The Prime Minister in a statement on October 1st, 2017 to the National Assembly has indicated that going for Shale Oil and Gas in Algeria is an option for the immediate future.
Opportunities and Risks of fracking
I remember that under my supervision, a study to which participated international experts with decades of experience in the field of energy, resulted in a report of 620 pages entitled “Oil and Shale Gas: Opportunities and Risks”. It has been handed over to the Prime Minister of the time on February 25, 2015. It is a report meant to be as objective as practicable, measured with analyses and proposals of all the then on-going trends. In the opinion of most of the involved experts, energy being at the heart of national security, it is an opportunity for Algeria, which must first assess its potential, and analyze all risks and profitability at term; the strategic objective would be to move towards a well-balanced energy Mix. These experts, noting that this sensitive issue requires specialized knowledge and in any case poses a social problem that would require good communication with the whole society. To avoid disturbing the management of SONATRACH, the state oil company as a strategic commercial company, the experts wanted that its leaders avoid exposing themselves to debates, and leave it to the Department of Energy that is politically empowered to present its arguments. As such, the experts have called for a new independent institution, not from a Ministerial Department but rather to be under either the President of the Republic or the Prime Minister and to involve civil societies of all each region, independent experts and representatives of the Department of Energy and other government departments, working closely with the institutions. Dialogue with the affected populations is vital.
Nature of Shale Gas
Unconventional Oil and Gas is contained in very compact and very waterproof, clayey sedimentary underground rocks containing at least 5 to 10% of organic matter.
Why the move towards Shale Gas?
Oil and Gas are the backbone of the Algerian economy. They have allowed the State to build foreign exchange reserves although down from $194 billion, to less than $97 billion at the end of 2017, allowed a revenue to SONATRACH of $28 billion in 2016 for an outflow of $60 billion and between $55 / 60 billion by end of 2017. According to SONATRACH’s CEO by end of 2017 it could be $31 billion. This has allowed over the years 2000 through 2016, an unprecedented public spending estimated between $950 / 1000 billion for an average growth rate not exceeding 3%.
Our widely media published calculations as of Customs statistics therefore official, of a year-on-year basis, show that between 2000 and 2016 currencies outflows for goods imports have been about $520 billion ($560 billion to July 2017 according to some sources), and $120 to 140 for services often forgotten in official statements (10/11 billion Dollars a year between 2010 and 2016) to which legal capital transfer of more than $730 billion have to be added, for an inflow of foreign exchange of about $850 billion, the difference being the currency reserves that stood on December 12, 2016 at $114 billion. The Algerian economy being a rentier economy largely based on crude oil export and a diversified industry that is embryonic with 70 to 75% of all household and public and private companies (with an integration rate not exceeding 15%) needs are sourced from overseas.
All these statistics could, however, hide the reality on the ground. That of apparently controlled unemployment (10%), of the predominating unproductive administrative jobs in the real sphere and more than 50% of the active population in the informal sphere according to the Government report of the National Statistic Office (2012).
Also, the Government has recently ruled that Algeria would be a net importer of oil in less than 10 years and in 20 years for conventional gas with domestic consumption tripling by 2030 and quadrupling by 2040, according to the Energy Minister. In case of undiscovered substantial and above all profitable according to the international price vector, Algeria could start importing oil from 2025 and gas from 2030 to only meet local demand.
Could the solution therefore be in Shale Gas?
And, considering both exports and a strong domestic consumption due to the low price, as per the on-going policy of fuels and energy subsidies and with the gas for instance sold to SONELGAZ, a state power utility provider between the sixth and the tenth of the international price; this rate varying according to the fluctuations in international prices, largely influenced by the US Shale Gas, at currently between three and four Dollar a MBTU. Financing needs of SONELGAZ according to the CEO statements would by end of September 2017 be $30 billion per year or $150 billion for the next five years not counting the financing needs of SONATRACH itself as per the drop from $100 billion to $70 billion for the same period.
