As Sonatrach seeks renewed international oil company investments, the state-owned oil firm is pinning its hopes on the government passing a long-awaited hydrocarbons law this year — in order to tackle a number of issues, in particular Algeria’s oil and gas tax regime.
Algiers passed its last hydrocarbons law in 2005. That was meant to open the country up to international investment by replacing Sonatrach’s right to take a majority in all upstream partnerships, and reducing its stake to no more than 30 per cent.
But it met with considerable opposition in parliament, forcing a reversal just a year later. The mandated majority for Sonatrach has led to significant project delays due to the company’s creaking bureaucracy and lack of cash. Later amendments, such as a windfall tax on profits, made investments even less attractive, and subsequent licensing rounds failed to bring in new companies.
As a result, Algeria has been left behind in an increasingly competitive market for international capital. Passing the law, according to Prime Minister Ahmed Ouyahia Kaddour, could attract $53bn in capital investment in the upstream sector by 2021.
While upstream investments flounder, Sonatrach has made progress on plans to upgrade its ageing downstream sector. As a major oil producer and Opec member, the fact that Algeria relies so heavily on fuel and refined product imports has always been a source of some embarrassment.
But Algeria has scaled back its plans to rapidly expand its domestic refineries, in response to lower oil prices, dropping proposals to build five new 5 million tonne-a-year (t/y) refineries, and pushing ahead with only two new projects. Sonatrach issued a tender in November for the construction of a new deep-conversion refinery with a capacity of 5 million t/y, or 100,000 b/d, at Hassi Messaoud in the southeastern Ouargla Province.
This replaces an earlier plan for the construction of two 5 million t/y refineries at Hassi Messaoud and Tiaret in the northwest. The earlier tender has now been cancelled following a major downstream review.
Another tender for the construction of a 5 million t/y refinery at Tiaret will be launched in 2018, Sonatrach CEO Abdelmoumen Ould Kaddour has said. When both are complated by 2021, the expansion will boost Algeria’s total capacity to 35.95 million t/y.
Algeria’s refining capacity stands at 30 million mt/y from six refineries – Algiers, Arzew, Skikda, both crude and condensate, Hassi-Messaoud and Adrar.
Sonatrach had previously announced a major downstream expansion programme to build five new refineries, of 5 million t/y each, to increase Algeria’s total refining capacity and bring a halt to its costly diesel imports.
This article is extracted from a report produced by MEED and Mashreq titled The Future of Middle East Energy. Click here to download the report