Nov 11, 2017
Urgency of a strategic vision articulating the functions of the State, Local Authorities and the Market
The purpose of this contribution is to analyse the impact of the political parties on the mobilization of the population in the light of the results of the last legislative elections of May 4th, 2017 and to query their role on the scheduled local elections of November 23rd, 2017 (Part I).
At the outset, I would take opportunity here to deplore, whilst sharing the concerns of the people, the obvious lack of a strategic vision of most of the candidates, some indulging in euphoric unrealizable goals speeches promising the moon whilst others with a vision of gloom criticizing everything. The Government, apparently as demobilized as ever thus demobilizing even more than ever, is confronting budgetary tensions, this urgent need of a forthcoming and irreversible globalization. It therefore has to better articulate the complementary functions of the role of the central state, the local authorities and of the market. The policies carried out in recent years must be reviewed, as the age of transfers of state budgets to alleviate the deficits of management of the local authorities or of public enterprises in structural deficits is over. Local businesses and communities need to look for and find their own sources of funding, because it is hard to see a divorce between speeches advocating a rationalization of budget choices, central and local management remains the footprint of a strong trend towards uncorrelated spending with economic and social impacts.
Reminder of the results of the last legislative elections
It is interesting to analyse the outcome of the legislative elections of May 4th, 2017 to get an idea of social mapping, including state-citizen relations and to take appropriate measures through an urgent reorientation of the policy Socio-economic. For these May 4, 2017 elections, we had 8,528,355 voters on 23,251,503 registered and that for applications, they stood at 938 lists of which 116 for political parties, 125 for alliances and 97 for the independents with 32.31% of women which makes a total of 11,315 candidates. The provisional results are as follows for the number of seats obtained by specifying that, in accordance with article 166 of the Organic Law on the above-mentioned electoral regime, any candidate in the legislative elections or political party who has participated in these Elections, has the right to challenge the regularity of the voting operations by introducing an appeal by simple request to file at the registry of the Constitutional Council within forty-eight hours following the proclamation of the results.
According to the Ministry of the Interior data, the overall participation rate in these legislative elections of May 4, 2017 in the country and within the national community abroad was 37.09%. The zero ballots that were established at 2,098,324, represent 24.60% of the number of voters. Compared to the registrants, we have 9.02% so 28.07% who voted for the parties or independent, giving 71.93% of the registrants who do not trust the political class against 64.70% in 2012. Here we can draw three conclusions.
– First, the E-participation rate is low to be taken into account in the calculations the actual population of voting age, thus of those who did not register. All the consequences must be drawn and above all to act to remedy the state-citizen divorce by the involvement of civil society.
The big problem is how to restore that confidence, which is why the urgency to review the functioning of both the political and economic system and the functioning of the parties system has become inefficient. Indeed, a considerable number of political formations have emerged, often without a real programme or serious prospects, which are mainly manifested on electoral appointments as a result of State subsidies. ?
– Second, although having lost 57 seats the ruling FLN party remains the first political force in the Assembly followed by the RND with 29 seats, which both together had the absolute majority with 55.50%.
The third political force of the country consists of the Islamist formations with a total of 51 elected, almost 11% and 67 deputies if one includes TAJ, the fourth political force consisting of 28 deputies.
– Third, it is a matter of reorganizing on a democratic basis the civil society avoiding the instrumentalization of the administration if we want to put in place these effective intermediary networks between the state and the citizen returning to a real Political decentralization and a change in the course of economic policy.
Hence the following proposals.
Local communities to local enterprise / citizens
The local authorities made of the 48 governorates of provinces (wilayas as labelled locally) and the 1,541 peoples’ commons assemblies (APC) must have other tasks than to confine themselves to wickets intended for the management of certain basic public services by relying mainly on the state budget allocations because of the rentier mentality inherited from the past, prevalent both at the central level and at the local community level is definitely over.