Where then to find this capital money of about $45 billion per year with 70% in hard currency, the Dinar part contributing just under 30%, and the share of payroll in Dinar in value added is relatively low, for these two companies and all their subcontractors are dependent of imports paid in large part in hard currency and revenues between 2017-2020 may not exceed $35 billion if the price of a barrel of oil is around $55. For SONELGAZ, this amount takes into account the newly decided upon additional capacity of electricity plants. Indeed, following the increasingly recurring power cuts, it was decided to plan to produce additional MW of electricity by 2017.
With this increase in domestic consumption, the fact of the decision would not change domestic prices and there is a risk to go to more than 70/75 billion cubic meters of gas by 2030 for domestic consumption. Indeed, if one extrapolates for exports to be 85 billion cubic meters (m³) of gas and 70 billion cubic m³ of gas of for domestic consumption, there should be more than 155 to 160 billion m³ gas assuming significant investments in this area of business. Here costs must seriously be taken into account; market competition, substitutable energy and major global energy mutations are and will be there.
The interest of the Algerian authorities for non-conventional hydrocarbons would be to foresee the need to ensure the transition energy of the country but to also be guided always by increasing revenue so as to avoid any social turmoil. But is it not the focus for Algeria to go towards an energy Mix combining the traditional gas/oil, Shale oil/gas and renewable energy in which Algeria has significant potential.
What profitability for Algeria?
The Algerian group SONATRACH had already drilled its first Shale Gas wells in the basin of Ahnet, located south of In Salah, which was to be followed by others. To develop these reserves, it (SONATRACH) should form partnerships with international groups including Shell, Exxon Mobil, Total, Talisman, INIE etc. According to recent field exploration and studies undertaken by this group during the second quarter of 2012 in an area of 180,000 km², it was reported that a potential of Shale Gas exceeding 19,800 billion m³ with a recovery rate of 25% is there.
But did Algeria establish a reliable geological map confirming these findings?
As for conventional gas, thousands of deposits but not profitable financially can also be exploited. Economic and hence profitability calculation of the reserves, is function of the growth of the world economy and its model of consumption, domestic consumption, the costs of extraction and transport, competitors and substitutable energy.
According to recent estimates by the International Energy Agency (IEA), a new assessment holds that technically extractable gas reserves in the world would be up by 40% and would bring them to 640,000 billion m³, which is more triple of the world reserves of conventional gas of today.
Since the revolution of unconventional gas that will make of the USA the world’s largest exporter before Russia by 2020 knowing that Russia holds a third of the world’s reserves of conventional gas (more than 33%), and is the main competitor of SONATRACH despite the recent freezing of South Stream supplying 30% to the European market.
Other competitors like Iran (15 / 20% of the world reserves) potential competitor since the lifting of the embargo, and Qatar (10 / 15%), besides China which holds first global gas reserves of Shale, that combined with its investments in renewable energy will make it a global leader. Mozambique that could become the second or third holder of gas reserves, the discovery of more than 20,000 billion cubic m³ in Eastern Mediterranean and the return of Iraq and Libya’s production, the competition is likely to be even tougher for Algeria. As this market is segmented like conventional gas where the pipes represent about 70% of the global gas marketing, competition in Asia of Russian and Qatari plans, arise the whole profitability of the Algerian LNG with its weak capacities in addition to the significant investments that are required in transportation. As it will need to amortize the Transmed, Medgaz, project Galsi via Sardinia and the Nigal (Nigeria – Europe via Algeria) including increasing costs of the delays by more than 50% compared to the initial cost, that are still in gestation.
What is in it for Algeria, knowing that gas accounts for about a third of the revenue of SONATRACH?
However, between 2017-2020-2025, beside the USA exporting to Europe, many contracts in the medium term would have expired and according to credible reports, the European partners will be requiring a revision to the price of conventional gas. This can influence the price of assignment of the unconventional gas.
