The Algerian government is desperate to tap shale gas reserves despite limited interest from IOCs – Natural Gas Daily – Interfax Global Energy

The gradual decline of Algeria’s conventional oil and gas resources, together with a sudden slump in oil prices, has put Algiers under increasing pressure to find an alternative revenue stream. The government is therefore desperate to tap the country’s considerable potential for unconventional development.

Talk among politicians has been predictably bullish. Algerian Energy Minister Youcef Yousfi said earlier this month companies could begin shale gas production as soon as 2022, with volumes rising to 10 billion cubic metres per year by 2025.

However, an industry source working with a foreign IOC with operations in Algeria told Interfax that, while it may be possible to begin flows from unconventional wells in the next decade “the jury is still out on whether they can hit 10 bcm/y without significant foreign partners”.

There is no doubt Algeria boasts significant potential for unconventional development: the United States Energy Information Administration ranks the country as the third-richest in shale deposits behind China and Argentina, with technically recoverable resources amounting to 20 trillion cubic metres.

Algeria’s shale is comparable both in area and thickness to US source rock, but limited test drilling means little is known about how easy it is to frack, and therefore how commercial it may prove. What is equally unclear is how quickly the shale can be developed. Of all the issues facing companies hoping to do business in the North African country, security concerns are paramount.

IOCs wishing to carry out exploratory work in Algeria – especially in remote desert areas in the south – must do so under military supervision, boosting operational costs significantly. Speaking to Interfax on Monday, geologist Jonathan Redfern, chair of petroleum geoscience at the University of Manchester, said he would not consider conducting studies in Algeria at present because of the risk of attack from militants.

“We won’t go into Algeria at the moment with students. To go into the southern part you really need to have military support with you so it’s not easy to do,” said Redfern. he added that, while Algeria could well become a significant shale producer in future, volumes are unlikely to start to flow before the 2030s “even if they started working on it now”.

Meanwhile, shortcomings in the contractual and legal framework have made it difficult for companies to pursue new developments. State oil and gas regulator ALNAFT received just five bids on 31 available blocks in its recent licensing round.

The IOC source called for ground-breaking changes to the way in which the country’s upstream sector is organised and managed. “IOCs are looking for strong signals for meaningful change. Recent legislative amendments send mixed signals,” he said.

Menas Associates, the London-based political risk consultancy, described Algeria as being “in a time warp” from a bureaucratic perspective. “ALNAFT and Sonatrach, as well as the Algerian regime as an entity, have to ask themselves if they really understand the needs of the international business community,” the company said in a note.

New pipeline plans

While there is some doubt over how long it will take for additional volumes to come onstream, getting that gas to market should present few problems. Algeria’s already well-developed gas infrastructure is set to improve further after Sonatrach said it planned to invest $3.48 billion on new pipelines to increase network capacity.

Sonatrach’s interim chief executive said earlier this month the new pipelines would be ready by July 2016, and that they would help deliver 20 bcm/y.

Following Algeria’s disappointing licensing round, both Sonatrach and the government have sought to counter any sense of pessimism surrounding the country’s oil and gas sector.

Although Sonatrach’s annual earnings from oil and gas are set to fall by around 5% in 2014, gas output has apparently risen for the first time since the In Amenas hostage crisis, according to Yousfi. He has also predicted Algerian gas production would rise by 40% in 2016, and would double in 7-10 years – a forecast many within the industry consider ambitious.

“Southwest fields will contribute 9 bcm/y by 2017, but where will the balance come from? Even if you assume flat production from existing fields, increasing production by that much in the next five years and doubling it within a decade is fantasy,” said the anonymous industry source.

The recent trend shows a country in decline, from a production perspective. Domestic gas production fell by 3.3% in 2013 to 78.6 bcm, according to BP statistics.

via The Algerian government is desperate to tap shale gas reserves despite limited interest from IOCs – Natural Gas Daily – Interfax Global Energy.