The reports prepared by the Department of the Ministry show a negative assessment of the dynamism of the local economy, with the taxes being insufficiently recovered, with certain assets being exploited without consideration and others diverted from their vocation. Local officials must in the future have a vision and visibility for the development of their communes, considering the specificities and potentialities of each and the aspirations of its citizens, the leaders of the provinces and the elected officials at the search for populist and personal interests. These reports indicate that the Governor (Walis) and presidents of the APCs have now limited themselves to the role of distributing the State’s generosity and to change for instance only the floor tiling of sidewalks and public squares. The recovery of local taxes, not being their priority, the local authorities having not steered the large funds allocated by the State towards the valorisation and the profitability of the multiple wealth available to them. For the efficient management of the spaces, it is a matter of drawing up a state of the premises. In the Algerian system, as recalled earlier, local authorities essentially consisted of entities assisted by a State which, in addition to its own prerogatives, intended to be the sole manager of the economy. Thus, local officials were therefore only executors of the policies and decisions adopted at the central level and which were translated at the communal level by carrying out the actions and programmes adopted in the arbitration session by the Central Organ Planning, under the annual plans and budget envelopes.
In addition to the very guidelines already entailed by the programmes allocated, the communes and Wilayas were under the close supervision of the central State via the Ministry of the Interior. The state practically took over all social policy and intervened very broadly in the management of land and town planning. Directives were thus given at a certain time to the Wilayas, for the transfer of land to be built and the entire housing policy was almost completely entrusted to the Wilayas. This situation has resulted in a deposition of the central authority disregarding the Walis, where it was the Walis with their local dependencies – the Dairas (local sub governorate) – APC who were directly confronted with the grumbling of the citizen, motivated by the needs of affordable housing, quality of life, employment, etc. The anarchy currently witnessed by the growth and the disorderly extensions of our cities, and the largest of them, can only be accentuated, if we continue to accept that the local authorities are still left to themselves to respond, under duress, to social demand in terms of space to be built. Because, an excessive centralization, promotes a modus operandi of authoritarian public affairs, a governance by decrees, i.e. a governance that is imposed by force and authority away from the real needs of the people.
Historical experiences clearly show that if centralization was necessary in a first phase, it quickly reached its limits and that it was the countries that developed real decentralization and not de-concentration, synchronizing central and local governance that have been the most successful in their development. The most decentralized country in the world is the United States of America and the Swiss cantons, the German landers, etc. are not far as well. Reorganization of local seat of power, the basis of which is the APC, for a more participatory and citizen-based society is required to imagine other modes of management of the ministries and all the apparatus of the state. It is in this context that the local authorities must appear as a unifying element of all the initiatives involved in the improvement of the territorial space, to move from the stage of local community providences to that of local communities with enterprises and citizens responsible for the development and marketing of its territory. In a more general way, the establishment of a genuine decentralisation involving local actors, must result in a better real government felt as such by the population, the basic argument residing in the geographical proximity. This means that there is a local solution to local problem and that it is necessarily better than a national solution. The structure that I think is most appropriate to create this dynamism is the regional Chambers of Commerce organized regionally to cover all public / private enterprises, banks, vocational training centres, and Universities / research centers.
The action of the Chambers of Commerce, a place of concertation but above all a place for the impetus for the realization of projects such as:
Firstly, to energize the basic infrastructure and to prepare sites entrusted to real estate promotion agencies public and private;
Secondly, to make available to companies a skilled workforce thanks to an efficient and scalable training system ranging from engineers, managers and specialized technicians, thanks to the university poles and the centers of research. Example the Chamber of Commerce would offer a position for 10 candidates in training, with the 90% not retained as a loss for the region. Dynamic learning is a human capital for future companies that would settle in the region, an installed company paying taxes that will largely cover the capital advances of advanced training. This training must be adapted to consider the standard quality standard, the quality label being required for any exporter in the direction of Europe, America, Africa or Asia.
Thus, we would see a symbiosis between the university and the enterprises. Because these need access to researchers, laboratories for testing tests and the university needs enterprises as financial support and specially to improve research. The students thus live the dialectic between theory and practice;
The third action is to encourage flexible companies based on mobility and individual initiatives. Tests have shown that personal initiative, for some products, saves some equipment (thus to have less depreciation in the cost structure) and to pass the process of seven (7) minutes (420 seconds) to 45 Seconds is a time saving of more than 90% improving the productivity of the team’s work. What we call self-directed teams;
The fourth action, the Chamber of Commerce would intensify the exchange flows through different experiences between the regions of the country and the outside and the elaboration of regional forward-looking tables, Horizon 2016/2020/2030. Providing future investors with all the necessary amenities as well as various services (commercial network, leisure) is fundamental to this symbiosis between these different structures and certain segments of society Should lead to fundamental prospective analyses, to a dashboard of orientation of the future activities of the region, in order to facilitate the coming of investors.