One must also take account of the dispersion of the deposits whose life unlike conventional gas is limited, according to the intensity of extraction that rarely go beyond 5 years of fracking. The United States bore approximately 2000 wells a year in a relatively same geological area and 500 to 600 wells can give 28 billion m³ of gas. However, in Algeria, even in the traditional gas/oil extraction, it never went more than 200 wells. According to the head of Department of analysis of the basins of SONATRACH, during an international workshop on Shale Gas in 2014, the production costs of a drill in Algeria varied between $10 and 15 million, whereas in the USA the average cost it was between $5 million to 7 million. Also marketing for Algeria could only be undertaken, according to the former Minister of energy currently Minister of industry not earlier than until 2020/2025, assuming a perfect mastery of technology to reduce costs. Moreover, in addition to the mastery of technology, which should be included to the cost notably through the purchase of the required know-how, the advantage of some countries such as the USA is the availability of a network of transport of gas virtually throughout the country and more of the fact that the deposits are not deeply set.
What will all additional costs of all pipelining and related infrastructure be for Algeria?
Profitability depends on the future evolution of the transfer price of gas to the international market which is currently low on the open market by the unconventional gas revolution. Operations management is complex, drilling losing 80% of productivity at the end of 5 years, unless new technologies are brought to about. Besides the technological expertise, the issue of cost-effectiveness refers to the global energy, the energy consumption map of the world by 2030/2040 whilst taking account of the costs of renewable energy which can decrease if there is massive investment and the willingness to get out of nuclear power, the dynamics of the emerging big energy consumers, if they maintain the current model and this is not obvious, as well as China, France and the UK taking the initiative to reduce all vehicles running on diesel and petrol/gasoline as from 2020.
Will the reformulation of the hydrocarbons law be able to revive exploration on operational bases? Unless, and as it happens for most of public companies structurally to be loss-making, the Treasury bears additional costs of shale gas that 70% of the companies returned to the starting square. Thus, arises the opportunity to do away with the restrictive rule of 49 / 51% hence to amend the law on hydrocarbons including the taxation.
Social dialogue and new model of energy consumption
Algeria must think of a new model of energy consumption under the auspices of the National Council of Energy which must be reactivated, SONATRACH being a commercial enterprise (1). About Shale Oil and Gas, it must meet three criteria: protection of the environment, avoid any pollution of the water, the transfer of the exploitation of the Shale Oil and Gas price must cover the costs with a margin of reasonable profit.
For Algeria, it is however the protection of the environment that matters the most, hence the importance of the location of training centres and recruiting in priority those population from the South which must be involved for any possible operation of the kind in the first place.
We will get back for more on this vey aspect of the Shale Gas exploration in the near future.
This article is meant to be as informative about the problematics of consultation and decision making in Algeria as it is possible to muster at this conjecture. What to do with the vastness of the Saharan desert where large pockets of gas lay buried according to all known geological analyses for millennia. The strategic decision regarding the exploration or not would be the prerogatives of a small circle of civil servants that as techno-functionaries with their small private interests are more likely to weigh in more than the country’s development. The locals would certainly not look at it the same way. As for exploring the societal-economic impacts related to the extraction of shale gas and comparing their different technical-economics characteristics that any extraction of the dormant shale gas could have on local and national communities, it is indeed not for tomorrow. In any case, what do they, these so-called elite know about all this gentleman in the picture? It seems to be the typical case of Algerians; unable to manage a small professional organisation and yet to aim to steer a whole country towards the exploration of this resource. The demonstration is no longer necessary when we think of parliaments in non-democratic states, we often think of a room full of raised hands. This compelling image of unanimity conveys a simple idea: that these assemblies are stuffed with loyal servants of the ruling elite. Rather than scrutinise, challenge, amend, and block initiatives from the government, they provide guaranteed support. Rather than act as a check on executive power, they provide symbolic, merely ceremonial approval. (Russia: new research shows even authoritarian regimes …. ). Alternatively, that is how the conventional wisdom goes. Meanwhile, it is said however in London and from all mainstream US media “feedback” on shale oil production, that the benefits of fracking are more likely to be appreciated by communities in actively and highly developed countries rather than by those in low or middle-level development countries. Besides, it is reasonably well known that the potential risks and disadvantages of shale gas and its extraction are more likely to be experienced by the communities of the latter countries like Algeria than by those that are in very or very highly developed countries and that for the same reasons. However, there is no longer need for further proof that even the communities of developed countries would also be as vulnerable to some environmental and health risks. It is demonstrated by the increasingly greater awareness and consequent movements of resistance against exploitation of all fossils. From the streets to the big investors, but there are always the Big Oils monetising the defence of their careless turnovers against all attempts to demonise their short-term business plans of exploitation of shale gas. There are also these famous Algerians with their vast Sahara projects; they are rather keen to follow because they are not difficult to convince with only a small handful of Petro-Dollars. Is it worth all the trouble whereas the same vastness could easily be covered by solar and wind farming infrastructure.
