ALGERIA - Part 1 - Oil Output Keeps Rising.

For foreign investors in Algeria's petroleum sector, the situation keeps improving. Algeria's capacity to produce crude oil has risen to 1.45 b/d - excluding condensate and NGLs - and should exceed 1.5m b/d in late 2007, up from 1.2m b/d in early 2003. With the number of foreign E&P operators to rise from 20 to 80 in this decade, the capacity would reach more than 2m b/d by 2010. Foreign firms' share of oil production would exceed 50% of Algeria's output.

Algeria is under-explored, with its Sahara still being virgin territory. Less than ten wildcats have been drilled per 10,000 sq km in Algeria. In North America there are 500 wells per 10,000 sq km. According to the state concern Sonatrach, there have been over 70 oil and gas discoveries since 1997. There were more than 15 oil and gas finds in 1998 as Algeria reaped the rewards of a revised E&P system (see Gas Market Trends of this week. See profiles of Algeria's oil & gas fields and of the operators in Part 2).

The energy base in Algeria keeps expanding. The shift to natural gas in local consumption has been rapid. With bold reforms, the macro-economic indicators are much better than in recent years (see Downstream Trends).

The country's proven oil reserves are estimated independently at less than 10 bn barrels. Officials in Algiers said the figure is 12 bn barrels. In addition, there are about 10 bn barrels found in the past 18years to be tapped. Algeria's proven gas reserves exceed 4.5 TCM. Sonatrach has estimated the ultimate gas potential at about 5.8 TCM.

Algeria has been asking for a higher oil production quota from OPEC since mid-2002 in view of its expanding capacity. It is determined to get this in 2007, raising questions about OPEC's production discipline. Nigeria and Kuwait are also demanding higher quotas from OPEC. Nigeria's production capacity has risen to 3m b/d, but an important part of this is shut in because of unrest in the Niger Delta.

Algerian exports of high quality crude oils and refined petroleum products, as well as condensates and LPG. A continuous increase in the export of natural gas, by huge pipelines to Europe and in LNG form, will accelerate in the coming years with two more pipelines to Europe being built (see Part 3). Algerian gas has become more attractive to this market as the governments of France, Italy and other EU member-states as well as some local states in Germany have begun considering additional supplies from sources other than Russia in order to reduce their dependence on Russian gas. This is in view of negative actions being taken by Russian President Vladimir Putin.

Sonatrach is investing in market share assets in Europe, the US, Latin America and in Africa. To secure additional markets for its oil and gas, it is to invest in other areas (see Part 4). The green light for all this was given in 1997 by the National Council of Energy (CNE), the top decision maker for the petroleum sector. The CNE is chaired by President Abdel Aziz Bouteflika, a pragmatic ruler surrounded by similar figures (see who's who in DT and Gas Market Trends No. 8).

Those parts of Algeria where foreign oil companies operate are safe. The other parts are in civil war (see background in Vol. 52, Nos. 5-8).