To be continued . . .
Nov 5, 2017
What Energy Transition for a new global energy mega-structure?
Taking the opportunity of the COP23 in Bonn, Germany on November 6 to 17, 2017, this analysis addresses the strategic components of the necessary energy transition for Africa in general and specifically in Algeria.
Far from the euphoria of the Paris Agreement, the signatories meet again in Bonn, Germany, from 6 to 17 November 2017. It is the 23rd UN Climate Conference (COP23) with accordingly three UN goals.
- First, to progress negotiations on the Paris Agreement that was ratified in December 2015 by 168 countries, and recently joined by Nicaragua after having been alone as a long time reluctant State. The Paris agreement stipulated control of global warming “by keeping a global temperature rise this century well below 2 degrees Celsius above pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5 degrees Celsius”, without setting of binding targets for each country. Many experts doubt its feasibility and the IPCC, the group of UN climate experts must meet, review in autumn 2018 and report on this issue.
- Second, prevent other countries to join the Donald Trump position who confirmed on June 1, 2017 that the United States would withdraw from the Paris Agreement for reasons that the text “disadvantaged” his country. However, the decision of the US President will not come into force until 2019 and a US delegation will nevertheless be present in Bonn. If the risk seems moderate, it is not impossible that other countries that fear the rules to which they could be subjected to, would be tempted to opt out of the Paris Agreement like the United States. As such, particular attention will be paid to the case of Russia, the only G20 country, with Turkey, which has not ratified the text to date.
- Third, inform about the Pacific Islands and the globe generally that has seen disasters that occurred in 2017 with super-hurricanes in the Caribbean and Florida, fires of unprecedented intensity in Portugal or California, lasting drought in East Africa, etc. To the point according to scientists, that it should further intensify in the coming years and that according to the UN’s Environment Program (UNEP), 2017 “would probably be a record year in terms of human, social and economic disasters.”
However, whilst not being utopian, fossil fuels including gas, will still for a long time over 2017/2025 be the main source of energy. But to govern is to foresee, it is up to African governments already facing the new global energy irreversible mutations to orientate towards an energy MIX between 2020 and 2030. And to prepare for an energy transition on a model linear energy of the past would be an error of reasoning.
Also, the energy engaging Nations’ security, renewable energy strategy must fit into the framework of clear and dated for a new model of energy focused on a certain energy mix, the resource assessment for achieving a set of objectives to prepare the industries of the future, new technologies and green industries, subject to the new 2020/2040 economic revolution.
According to the report from Bloomberg New Energy Finance (BNEF), to cover global demand for energy, there will be investments of around $2,100 billion by 2040 for all fossil fuels, as opposed to $7,800 billion for renewables. It is perhaps interesting to note that with $3,400 billion for solar and $3,100 billion for wind energy, both renewable energies seem to be clearly those that are likely to produce sustainable electricity cost levels lower than those of fossil energy.
China with a rapidly growing solar energy, stands since 2015 at the forefront of the global PV market, ahead of Germany. It is also reported that its highly proactive policy would allow it to display in the next 25 years the highest CO2 emission reductions. Thus, alone, China already accounts for 40% in the new TeraWatt Hour (TWh) supplied by renewable energy. China has pledged $103 billion, or 36% of the world total, representing an increase of 17% of its annual effort. The investments also increased sharply in Chile, India, Mexico, South Africa, Pakistan and Morocco. According to the International Energy Agency (IEA), the production of renewable electricity will increase by 40/60% by 2017 / 2020 and will provide more than a third of global electricity with notable acceleration between 2020 and 2030.
Meanwhile, the last devastating hurricanes pose the problem of global security and the urgent need for energy transition. UN studies project an unparalleled drought in North Africa between 2020 and 2025. “Governments should hasten an end to fossil fuel subsidies, which still amount to about $500 billion per year as “advocated on November 1st, 2017 by the Secretary General of the Organization for Economic Co-operation and Development (OECD ) Angel Gurría in Toronto, Canada, in a widely reported in the world press statement; suggesting comparative advantages for non-fossil fuels.