“We should start drilling at the beginning of next year,” Abdelmoumene Ould Kaddour told reporters on the side-lines of a signing ceremony with TOTAL for a petrochemical plant that will produce 550,000 tonnes of polypropylene per year.
“The potential is huge. We have gas in the east around Skikda, and oil in the west around Mostaganem,” he added.
SONATRACH and TOTAL have also agreed to invest $406 million to boost the output of the gas field named Tin Fouye Tabankort Sud.
“Our partnership with TOTAL is good and it allows us to implement our long-term strategy,” Ould Kaddour told reporters.
TOTAL Chairman and CEO Patrick Pouyanne said in a statement earlier on Oct. 7 that TOTAL and SONATRACH had signed new agreements, including a contract to develop the Erg Issouane gas field.
In the meantime, here is the same event as reported by the francophone local media: Algeria is officially embarking on offshore oil exploitation. The CEO of SONATRACH, Abdelmoumen Ould K, confirmed that the first offshore drilling would be launched in the first half of 2019.
For Algeria, these new drillings have become more than an alternative to oil extracted onshore. It is important to know that the recurring increase in crude oil and technological advances in offshore operations offer more opportunities and margins for petroleum companies.
In all likelihood, it is the Italian giant ENI who as the partner of SONATRACH for the development of its offshore activities. SONATRACH has long conducted negotiations with ENI’s to launch these explorations. These negotiations have advanced considerably since the conclusion in January 2017 of a memorandum of understanding (MoU) with the Italian company Versalis (a 100% subsidiary of the Italian group ENI) to carry out studies on petrochemical projects.
The MoU with Versalis deals with feasibility studies for the realisation of petrochemical complexes in Algeria, and the strengthening of cooperation between the two companies in the field of Petrochemicals.
It is to be noted that offshore oil exploitation has its peculiarities if compared to the conventional oil exploitation. This difference is due to the environment in which it occurs. In fact, up to 200 m in depth, it is possible to fix the operating platform. More than 200 m, pressures are increasing and becoming less sustainable. The control of operations, even though robots, is then more difficult. In these conditions, floating platforms are more appropriate. Most offshore oil farms do not exceed 500 m in depth.
The first offshore drilling will be carried out in the provinces of Oran and Béjaïa, delimited as offshore exploration zones after seismic studies were carried out in their territorial waters. The interpretation of the 2d seismic data of the 1200 km of the Algerian coasts, led the prospecting to these two provinces. In Algeria, offshore areas that are likely to hold hydrocarbons are located between 2000 and 2500 metres in depth, according to the results of the first seismic studies carried out on the Algerian offshore. As for the cost of single offshore drilling, it is close to $100 million.
Abdelghani Henni, back in January wrote that Algeria ranks third globally after China and Argentina in technically recoverable shale gas reserves with 20 Tcm, according to the U.S. Energy Information Administration. (Source: Shutterstock.com)
Developing abundant shale gas has become a necessity for Algeria to reverse its declining domestic natural gas production and safeguard its economy. Shale gas is however not for NOW. The struggle is ferocious between the French and the Americans and it is not over yet.
