lows.
Yet difficult periods might also serve as stepping-stones for future success and Algeria’s current difficulties might finally mobilize its political elites to embrace much-needed change. Algeria holds this year’s rotating presidency at OPEC as well as that of the Gas Exporting Countries’ Forum meaning its new narrative will be heard and assessed thoroughly, so should its reformist drive survive the frenzy of 2020-2021, it can lay the foundations of the North African nation’s oil renaissance.
The main tenet of Algeria’s post-Bouteflika energy policy lies in the necessity to revisit its legislative base. This being said it might come as a bit of surprise that one of the key challenges the new Algerian government had to overcome was in forcing the hydrocarbon law through the government. Even though the new hydrocarbon bill was approved by the Ministers’ Council in October 2019, it took Algerian authorities almost a year to actually publish the law. Based on Energy Minister Abdelmadjid Attar’s utterances late August, the 43 implementing rules that make up the new law were broken up into 3 batches and will be published by the general government secretariat in September, October and November/December. Attar himself was nominated for the position in June and has made the finalization of the hydrocarbon bill one of his main policy objectives.
At the time of the Hydrocarbon bill’s adoption, Algiers was rather wary of the populace reacting angrily to the liberalization, albeit very prudent, of the oil industry. The overall timing seems to be much better nowadays, as Algeria’s President Abdelmadjid Tebboune fixing the date on another of the government’s main agenda points, if not the most important one – holding a referendum on a new constitution. The referendum will be held November 01 and at first glimpse bears no direct relation to the sphere of hydrocarbons – the draft Constitution is intended to delineate the legislative branch from the executive so that the latter cannot force its way back again onto the former. For oil and gas, the adoption of the Constitution would be beneficial as it would boost the internal stature of the politically moderate reformist powers that currently wield the most control over Algeria.
The reformist movement has already articulated its view on required long-term directions in Algerian upstream. First of all, it emphasizes the necessity to have the new hydrocarbon law enacted as soon as possible to act straightaway upon the investors’ interest. Second, both the national oil company Sonatrach and its current/future partners should focus on increasing the oil recovery factor in Algerian assets. Third, encourage the participation of external consultants in assessing Algeria’s untapped potential so as to free up Sonatrach from this task. Fourth, have Sonatrach concentrate on the petrochemical sector so that Algeria can garner even more value from every barrel it produces. Last but not least, renewables should supplant Algeria’s hydrocarbons wherever possible, be it at the fields’ themselves or in feeding the Algerian grid with green electricity.
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Obviously enough, there is a clearly palpable reason why such proactive measures are needed now. Exports are down, moreover, as with other African oil-producing nations, drilling in Algeria has taken quite a hit from the ramifications of the COVID-19 pandemic. Usually Algeria would have 90-110 exploratory drilling wells drilled every year, most of them (some 85-90%) spudded by the national oil company. This year, however, the aggregate annual tally of exploratory wells will barely surpass 50 on the back of sizeable CAPEX cuts in the upstream sector. Development drilling is also bound to suffer, despite the positive momentum it had prior to the corona virus – 185 development wells were spudded in 2019, some 30 of them in cooperation with international majors.
IMF assesses Algeria’s breakeven crude price at 157.2 USD per barrel, therefore it should not surprise anyone that Algeria remains a staunch believer in joint OPEC+ action to push up prices again. Under the deal, Algeria capped its May-July production at 816kbpd, moving on to 864kbpd in the August-December 2020 timeframe. The double whammy of OPEC+ and the slashing of capital and operational expenses in the upstream sector has also entailed an array of immediate consequences, most notably decreasing crude exports. Crude exports oscillated in the June-August 2020 period between 0.25-0.3mbpd, beating multi-year highs, effectively halving from the average level of the past year (0.55mpbd, see Graph 1).
Graph 1. Algerian Crude Exports in 2017-2020 and Major Export Outlets (million barrels per day).
Source: Thomson Reuters.
Yet future constraints and potential bottlenecks extend beyond the realm of oil – just last month the Algerian Energy Ministry has sounded the tocsin on the nation’s future gas exports, namely that against the background of ever-increasing domestic demand Algeria’s current level of exports (stood at 41 BCm in 2019, including both LNG and piped gas) are plainly untenable. The inevitable decline is a long time in the making, what is new, however, is that exports might drop to 25-30 BCm per year by 2025 already, i.e. 5 years earlier than initially expected. This put Algeria’s gas industry under substantial stress given that almost every single long-term commitment Sonatrach has vis-à-vis its Italian and Spanish buyers was recently prolonged, at the same time the oft-flaunted Algerian shale gale is still yet to start up.
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By Viktor Katona for Oilprice.com
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