Around the world, the combination of volatile fossil fuel markets and the need to protect the environment and reduce greenhouse gas emissions require a revision of energy strategies. That is why we will have as a matter of urgency, to first, review our current energy consumption and, secondly, and to use all forms of energy, particularly renewable energy which remain an essential alternative for internal needs.
The world will experience a profound change in a global energy map and therefore energy transition in years 2020, 2030 and 2040 although currently the weight of fossil (coal, oil & gas) remains overwhelming (78.3%), while the nuclear plays only a marginal role in the world (2.5%). The share of renewable energy is growing in the production of electricity (23.7% at the end of 2015 against 22.8% at end 2014), but remains tiny in transport and heating and cooling systems. This high proportion of fossil fuels is due to imbalances between the subsidies granted by States on fossil fuels and those allocated to renewable: $490 billion for the first in 2015, against $135 billion, almost four times less for the second.
These blockages do not prevent the sector to now total 8.1 million direct and indirect jobs in the world (+ 5% in one year), including 2.8 million in the photovoltaic (PV) industry: 59 gigawatts (GW) in 2005, 198 in 2010, 279 in 2011, 283 in 2012, 318 in 2013, 370 in 2014 and 433 in 2015 including solar 227GW against 73GW in 2005. the investment billion rose from 73 in 2005, 239 in 2010, 279 in 2011, 257 in 2012, 234 in 2013, 273 in 2014 and 286 in 2015. subject to long-term investment, because currently it is the technological development costs and investments in production equipment (wind turbines, solar panels, biomass boilers, etc.) that affect the cost of renewable energy. In the future, they will become a less expensive energy with stable prices. Regarding the lower costs, the IEA notes that the price of photovoltaic systems has been divided by two and sometimes more in five years (2008 to 2012).
Today, joining the production cost of hydropower, technologies advancement are making some renewables virtually reach parity for the cost of electricity, with other conventional energy sources. Renewables have essential assets to take an important place in the energy mix of the country, to bring production sites to consumption centers, to reduce the dependence of these countries on fossil fuels, contribute to security of supply and energy independence, allow for long-term control of energy prices, constitute the most appropriate vectors for the development of decentralized energy production, offer considerable potential for industrial development and new growth and help limit the impact of energy production on the environment: reduction of greenhouse gas emissions, reducing the effects on air, water and soil pollution. The production facilities of renewable energy affect very little the environment, its biodiversity and the climate generally. But to ensure a sustainable energy transition, a significant investment and adaptation would be required in power systems to absorb, redistribute a greater proportion of power generated by renewable energy back to the energy storage and management demand for flexible power generation units on the importance of decentralized energy production in order to bring them closer to “touch points.”
According to a report of Bloomberg New Energy, there is a reversal of energy consumption in 2025: a fall in demand for fossil fuels and a net increase in demand for alternative energy. This trend must be seen in the light of the exponential development of technology (telecommunications, Internet, media, etc.) and of more electro-dependent, as in the case of our economies in the case of consumption to come to allow the access to energy for the 1.3 billion people worldwide still without light and without telecommunications as in Africa.
So, what is it for Africa where much of the population suffers from energy shortages?
The average solar irradiation of African countries, according to IRENA (International Renewable Energy Agency), between 1750 and 2500 kWh / m2 / year, almost twice that of Germany (1150 kWh / m2 / year) which has a photovoltaic park installed around 40 GW (or a photovoltaic capacity 20 times greater than that of all Africa). The load factor of photovoltaic installations would be much higher in Africa than in European countries. At the end of 2015, Africa had 2100 MW of solar photovoltaic installations assembled, 65% of this capacity is concentrated in South Africa (13% in Algeria and 9% in the Réunion islands). During the past two years, the continent has more than quadrupled its installed capacity of PV parks, but these are still modest compared to the large African potential for nearly 600 million Africans still lacking access to electrical power.
According to the Agency, this energy would be competitive today as compared to the currently used fossil fuels, whether in the case of large plants or micro isolated systems (as well as domestic systems). According to Irena, the investment costs of large photovoltaic plants in Africa decreased by 61% since 2012. They now reach almost 1.3 million per MW installed (global average for PVs is around 1.8 million of $ / MW).
President Adnan Z. Amin of the IRENA is still considering a possible decline in 59% of these costs during the coming decade. The Irena highlights the fact that the present photovoltaics for Africa and a decentralized solution “modular” (with few facilities W to several tens of MW) to quickly electrify the unconnected to the regions power grids.
According to experts, it is true that the energy needs of Africa are limited to a few kWh per capita per year, the use is primarily lighting. There are no electrical networks in Africa, therefore no possible economies of scale. Africans pay for their electricity 2 times more than Europeans. It is always interesting to have cheap electrical power. But industrial development requires large amount of power, especially that of heat. While PVs are certainly more suitable for smaller off-grid installations for some African countries, industrial production would need to combine it with heat. Indeed, it is necessary to have a strategic approach to development of renewable energy. It should primarily target projects that contribute most to the achievement of objectives, without a clear position between the photovoltaic and thermal. The solar towers in Spain have proven themselves to be over many years quite valuable. This is to identify the different technologies endpoints. With GTZ (Germany) decomposition of the component value chain and cost allowed to set a realistic integration rate of 70% for solar thermal. Industrial solar thermal converges with that rate, while also agreeing with the electricity export levels to Europe. Indeed, Europe will need to import 15% of its needs in 2030, equivalent to 24 GW power or the equivalent of 50 billion M³ of gas per year.
Recent international studies have defined the four conditions to be :
- A stable policy framework, sustainable local market size of 250 MW / year
- An open market.
- The technologies chosen must match the greatest potential namely allowing an integration rate, the largest job creation, providing the best match for the electricity market
- Finally, most importantly, the technologies must offer the greatest potential for cost reduction competing fossil fuels.
In summary, a new global energy superstructure will be born between 2020 / 2030 / 2040, in which if Algeria wants to avoid a deadlock from outdated traditional patterns of the past, it would have to develop coping strategies. It is therefore a matter of clearly identifying the real players and not have a strategic vision based on utopia but realism that laws and changes in organizations would be able to solve problems. For Algeria to cover its internal consumption, its needs of 40% renewable energy by 2030 as was announced by the Ministry of Energy and in this case; what would the amount to mobilize be for the funding of such a move?
For starters, without any strategic vision of this transition, a suitable training program, a revision of the prices and subsidies policies in Algeria, private local or international investments in renewable energy would perhaps not be as profitable as one would expect. If it wants to avoid errors of economic policy in general, it should necessarily prevent any linear vision of the energy model. The passage of the coal era to that of hydrocarbons was dictated by a change in technology not in availability of this or that resource.
New technological processes that produce large scale economies with costs savings, influence the reshaping of global economic structural arrangements that in turn bear on local and global governance.
For Algeria, it is the issue of energy security that arose with the urgency of a reasonable and controlled energy transition fitting into the overall framework of a transition from a rentier economy to an economy excluding hydrocarbons in the context of global comparative advantages.
This implies to revitalize the National Energy Board, the sole authority to define energy strategy because under national security, chaired by the president of the republic, to open a national debate on the future model of energy consumption and raise all environment bureaucratic constraints that impede the growth of the creative value-added enterprise and foundation of the knowledge economy. That is why we will have in urgency, to first, review the current mode of energy consumption and, secondly, to use all forms of energy including renewable energy, which remain an alternative for domestic energy needs with other conventional energy sources.
Dr. A. Mebtoul is a University Professor, International Expert and former Director of Studies at the Department of Energy and SONATRACH both of Algeria ademmebtoul@gmail.com
Oct 29, 2017
Trading of Brent oil as at October 28, 2017 closed at its highest level at $60.62 and at $54.17 for the WIT and for natural gas at $2.75 MMBtu, down 5.72%. Euphoria apart, this contribution would attempt to review the The Vienna agreement and the Oil & Gas 2017 – 2030 prospects. Indeed, the listing of $55 to over $60 a barrel, could be explained by the approaching winter, tensions in Iraq, decline of the Dollar from $1.20 a Euro to $1.16 and most importantly a timid revival in the global economy. Reassuring statements of respect for the Vienna agreement as envisaged by Russia and Saudi Arabia together with the proposed sale of 5% of the oil giant Aramco did concur to the above as well. But before we dwell into the Vienna agreement and the Oil & Gas prospects up to 2030, let us have look at the following first.
The determinants of oil prices
Eight key factors are determinant in oil prices.