Meanwhile, it must be said that all the onshore and diminishing conventional oil reserves are located deep in the Algerian Sahara whereas all offshore are obviously in the country’s territorial waters of its northern shores. Shale gas on the other hand prospected pockets are mostly all located also in the Sahara but close to many inhabited oases whose populations are predominantly and adamantly against any exploration of such fossil resources.
The new Law of Hydrocarbons in Algeria: distinguishing economic time from political time was enacted despite concurrent street demonstrations against it. It was debated at length by Professor Abderrahmane MEBTOUL, International Expert, in interviews to Radio Algeria International – Paris France on 04/11/2019, to Algerian Radio Channel-3 and to Radio France International on 05/11/2019. Here are some excerpts of each.
Question – 1. Will Algeria with high domestic consumption be able to meet its international commitments?
Indeed, if we take natural gas, domestic consumption is likely to exceed 60 billion cubic meters of gas by 2030 and 100 billion cubic meters of gas between 2035/2040, the Ministry of Energy has announced the depletion of reserves would be at about 60%. An urgent need to review the current energy policy and move towards a clean energy transition policy that revolves around four axes, to meet its international commitments.
-First: an energy efficiency policy (energy sobriety) that affects all sectors and households by reviewing construction methods, cars/trucks fleet consumption, energy-intensive industrial units; the simple referring to a policy of targeted subsidies, but which do not penalize the disadvantaged, existing new technologies that save about 30% of energy consumption.
-Secondly: the development of renewable energies whose cost has fallen by more than 50% for both thermal and photovoltaics, where Algeria has significant potential.
-Thirdly: to continue to invest in upstream, which can make discoveries as part of a win-win partnership, SONATRACH with lower prices and physical production, which has dropped significantly since 2008, technological or financial capabilities, but no longer have to be deluded by large deposits like Hassi-Messaoud or Hassi-Ramel.
-Fourthly: avoid precipitation whilst developing SHALE oil and gas, Algeria having the third world reservoir, only by 2025, as I recommended to the authorities of the country, through this study with experts pending new technologies that replace hydraulic fracturing, saving freshwater and injecting more than 90% of the chemicals into wells, thus protecting the environment, but requiring in-depth social dialogue.
To answer your question directly, I highlighted the points at the 5 + 5 Meeting of Algeria, Morocco, Tunisia, Mauritania, Libya with France, Italy, Spain, Portugal, Malta in Marseille in June 2019. I had the honour of chairing the Energy Transition’s workshop in which the subject of a clean energy transition policy, and the modification by Algeria, a major energy player in the Mediterranean basin, as it has always done, to meet its international commitments by 2030.
Question – 2. Will the amendment of this law attract foreign investors?
Depending on several factors, such as:
-First: the revision of this law as I have pointed out since its enactment at the beginning of 2013 is unsuited to the current situation, in particular the tax component and the nature of the contracts in which Sonatrach supports the majority of the financing, the world having evolved from where the importance of its revision to take account of new global energy changes.
-Secondly: however, a law is only a legal instrument, being a necessary but sufficient condition of the attractiveness of foreign investment, where any company attracted by direct profit rate, and also as long as the level of foreign exchange reserves is high. Depending on the business environment where Algeria was in the latest report of the World Bank of 2019 was very poorly classified because of its paralyzing bureaucracy, corruption, financial and unsuitable socio-educational systems.
-Thirdly: the political climate is decisive, and according to international observers no serious investor would engage in Algeria without the resolution of the political crisis, political stability especially in a country like Algeria, where politics and economics are intertwined, being a determining factor in the attractiveness of a foreign investment.
