Algiers hopes for fresh start in hydrocarbons

14 September 2010

Algeria’s hydrocarbons sector has been tainted by corruption scandals at Sonatrach earlier this year. Third oil and gas licensing round is great opportunity to set things right

The third oil and gas licensing round launched by Algeria will have many hoping that the auction will be a new dawn for the North African state’s hydrocarbons industry.

The corruption scandal that engulfed state-owned oil firm Sonatrach in January has caused a ‘paralysis’ in the decision-making process for new projects.

The scandal resulted in the removal of Sonatrach’s top management tier including president and chief executive officer, Mohamed Meziane, and also Energy and Mines Minister, Chakib Khelil.

If there is one thing Algeria cannot afford, it is the mismanagement of its hydrocarbons reserves. Oil and gas accounts for 97.5 per cent of Algeria’s export earnings and Sonatrach is the biggest employer in Africa with 120,000 workers. The country is the world’s third largest exporter of liquefied petroleum gas (LPG), the fourth largest exporter of liquefied natural gas, the fifth largest natural gas exporter and the ninth largest exporter of oil. Sonatrach is ranked sixth among the world’s natural gas companies in terms of reserves and production.

With this in mind it is imperative the third licensing round is a success. The previous two rounds failed due to a combination of the previous regime’s hubris and a global recession making Algeria seem like too great a risk for the international oil companies (IOCs).

Experts predict Algeria’s new oil regime, led by Youcef Yousfi as Energy Minister, will not be making any drastic changes to the fiscal terms being offered to the IOCs. No-one will know the exact terms until the first clarification meeting is held on 30 September.

Another important factor is the prospects for the new available blocks. It is important IOCs are confident that the initial investment and a profit can be recouped.

Yousfi has a great opportunity to usher in his new regime, but if the fiscal terms remain unattractive IOCs will continue to shun Algeria and look for a better deal elsewhere.

A MEED Subscription...

Subscribe or upgrade your current package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications