World energy giant is driving force in the Algerian economy
FOCUS ON SONATRACH

The government is committed to liberalization of the energy sector and state company Sonatrach has responded to the new challenges by inviting foreign partners to develop ideas and generate more business

Sonatrach is one of the true giants on the world energy stage and a driving force in the Algerian economy. Established in 1963, it is ranked the 12th largest oil and gas company in the world, according to leading industry journal Petroleum Intelligence Weekly. Crude oil production has multiplied four times since 1970 – averaging 819,000 b/d in the first half of this year – and is expected to be twice as much again by 2007.

Algeria’s flagship company is not only the dominant oil producer in the Mediterranean region, but the world’s fourth largest exporter of natural gas and the second biggest exporter of liquefied petroleum gas (LPG). It is a joint partner in a number of major gas export pipeline schemes across the Mediterranean Sea and has strong commercial links with most of the leading energy companies of western Europe and the United States. Algeria exports gas directly to Europe through the Trans-Med pipeline to Sicily in Italy, via Tunisia, and the Maghreb Europe pipeline to Spain and Portugal via Morocco. These pipelines have a maximum capacity of 30 billion cubic meters a year and 18.5 billion cubic meters a year respectively.

Sonatrach is involved in virtually every corner of the Algerian energy sector from upstream exploration and production to downstream activities like gas processing, petrochemicals and refining, even shipping and transport. Important subsidiary companies include distribution firm, Naftal, which operates a network of gas stations throughout the country and oil refiner Naftec. It also has subsidiaries in highly specialized areas such as drilling, seismic research and reservoir management.

Algeria is today an important member of OPEC, offering an increasingly sophisticated mix of energy products. Sonatrach’s stature has grown as the hydrocarbons industry has matured. As well as exporting crude oil and natural gas to Europe and beyond, the country is now a major producer of liquefied natural gas (LNG), as well as LPG, and other more complex petrochemicals products. Algeria is actually something of a pioneer in LNG technology with the first LNG plant at Arzew coming onstream in 1964. It now has four LNG sites, three at Arzew and one in Skikda.

But these are changing times for Sonatrach. The government’s commitment to liberalization, along with a new era of transparency and openness, has benefited the company and has paved the way for new international joint ventures. A highly diversified portfolio has now been built up around traditional oil and gas exports and Sonatrach is inviting more partners into Algeria, to develop ideas and generate business. In July, for example, the company signed a memorandum of co-operation with Shell Gas and Power to develop joint projects both in the upstream and the downstream. At the same time, the two companies secured a new agreement for the sale and purchase of LNG.

International interest in the upstream sector has gathered pace, with the introduction of competitive bidding procedures and witnessed the arrival of more and more foreign companies. In July, Sonatrach signed exploration contracts worth over $100 billion following the country’s most successful bid round to date. Seven of the 10 exploration blocks on offer attracted significant interest from major European firms like TotalFinaElf and Gaz de France (GDF). US independent Andarko Petroleum Corporation, an established player in Algeria, was awarded block 403c/e in the prolific Berkine Basin; the Houston-based firm already pumps 285,000 b/d in the country. The recent licensing round also attracted newcomers including PetroVietnam Investment, RWE DEA of Germany and Italy’s Edison with Spain’s Repsol.

Oil and gas exploration remains an integral part of Sonatrach’s business. More recently, the company has set its sights across the seas and has embarked on a number of international upstream forays, as far afield as Yemen and Peru. On the downstream side, Sonatrach and German chemicals group BASF embarked on a joint venture to develop a propylene production plant in Tarragona, Spain.
The development of the gas industry remains a key priority for Sonatrach as well as a center piece of Algeria’s overall energy policy. Gross production in 2000 was 139.5 billion cubic meters, nearly 65 percent of the country’s total hydrocarbons output, much of it from the giant Hassi R’Mel field. Sonatrach is keen to add value to its gas reserves as well as diversify its market base.

Priority is given to national requirements. The country consumes about 12 billion cubic meters a year, mostly in power generation. Sonelgaz, the state power company, is one of Sonatrach’s biggest customers. These volumes are expected to double in the next decade which will mean a further $10 billion investment is required in new gas transmission and distribution infrastructure to meet domestic needs.

Sonatrach’s gas exports are sent through the trans-Mediterranean pipelines to Europe or through the fleet of LNG tankers. In 2000, it supplied more than 61 billion cubic meters of gas to foreign clients, 57 percent by pipeline and 43 percent by tanker, mostly to markets in the Mediterranean region; some LNG was shipped to the US market.
Sonatrach is also planning new pipelines to increase its export options. The Medgaz project will create a new pipeline linking Algeria with Spain directly. Sonatrach has teamed up with Cepsa of Spain, BP, TotalFinaElf, GDF and Endesa for the initiative. A further pipeline, involving Sonatrach, Italy’s Enel and Wintershall of Germany, will connect Algeria to Italy via the island of Sardinia. There are other major international projects on the drawing board including the development of a 4,000km trans-Sahara pipeline link to Nigeria. This would enable Nigerian gas to reach the lucrative European market and provide a much-needed spur for development across the north-western part of Africa.