-Fourthly: as I have just pointed out recently, to your colleagues on France 24 television, and several Algerian websites and daily newspapers, it would be desirable to postpone the adoption of this law after the presidential election. Only a president and a legitimate government can secure the future of the country where this resource, directly and indirectly, provides about 98% of the country’s foreign exchange resources. Some company executives fear that a new president would challenge this law, which would be passed by a transitional government, responsible for current affairs, while legal stability is a golden rule for all investor.
-Fifth: to answer this second question directly, the positive impact of this law would depend on the future global energy map, the entry of new producers and the sale price on the world market both of oil and gas returning at the cost of production in Algeria therefore to a new strategic management of SONATRACH and the impacts would not be felt only in three to four years, subject to the lifting of environmental constraints. Why this haste, which risks further sharpening social tensions in the run-up to the presidential election, thus possibly harming the voting turnout?
ENERGY VOICE through Ed Reed’s in this 19/12/2019 OIL & GAS article titled APICORP alarmed on declining MENA gas spend takes note of longtime predicted factors of the omnipresent situation as envisioned by, as it were, one side of the Gulf’s conflicting parties.
While the rise of methane in the Earth’s atmosphere over the past decade has been “globally significant,” quick action to end fracking would have a rapid, positive impact on the environment by Julia Conley, Staff writer.
New research by a scientist at Cornell University warns that the fracking boom in the U.S. and Canada over the past decade is largely to blame for a large rise in methane in the Earth’s atmosphere—and that reducing emissions of the extremely potent greenhouse gas is crucial to help stem the international climate crisis.
Professor Robert Howarth examined hydraulic fracturing, or fracking, over the past several decades, noting the fracking boom that has taken place since the first years of the 21st century. Between 2005 and 2015, fracking went from producing 31 billion cubic meters of shale gas per year to producing 435 billion cubic meters.
Nearly 90 per cent of that fracking took place in the U.S., while about 10 per cent was done in Canada.
The fracking method was first used by oil and gas companies in 1949, but Howarth concluded that fracking done in the past decade has particularly contributed to the amount of methane in the atmosphere. As Kashmira Gander wrote at Newsweek:
While methane released in the late 20th century was enriched with the carbon isotope 13C, Howarth highlights methane released in recent years features lower levels. That’s because the methane in shale gas has depleted levels of the isotope when compared with conventional natural gas or fossil fuels such as coal, he explained.
“The methane in shale gas is somewhat depleted in 13C relative to conventional natural gas,” Howarth wrote in the study, published Wednesday in the journal Biogeosciences. “Correcting earlier analyses for this difference, we conclude that shale-gas production in North America over the past decade may have contributed more than half of all of the increased emissions from fossil fuels globally and approximately one-third of the total increased emissions from all sources globally over the past decade.”
“The commercialization of shale gas and oil in the 21st century has dramatically increased global methane emissions,” he added.
Other scientists praised Howarth’s study on social media.
In addition to being the second-biggest contributor to the climate crisis after carbon dioxide, methane has been known to cause and exacerbate health issues for people who live in areas where large amounts of the gas is present in the environment.
Chest pains, bronchitis, emphysema, and asthma can all be caused or worsened by high levels of methane. The process of fracking has also been linked to pollution in drinking water.
The Trump administration has no plans to reduce the amount of fracking that is taking place in the U.S.—rather, President Donald Trump has moved to open up public lands to gas and oil companies looking to purchase leases for fracking.
Howarth urged fossil fuel companies—and the government agencies charged with regulating them—to reverse course, shift to a renewable energy economy, and “move as quickly as possible away from natural gas, reducing both carbon dioxide and methane emissions.”
Cutting emissions of methane promptly would have a positive impact on the atmosphere and could help to slow the climate crisis because the atmosphere reacts quickly to the addition and subtraction of the gas.
“This recent increase in methane is massive. It’s globally significant. It’s contributed to some of the increase in global warming we’ve seen and shale gas is a major player,” Howarth said in a statement.
“If we can stop pouring methane into the atmosphere, it will dissipate,” he added. “It goes away pretty quickly, compared to carbon dioxide. It’s the low-hanging fruit to slow global warming.”