First, central to the determination of oil prices is the growth of the world economy and especially that of China’s and its energy structure for 2020/2030. Added to that would be the other geostrategic factors such as the impact of tensions in Iraq, (the Kurdish zone producing 500,000 barrels / day) and statements of US President mulling to review the Iran agreement and the still on-going tensions in Nigeria and Libya.
- On the supply side, more rapid increase than expected of oil production, though unconventional mainly from the US Shale sector that upset the entire world energy map.
- Rivalries within OPEC with some not respecting their quota; the rivalry between Iran and Saudi Arabia; this latter being the only producer in today’s world that could affect global supply and hence bear on prices, depending on an agreement between the US, (the latter is not affected by the OPEC / non-OPEC accord) and Saudi Arabia to determine the floor price.
- The Russian expansionist strategy whose giant Gazprom (45,000 billion cubic meters known gas reserves) through the North Stream and South Stream (the latter currently frozen) from a planned capacity of over 125 billion cubic meters gas to supply Europe, not including new pipelines to Asia. Russia needs funding, tensions in Ukraine have not affected its exports to Europe, where its market share was 30% in 2013/2016. All this contributes to a measured support from Russia at a price regulation agreement. Recently, Russia has increased its production and open new fields in Siberia or the Arctic, showing an aggressive strategy.
- The return on the market of Libya with an easy 2 million barrels / day, Iraq with 3.7 million barrels a day (with production costs of less than 20% if compared to competitors) totalling up to over 6/7 million barrel / day. Iran with reserves of 160 billion barrels allowing it to export between 5/6 million barrels a day on top of its having gas reserves with more than 34,000 billion cubic meters gas.
- The new discoveries in the world including offshore especially in the Eastern Mediterranean (20,000 billion cubic meters of gas partly explains the tensions in this region) and Africa including Mozambique could be the third black gold reservoir of Africa and the new technologies that allow the operation and cost reduction of marginal gas fields and Shale oil.
- The US and Europe currently account for over 40% of global GDP with a population of less than one billion. These are pushing for energy efficiency with a planned 30% reduction and an urgent move towards energy transition, to notably reduce global warming because if the Chinese, Indians and Africans had the same pattern of energy consumption as that of the US and Europe, the world would need five planets. The global strategy should be based on limiting the efforts of exploitation and use of fossil fuels, coal, etc. and gradually move towards an energy mix of all renewables.
- The evolution of the Dollar and the Euro like for instance any rise of the Dollar, although no linear correlation between the two exists, would lower oil prices and as an immediate reaction to that the US stocks and often forgotten Chinese stocks would start building up.
OPEC and the Vienna agreement
Saudi Arabia’s share is over 33% of OPEC’s output. The Gulf countries alone account for 60% of this production. For countries outside OPEC, the most important traditional producer remains Russia. The corresponding commitment to the effort envisaged in the Algiers meet in September 2016 did somehow help lift oil prices from a range fluctuating between 55/60 dollars a barrel. Following the work of the High-Level Committee, which helped to smooth tensions between Saudi Arabia and Iran, the last meeting in Vienna in December 2016, enabled the member countries of the OPEC and non-OPEC countries to reach an agreement to reduce and for the first time since 2008 by 1.8 million barrels / day for a period of six months with possible extensions each time additional 6 months according to market conditions. Production limits set by the agreement affecting 11 of the 14-member countries of OPEC. The essence of the agreement of November 30 is carried by the largest producer’s cartel: Saudi Arabia, Iraq, United Arab Emirates, Kuwait, with Iran, Nigeria and Libya being temporarily exempted. Nigeria announced in late February 2017 an increase in production of over 300,000 barrels a day between 2017/2018 besides the return of Libya which can export between 1.5 and 2 million barrels a day. But at the last OPEC meeting, Russia producing more than 10 million barrels / day requested that these countries participate in the reduction effort to stabilize the market. We must recall that Iran has benefited from the most favourable reference with a volume of 3.97 million barrels / day (Mb / d) retained (against a level of 3.69 Mb / d, although Iran wants its production back to 4.2 Mb / d. Iran and Iraq might be tempted to exceed their quotas if they have surpluses. Saudi Arabia as the world’s largest oil exporter, has agreed to bring its production to 10.06 Mb / d and thus reduce its production of 500,000 barrels. non-OPEC countries agreed to a reduction of 558,000 b / d in addition to the reduction of 1.2 Mb / d of OPEC countries almost 1.8 Mb / d. For non-OPEC, Russia is the most important of these contributors with a reduction of 300,000 b / d. the other countries to participate in the effort will be Mexico, Kazakhstan, Malaysia, Oman, Azerbaijan, Bahrain, Equatorial Guinea, South Sudan, Sudan and Brunei.
