Unlocking shale gas potential

06 December 2012

Algiers plans to amend its oil and gas law to attract more investment, but the government will also need to change its bureaucratic nature

Algeria’s plans to amend its hydrocarbons law are good news for the oil and gas industry. The current law is among the harshest in the region, and the past three upstream licensing rounds have attracted scant interest from international oil companies (IOCs).

The new terms will tax IOCs on profits rather than revenue, and introduce more attractive terms for the exploration of resources that are difficult to access or require new technology.

The government has announced plans to drill for its first offshore gas by 2014. It will also continue to exploit tight gas reserves, some of which are already being developed in the southwest. There is the prospect of more gas from the Berkine and Illizi basins, among others.

The new terms are essential to incentivise the development of smaller fields and efforts to squeeze more value out of existing ones. Major new discoveries are unlikely and many producing fields are very old. Hassi Messaoud, the country’s largest oil field, and Hassi R’Mel, the main gas hub, were both discovered in 1956.

Algeria hopes to develop shale gas in the future. According to government estimates, the country has about 17 trillion cubic metres of shale gas, substantially more than its entire proven reserves today. IOCs including Italy’s Eni and UK/Dutch Shell have already signed headline deals to develop the technology.

To accelerate the development of the hydrocarbons sector, the government recently announced plans to inject $80bn into oil and gas projects in the next five years. The combination of regulatory changes and huge investment could move the industry out of its recent stasis.

Unfortunately, there are other equally important factors. The government needs a less obstructive bureaucracy and a more efficient decision-making process. To exploit its shale gas potential, it needs to do more to facilitate imports of equipment. It has taken the government six years to realise that the hydrocarbons law needs to be changed. It is likely to take much longer to change its bureaucratic culture.

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