ALGERIA - Sonatrach Oil Trade.

Sonatrach's exclusive field streams supply its five oil refineries, with some sour crudes being imported from abroad. These refineries are running at about 420,000 b/d, well below their capacity of 467,500 b/d. For years the export refinery at Skikda has run at more than 350,000 b/d, compared to a design capacity of 323,000 b/d. The plant produces straight run fuel oil, gasoil, gasoline and kerosine - all of high quality.

Some oil products are imported occasionally to meet local demand. Imports, mainly sour crudes involve Sonatrach Petroleum Corp. (SPC), a trading unit based in London. SPC buys the crudes and products from the spot market, apart from marketing Sonatrach's exports.

About 85% of Algeria's crude oil exports move to West Europe. Italy is the main market, followed by Germany and France. Italy is by far the main market for Algerian natural gas (see Gas Market Trends). The other European users of Algerian crude oils are the Netherlands, Spain and Britain. But Sonatrach is entering the Asian/Pacific oil market, where West African crude oils are used in increasing volumes. Pertamina of Indonesia buys Saharan Blend (SB) under annual contracts since September 2002.

The US market accounts for an important part of the remaining 15% of Algeria's crude oil exports. Algeria also exports petroleum products to the US. Under a contract signed on April 8, 2000 and effective from July 2001, Ultramar Diamond Shamrock (UDS) is lifting 32,000-35,000 b/d of the SB for a seven-year period to the US and Canadian markets.

Sonatrach and UDS have been discussing the possibility of the Algerian concern investing in an oil refining venture in Canada (see OMT No. 8). They have also discussed supply of fresh water to Sonatrach's Arzew refinery from the St. Lawrence River in Quebec. UDS' tankers deployed for the Algerian crude are equipped with a double hull system enabling them to carry fresh water on the thrice-monthly return journey from Algeria.

Official crude oil prices are set monthly at a quality premium over Dated BFO. Sonatrach only sells crude oils on term basis. Most oil products and condensates are sold on term basis as well. Unlike Persian Gulf exporters, it allow its clients to trade in Algerian crude oils on the spot market. Premia for the SB have ranged from more than $3/b during the Gulf crisis of 1990 to less than $1.50/b in recent years.

When world prices were low in 1998 and the first quarter of 1999, the premium fell to less than $0.50/b over Brent; in early April 1999 the price was at a discount of $0.10/b to Brent. The highest price of the SB during the 1990s occurred in October 1990, when it averaged $37.97/b, and the lowest was in January 1999 as it averaged less than $11/b.

Foreign companies producing oil in Algeria are allowed to take their share of the crudes to whatever destination or to sell it on the spot market. They include Anadarko, BP, Agip, Cepsa, Petro-Canada, Repsol, Total, Amerada Hess, Burlington Resources, Maersk, BHP Billiton and Talisman. Other offtakers include Arcadia, Veba, Tupras, OMV and Tamoil.

Sonatrach is an active spot seller of 0.05% sulphur gasoil on the Mediterranean market. It is competing with Russia, traders and European refiners selling surpluses of the top grade fuel. In late 1994 London-based SPC opened a trading unit in Singapore to handle the Asian market for LPG and other products. Sotal Energy Ltd., a 50-50 JV of Sonatrach and Total, markets Algerian LPG in Europe, North Africa and other areas.

Sonatrach is the world's second exporter of LPG next to Saudi Arabia. In 2005 its LPG output reached 11.5m tons, up from 10.5m t/y in early 2003 and and 5m t/y in 1996. With the domestic market taking about 3m t/y, exports in 2005 and the subsequent year reached 8.5m tons per annum. Italy and Spain are the biggest importers of Algerian LPG in the Mediterranean region. Sonatrach also exports LPG to the US, Latin America and Asia/Pacific.