ALGERIA - In Algeria.

Eventually, Sonatrach will lose its monopoly over the E&P business and will have to compete with foreign companies in this respect. A new state agency called Alnaft will be in charge of offering new E&P blocks as well as drafting and signing PSAs or service contracts and monitoring foreign companies' upstream operations. Sonatrach will also lose its monopolies in local midstream and downstream operations. Another state unit will do the follow up work and make sure regulations are implemented in the areas of pricing, transport, the environment, etc. But a draft petroleum law to de-monopolise Sonatrach has been shelved, though Khelil wants to pursue it (DT).

Integrated JVs: Meantime, Sonatrach is quickly preparing itself to expand outside Algeria. Now it focuses on successful E&P foreign operators in Algeria who can help it in this, such as Anadarko, Agip, BP, TotalFinaElf (TFE), etc. One target is the Gassi Touil Gas Integrated Project (GTGIP).

The first mega-venture of its kind now on offer in Algeria, this involves six major gas fields containing over 255 BCM within and around the oil producing Gassi Touil structure. The gas fields were found by Sonatrach in the western flank of the Berkine Basin. They require, as a Sonatrach partner, one of the world's majors to spend up to $5 bn in developing the gas fields, piping the output to the coast where the operator will have a liquefaction plant built and export the gas in LNG form. The LNG plant's capacity will be 4-5m t/y. All the majors, including Shell and ExxonMobil that want to catch up with BP and TFE in Algerian mega-ventures, have bid for this project and Sonatrach now is evaluating the offers.

Shell, the leader in LNG business, in mid-2002 signed a momentous MoU with Sonatrach to develop oil and gas projects jointly in Algeria and other parts of the world. The MoU covers upstream and downstream projects. Shell said of the MoU: "The intention is to set up joint project groups to identify and evaluate opportunities throughout the energy value chain".

The two companies kicked off their co-operation by signing an LNG master sales agreement, with Shell saying: "The purpose of this agreement is to establish the framework terms and conditions for the sale and purchase of LNG on an individual cargo basis. It signals the start of further co-operation in the LNG business".

Shell has lagged far behind BP and TFE in development of Algeria's oil and gas reserves. Sonatrach has invited Shell and the other majors to bid for the GTGIP. Shell stands a good change of winning this project as it is offering Sonatrach an opportunity to buy into some of the super-major's ventures overseas.

Other integrated projects in Algeria include the In Salah and In Amenas gas development JVs, huge ventures between Sonatrach and BP. Although BP in late 2001 was compelled to withdraw from In Salah Gas, a marketing JV related to the In Salah development (because the UK super-major had concerns it may break EU competition laws if it sold gas under Algerian contract terms - see Gas Market Trends 7), BP is still indirectly helping Sonatrach in selling gas to European companies. BP has an important share of the Spanish market, which will be supplied with In Salah gas, and is one of the partners in MedGaz.

In Salah Gas (ISG), based in The Hague, was set up in April 1997. In April 1997, ISG signed its first sales deal with Enel of Italy, a significant client as the new company was targeting the power generation market in southern Europe. Enel has raised its purchase volume from 4 BCM to 6 BCM/y with deliveries to begin in 2004. ISG's second deal has since been signed with Italy's rapidly expanding gas and power utility Edison, and the two companies have agreed to jointly bid for power plants being privatised by Enel (see Gas Market Trends 7).

MedGaz, created in August 2000, is a JV with Sonatrach and Cepsa of Spain being senior partners each holding 20%. The other partners are BP, Endesa, ENI, Gaz de France (GdF), and TFE (which holds 45.3% in Cespa). MedGaz is having a direct 450-km marine gas pipeline built from Algeria's north-western port of Beril Saf to Almeria in southern Spain, which will be on stream at the beginning of 2006. With its 8 BCM/y Phase 1 output sold already, the pipeline is to be extended to reach other markets and its capacity is to exceed 10 BCM/y. Apart from Spain, a fast-growing gas consumer, markets which MedGaz will eventually reach are Portugal, France, Germany, Holland, Belgium, Denmark and Sweden. The link to MedGaz will be a 48-inch line to run 550 km from In Salah to Hassi R'Mel. A power cable will run along the route of this pipeline as well.

MedGaz will be expanded further to allow for other African gas exporters to reach European markets. This is being discussed by Sonatrach and Nigeria's NNPC, which will be supplying gas by pipeline to Niger and Mali, after an initiative to that effect was made in 2000 by Minister Khelil (see DT of this week).

In parallel, under an agreement signed in Sept. 2002, Sonatrach is taking 30% in Cepsa's gas distribution and its power unit, which is building gas-fired co-generation plants with a capacity of 200 MW. Sonatrach is to supply 600 MCM/y of LNG for these businesses. Under the same deal, Cepsa and Sonatrach are to set up a trading JV, SonaCep, for crude oil in Madrid The planned new marine gas pipeline from Algeria to Italy and France will be a JV. A related JV called Galsi, based in Milan, is doing a feasibility study for the project, which will be built from Algeria's eastern terminal of Skikda to Sardinia and Corsica. Galsi was formed in Nov. 2002 of Sonatrach (40%), Edison (20%), EnelPower (15%), Wintershall of Germany (15%), and the newly set up Italian energy buying consortium Eos Energia (10%). The $2 bn, 1,500-km pipeline, to be operational by 2008, will reach the Italian coast near La Spezia. It will be extended to France and Germany later on. A power line will be built along the route.

The TransMediterranean Pipeline Co. (TransMed), which operates a 24 BCM/y gas pipeline from Algeria to Italy, is a JV of Sonatrach and ENI formed in 1975. The pipeline is being expanded (see Gas Market Trends 7).