What are the prospects?
According to OPEC the drop in the price of a barrel of oil from $102 to $45 since June 2014 caused a loss of $1,000 billion in revenues and $1,000 billion in terms of investment losses. At a price of $55, the reduction causes a loss of 3780 million barrels / year and about $219 billion for the OPEC countries. A survey of OPEC shows that average profitability for many OPEC countries to balance their budgets, the price that covers costs and a reasonable profit margin should be 60 Dollars. For Algeria profitability of marginal fields is at a price above $60, average deposits between 40/50 Dollars and large deposits between 30-40 Dollars per barrel. But many experts question the temptation for producers to “make up” natural declines, related to the depletion of some deposits and already integrated with forecasts, to pass them for voluntary reductions. OPEC while representing the world’s largest reserves, no longer has the same impact on the market than in the 70, with only 33% of marketed worldwide production, the remaining 67% being made outside OPEC. A barrel at the recovery price of 55/60 Dollars will naturally depend on the growth of the global economy, without prejudging the risk of an increase in supply that would be due to the increased production of non-OPEC countries, the US whose marginal fields becoming profitable. As from their rising prices, the massive influx of American Shale oil production of which costs have fallen for three years by 40 to 50% thanks to new technologies being profitable for large deposits to 30 Dollars, for average deposits by $40 and for marginal fields between 50/60 Dollars. According to Bloomberg as of February 2017, the unconventional oil producers have made huge efforts to reduce their profitability thresholds, earning money with a barrel between about 40/50 Dollars, whereas it required at least 70 to 80 Dollars. There are still two years and $30 in some Texas counties where investments should thus increase by 30% in the sector in 2017. Saudi Arabia, a leader of the cartel, had long supported a policy of low prices, hoping to oust competitors of OPEC, including US Shale oil producers, but the fall in prices had finally affected its economy, prompting it to change strategy. Most US stocks reached a record level, with a growth of a soft global economy, which takes demand to a higher price of up to $60 that could make the American marginal fields profitable, thus allowing them to increase their supply that in turn may then lead to a lower price due to oversupply. Hence the proposal of Saudi Arabia to have an equilibrium price which is around 55/60 Dollars a barrel to balance the interests of producers and consumers and specially to cope with the American competition.
In summary, the supply / demand in the short term, the structuring of the growth of the world economy and the new global energy configuration looming in 2017/2030, with the increasingly competing alternative energy, will in the future be the determinants of the price of oil and natural gas. Whilst avoiding thinking in terms of linear energy model, we should see an energy transition based on energy efficiency and all renewables that should know a boom according to the latest IEA report of October 2017 with cost cuts planned for over 60%.
Dr Abdurrahman Mebtoul
Oct 17, 2017
The present contribution is about the Financial Constraints and Governance crisis in Algeria of 2017 – 2020 and would want to be a reminder of those economic and financial indicators of the influencing factors to be considered whilst taking steps towards structural reforms. These number 8 and are as follows:
1.-The International Monetary Fund (IMF) is concerned as much as are the European Union (EU) and all foreign economic partners, about the impact of recent measures of unconventional financing. Algeria would have a real GDP growth rate that is below 1.5% for 2017 and 0.8% for 2018 whilst the International Energy Agency (IEA) does not expect a substantial increase in oil prices in 2018, but at best their stabilization. So, with a GDP declining between 2017 and 2018 would be less than the population growth rate and unemployment rate would exceed 13% in 2018 from the Office National of Statistics (ONS) assessed of more than 12% in 2017.
