Of the many ways to reverse Algeria’s recent decline in hydrocarbon production, the country’s push for shale development looks the best on paper. After all, the U.S. Energy Information Administration, Algeria is home to the world’s third largest shale deposits behind China and Argentina with 707 trillion cubic feet. Who cares if the country continues to see lower output rates of traditional oil and gas if it can kick-start the kind of new energy production that has transformed markets as large as the U.S. from importers into viable exporters? If they can make this work, it could establish the country as the type of producer eager customers in Europe so desperately want, while strengthening the local economy.
To be sure, Algeria’s current leadership appear to be aware of the country’s shale potential and have taken measures to make sure the unconventional extraction process has a firm foothold. After amending national law to allow more favorable conditions for those firms interested in shale projects last year, Algeria announced a $100 billion budget for new hydrocarbon development, including “blocks for unconventional resources, with tax incentives for foreign companies interested in investing in shale gas and shale oil,” an important component of the country’s energy plans moving forward, according to a Reuters report. Additionally, in June of this year, the country’s government announced plans to launch a dozen test wells over the next 7 to 13 years.
However, among the many challenges facing shale projects in Algeria, including a dearth of technical and logistical expertise, water is emerging as a significant hurdle for the country’s unconventional push. According to a recent Vox.com analysis, Algeria is among those countries most ill-equipped to meet the water demands of shale extraction. Citing a recent report by the World Resources Institute, Vox pointed out that an average shale well can use anywhere from 2 to 7 million gallons of water during its lifetime. Complicating the situation further, water used in shale extraction is chemically treated, making what water that emerges from the well essentially unusable for other purposes.
Looking to existing shale markets, like the U.S., the report found that overall water usage paled in comparison to other, general uses of water. However, labeling Algeria as an “arid, low water use” country, the report paints a restrictive picture of how Algeria will meet the water and infrastructure needs of a shale future.
Algeria has faced calls for a new approach to production agreements over the last several years, with an increasing number of foreign firms expressing frustration with the local business environment, resulting in lower overall output. According to a Platts report, Algeria’s oil production stood at 1.14 million barrels per day in November of last year, down 15% from 2005-2010 averages. Meanwhile, the country’s gas production has declined steadily since 2005 to 2.9 trillion cubic feet in 2011. According to Abdelhamid Zerguine, head of Algeria state-backed energy firm Sonatrach, the industry decline,, was due to the country’s awarding of some permits to small operators that did not have the “financial capacity” to meet the requirements of local projects, leaving them “overstretched”.