Med LNG & Gas is a 50-50 GdF-Sonatrach marketing venture to sell a part of GdF's contracted LNG purchases on any market of its choice provided that the price is higher than the one under the term deals between the two companies. At end-2000 Med LNG & Gas began selling the gas on spot basis. The first LNG cargo went to the US.

In February 2001 GdF took a 140 BCM gas block in Algeria's Ahnet Basin in a $2 bn JV with Petronas and Sonatrach. This could produce 3.5 BCM/y over 25 years. GdF has a project to build a third LNG terminal in France. This will be adjacent to its Mediterranean terminal of Fos-sur-Mer.

Sotal Energy Ltd. is owned 50% by Sonatrach and 50% by TFE. It markets LPG in Europe, North Africa and other areas. The LPG is produced by TFE in Algeria. TFE's production of LPG and condensates is set to rise considerably from the major TFT group of fields (see OMT 6).

Similar JV companies to market LPG and condensates in Europe are under discussion between Sonatrach and each of Cepsa and Repsol, both producing oil in Algeria.

Sidem is a wholly owned Sonatrach engineering unit. In Nov. 1998 Sidem and JGC Corp., working in Sonatrach's gas plants for more than 30 years, formed an engineering JV to operate in Algeria and abroad. Based in Algiers with operations in Hassi Messaoud and other E&P areas, the JV provide turnkey services. It was created in order for Sidem to acquire advanced technology and experience in working outside Algeria.

Sonatrach Int'l Holding: Under the company's President/CEO, Minister Khelil, the new Sonatrach International Holding (SIH) is in charge of the group's subsidiaries abroad (see background in Vol. 56, No 8). Sonatrach has more than 30 subsidiaries and affiliated companies operating within Algeria and abroad, many of them in partnership with foreign firms. The main units abroad under SIH are the following:

Sonatrach Petroleum Corp. (SPC), based in London, is a 100% Sonatrach-owned trading unit whose staff are drawn from the headquarters. It has trading units and representative offices on both sides of Suez. Each of these units is self-sufficient. SPC handles the purchase, marketing and sale of up to 20m t/y of crude oil, refined products and LPG. Most of these are produced in Algeria and the rest purchased from non-Algerian sources and sold to SPC customers. SPC's areas of trading include East and West Europe, the Mediterranean, Africa, the US and Latin America. A marketing unit of SPC has been set up in the US.

SPC's unit in Singapore, opened in late 1994, handles the Asian market for LPG and other products. Now it is preparing to market Algerian crude oils in the Asia/Pacific market, with Algeria's oil production capacity to exceed 1.5m b/d by 2005.

Sonatrading Amsterdam, 100% owned by Sonatrach, is a trading and marketing company for natural gas and LNG. It handles the European market and has a US unit for the American LNG market.

Sonatrach Petroleum Investment Corp. B.V., registered in the Netherlands, is a finance and investment firm owned 99.9% by Sonatrach and 0.1% by the Algerian foreign trade bank BACE. It is helping Sonatrach consolidate and expand its overseas operations. Its role is in line with a plan to integrate Sonatrach's strategic subsidiaries overseas, which will include E&P ventures and associated logistics and services. One such unit, for example, is to explore for and produce oil in Senegal under an agreement between Sonatrach and Senegal's state company Petrosen.

International Petroleum Investment Partnership (IPIP) is a financial holding company specialised in portfolio management. It is 99.9% owned by Sonatrach with BACE holding 0.1%.

Propanchem is a JV of BASF (51%) and Sonatrach (49%). It has a propane de-hydrogenation plant in Tarragona, a port city in northern Spain, on stream since 2001 producing 350,000 t/y of propylene. This is sold to Targor GmbH, a JV of BASF and Hoechst. The plant uses 450,000 t/y of Algerian propane supplied by Sonatrach. Tarragona is the site of a 225,000 t/y polypropylene plant built in 2001 as a BASF-Hoechst JV. Sonatrach and BASF also have been negotiating a petrochemical JV to be built in Algeria. BASF Intertrade, based in Zug, has been a long-standing client of Sonatrach.

Moving Into Latin America: With Spanish speaking CEO and Minister Khelil hav-ing worked for the World Bank in Latin America and developed good friendships there, Sonatrach in May 2000 entered into a midstream gas JV in Peru. This is to move gas and liquids from the Camisea field in eastern Peru to the western coastal cities of Lima and Callao under a 33-year, $1.45 bn contract with the Lima government signed in Jan. 2001. The JV will market and distribute gas and liquids in the two cities, with twin pipelines to be built from the field across the Andes mountains by 2004. The gasline, 698 km, will have a 6.5 MCM/d capacity. This will eventually be doubled. The 575-km liquids pipeline will have a capacity of 7,250 t/d. The JV is owned by two Argentinean firms Techint (30%) and Pluspetrol (19.2%), Hunt Oil of the US (19.2%), Grana y Montero of Peru (12%), Sonatrach (10%), and SK Corp of South Korea (9.6%). Techint is the operator and Sonatrach is the engineering advisor. Sonatrach is negotiat-ing a 40-year participation in Camisea's $1.6 bn development JV. The Camisea consortium is to have a 4m t/y LNG plant at Pisco for export to Mexico and the US West Coast by 2006.

An E&P project in Iraq, under a deal signed in Nov. 2000 for Block 8 adjacent to the huge Rumaila oilfields, is a JV of Sonatrach and India's ONGC and Reliance Industries. Sonatrach in 2001 signed a deal with Baghdad for development of the 5 bn barrel Tuba field in southern Iraq. Agip and Sonatrach have an E&P venture in Yemen. In March 2002 Sonatrach signed an E&P deal in Mali. Sonatrach is also active in Sudan