2.- The national reports as the IMF suggests that the State’s actual budget deficit exceeded the huge level of 20% of GDP as at end of 2015 due to a delayed reaction of the authorities who have maintained a level of public spending high despite falling revenues. In 2017, the continuation and acceleration of the reduction of State spending under the 2017 Finance Act was to bring the deficit to around 7% of GDP with drastic cuts in equipment expenditure. The particularly high level of budget deficits has been aggravated since the beginning of 2017. The decline in financial revenue and continued public spending at a high level generated the use of savings from the Regulatory Fund (FRR ) was as follows: 1.132 billion Dinars (DZD) in 2013, DZD2.965 billion in 2014, DZD2.886 billion in 2015, DZD1.387 billion in 2016, and after using what remained to be DZD784 billion at the beginning of 2017. The depletion of the latter in February 2017 has given rise to a serious funding problem.
3.- The explanatory memorandum of the amendment of the Finance Act 2017 is counting on nearly DZD6.002 billion in revenues and DZD7.115 billion of expenditure or a deficit of DZD1.113 billion that the Treasury uses to cover part of the amount of nearly DZD570 billion of its deficit until the end of 2017. To cover therefore this deficit, a combination of monetary and financial tools have been used to mobilize additional resources, including funds for the payment of interest of the Bank of Algeria (BA), the Exchequer (DZD610 billion in 2015 and DZD919 billion in 2016) and advances from the BA to the Exchequer (DZD276 billion in 2015 and DZD280 billion in 2016) and the funds recovered in the operation of the bonds of economic growth (DZD580 billion), in addition to a loan of DZD105 billion, contracted with the African Development Bank (ADB).
4.- Under the title “Algeria Net Oil Export Revenues” the EIA information magazine on OPEC- 2017, highlights the revenue of SONATRACH, the Algerian State oil company between 2005 and 2017 as about $553 billion.
5.- In 2016, according to the Algerian Customs Statistics (2017), hydrocarbons accounted for the bulk of exports with a share of 93.84% of the total volume with a decrease of 17.12% from 2015. Exports “off oil”, are still marginal, with only 6.16% of the total and equivalent to $1.78 billion, with a decrease of 9.55% compared to 2015. Groups of products exported consist essentially of semi-finished hydrocarbons products for a share of 4.5% of all exports in the overall volume equivalent to $1.3 billion, food goods with a share of 1.13%, or $327 million of gross revenues with a share of 0.29%, or in absolute terms of $84 million and finally industrial capital goods and non-food consumer goods with the respective shares of 0.18% and 0.06%. As for the breakdown by economic regions in 2016, official data clearly show that the bulk of all Algeria’s external trade remains polarized on its traditional partners, i.e. the countries of the OECD with 60.94% for imports and 79.59% for exports.
6.– The financing needs, although scaled down, more than 70% in foreign currency only for SONATRACH and SONELGAZ, Algeria’s Electrical utility provider, according to official statements between 2017 and 2022 will annually be about $50 billion, or $250 billion for five years. Foreign currency financing needs will be greater because of the economic situation. The rate of integration of private and public sector does not exceed 15% with over 70% of the needs of public and private companies sourced from outside. Moreover, the economic area is dominated more than 83% of small services, trade with the informal sphere prevailing in these segments. The industrial fabric is less than 5% of the GDP and within these 5%, more than 95 to 97% are non-innovative SMEs.
7.– Unconventional financing concerns the Dinar part that would include salaries and some local goods. But because of the loss of some of the productive fabric, providing Dinars, would equate to more and necessary borrowing for more exchange for hard currency from the primary banks. The revival of demand by printing money can speed up currency outflow. This can be cushioned only if the internal added value is substantially increased over two to three years, through entrepreneurial innovation but in a global competitive environment so as to prevent any rise in inflation and further exhaustion of foreign exchange reserves.
8.– The outflow of currency for imports of goods and services; these latter fluctuating between $10-12 billion / year between 2010 and 2016 and all legal transfers total amounted in 2016 to about $60 billion. According to the latest Customs Statistics, the first eight months of 2017 would see an outflow of currency between $55/60 billion. In this context, whilst avoiding any pessimism, I would rather say that in October 2017, Algeria is not in real financial crisis but in a crisis of governance for its external debt is less than $5 billion and foreign exchange reserves were $195 billion as at January 1, 2015 and could eventually come down to somewhere between $92 billion (source IMF) and $97 billion (government source) leaving a respite of three years.
In short, without mobilizing people around a broad national front whilst considering all the different sensitivities, and assuming a great morality of the leadership, condition of the restoration of confidence, no way out of the current crisis of development would be possible.
Oct 3, 2017
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.
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