ALGERIA - Integrated Sbaa Basin E&P/Adrar Refinery Project.

Under an agreement signed on July 13, 2003, with Sonatrach, the state-owned China National Oil & Gas Exploration & Development Corp. (CNODC), a unit of CNPC, is building a $350m refinery near the town of Adrar, 1,500 km south-west of Algiers, to process 600,000 t/y of crude oil and produce 20,500 t/y of propane and 323,000 t/y of butane. The plant should be on stream in July 2006 and CNODC, acting in this as a long-term contractor for Naftec, will operate it on BOT basis for 25 years - the duration of the E&P element. CNODC is exploring for and will develop 6m barrels of oil in the region's Sbaa basin, which is said to contain 600m barrels of oil in place.

CNODC is providing 70% of the refinery's cost. In addition, CNODC will take a 51% stake in a JV with Naftec which will be marketing the oil products and LPG in the towns of Adrar province, including Bechar, Tindouf and Tamanrasset as well as Adrar. The project is to create at least 200 jobs in that region.

The Chinese involvement in Algeria, of strategic importance to Beijing, increased in 2004 following a state visit to the country by President Hu Jintao which resulted in a number of bilateral agreements. China, having become the world's biggest oil market, is particularly keen on securing stable sources of light/sweet crude oil of which Algeria is a producer. China has moved into Nigeria and other West African countries rich in light/sweet crudes. Algeria is targeting an increase of its oil output capacity to 2m b/d by 2010 from 1.3m b/d now and wants to raise its proven oil reserves to 80 bn barrels in the next five to 10 years.

During Jintao's visit, CNPC signed an oil development co-operation agreement with Sonatrach. In July CNPC and China Petrochemical Corp. (Sinopec) submitted bids for oil and gas E&P blocks offered by the Energy and Mines Ministry and Sonatrach. (Thirty-five companies entered bids for 10 blocks on offer and the Chinese firms were competing with IOCs like BP, Shell, Total and Statoil). In April Sonatrach awarded CNPC two licences covering Block 350 in the Oued Mya area, near the producing Hassi RMel gas field and Blocks 102a and 112 in the Chellif basin. The company will spend $30m for exploration in the three blocks.

One example of foreign firms' lack of enthusiasm in Algeria's downstream offerings is the case of a small refinery in the deep south-eastern region of In Amenas, which has been on offer since 2001. The plant came on stream in March 1980 but was shut down in 1986 due to ground subsidence which affected the stability of equipment and some units and caused problems to a pipeline feeding it with crude oil. The refinery, in the In Amenas Industrial Zone near a crude oil terminal and power plant, consists of a 7,500 b/d (300,000 t/y) crude distillation unit, a kerosine sweetener, utilities, offsites and buildings. Naftec says the units are in "excellent working order", being maintained by natural gas flushing. Work on the plant was done by a Sonatrach unit Hydrocarbon Engineering. The refinery can produce gasoline, gasoil and sweet kerosine.

The offer is for a foreign or national investor to find a solution to stabilise the soil, rehabilitate and recondition, as well as operate the refinery. This can be done on the basis of either full ownership, equity partnership with Naftec provided that the investor covers the costs, or a long-term leasing arrangement. Since May 2001, both Naftec and the Ministry of Energy and Mines have invited foreign and local companies to study the plant (see background in Vol. 60, No. 5).