ALGERIA - Part 2 - Oil & Gas Production Capacities Are On Target.

With its sustainable crude oil output capacity averaging 1.3m b/d, excluding condensates, and able to produce over 1.35m b/d for a short time, Algeria's petroleum sector has exceeded planned expansions in the last seven years. Together with more than 500,000 b/d of condensate and NGL production, excluded from OPEC quotas, the capacity comes to over 1.85m b/d and is expected to be almost 2m b/d by early 2006 and over 2.5m b/d by 2010, compared to a little over 1.1m b/d in 1996. The country's capacity for marketed production of natural gas and LNG, excluding gas reinjected into the oilfields, has risen to 87.5 BCM/year and should reach more than 110 BCM/year by 2010, with exports by pipeline and in LNG form to exceed 85 BCM/y by 2010.

Under a programme to 2005, the state-owned concern Sonatrach and its foreign partners have invested $21 bn to expand oil production capacity by 700,000 b/d, tapping more than 7 bn barrels of reserves discovered in recent years. The investment was also to increase condensate and gas production considerably. Sonatrach and foreign companies are investing another $12 bn on the upstream oil and gas capacity to 2008.

Algeria's long-delayed draft hydrocarbons law that aims to streamline the petroleum sector and attract more foreign investment was presented to an inter-ministerial commission last month. Energy and Mines Minister Chakib Khelil told a conference in Algiers on Jan. 17: "The draft hydrocarbon law...will be submitted to parliament in the next session and should be adopted by November". The law aims to make Sonatrach more competitive and efficient by stripping away the firm's control of the tendering process for oil and gas exploration blocks. It is to further open up opportunities for foreign oil companies with a view to growing Algeria's current oil and gas production. The law was first drafted in 2002 but was abandoned in early 2003 due to opposition from the country's all-powerful unions which feared job losses in the one-time socialist state.

In a press released on Dec 8, 2004, Patch International Inc. of Canada announced that it had received a letter agreement to partner with the Algerian Ministry of Energy and Mines. It said The agreement followed meetings in November in Algeria with various government officials by the President of Patch International, David Stadnyk, and the President of First Petroleum Consulting, Danilo Mancin. (First Petroleum is a wholly-owned subsidiary of Patch's North African operations). It quoted Stadnyk as saying: "We are delighted and encouraged to get this agreement so quickly. Thanks to Mr. Mancin, who has significant expertise in dealing with the government in Algeria and other North African countries, everything was fast-tracked for us". It added: "Essentially, this means we will be able to begin activities much sooner than we had first thought". Patch was consider-ing various projects for E&P tender under the direction of the Ministry of Energy and Mines.

The Ministry administers the wealth of natural resources in Algeria and directs the national companies such as Sonatrach which partner with foreign companies to develop the petroleum resources. Patch said in its release: "Currently, Algeria's oil reserves are estimated at 15.4 billion barrels and its gas reserves at approximately 146.5 TCF".

Sonatrach, with an oil production capacity of 551,000 having fallen from about 700,000 b/d in recent years, until early 2002 used to bear the brunt of output cuts needed for Algeria's compliance with the OPEC quota system. But for the past two years, total oil output has been well over Algeria's quota. Its quota from Jan. 1 is 1.22m b/d, up from 782,000 b/d on Feb. 1, 2003. The foreign operators in recent weeks have been allowed to produce at capacity, with Algiers wanting to attract more firms into the E&P sector.

As a result, the foreign operators account for more than 700,000 b/d of Algeria's current oil production of about 1.25m b/d, compared to 217,000 b/d in early 2001 when their capacity was 302,500 b/d. By late 2005 the foreign operators' capacity will have risen to about 888,700 b/d, excluding condensates and LPG, and Sonatrach's capacity would have reached more than 620,000 b/d. The biggest producer among the foreign operators is Anadarko, the largest among the independent US oil companies in which Sonatrach has a stake (see profiles on following pages & in Gas Market Trends).

Sonatrach Oilfields & Legal Framework: Sonatrach has more than 20 producing oilfields, with the country having about 2,600 oil and gas wells. Their oil recovery rate has declined, despite EOR systems installed in most of them. Sonatrach's capacity has fallen from more than 1m b/d in 1980 to 551,000 b/d. To boost their capacity through highly advanced EOR systems, Sonatrach has offered fields for further development, whereby foreign companies would have a share of production. It has offered partnerships in fields it abandoned in the 1980s. There are more than 200 E&P agreements in Algeria.

Sonatrach has more than ten fields producing natural gas and condensates, including the super-giant at Hassi R'Mel. Sonatrach's gross production of natural gas has risen to 129 BCM/year. Gas production from Tin Fouye/Tabankort in a joint venture (JV) operated by Total is averaging 6.5 BCM/year and in the BP/Statoil operated In Salah fields is shortly to reach 9 BCM/year.

Sonatrach is still being restructured in a process begun in 1996. Now it is functioning much better. But socialists within the company, as in the ruling FLN and trade unionists are still opposed to the new hydrocarbons law, in early 2003 having caused the Mines and Energy Ministry to shelve it, as it will end Sonatrach's domination of the petroleum sector. (see background in Vols. 52 and 56, OMT No. 6).

Now the position of the law's main author, reformist Mines and Energy Minister Chakib Khelil is stronger as he counts the support from President Abdelaziz Bouteflika, who was re-electe to a second term in April 2004 and had brought him back to Algiers from the World Bank in 1999. The affable and Spanish-speaking Khelil is confident the law will be passed this year (see who's who in DT No. 8)