ALGERIA - The Downstream Structure.

Sonatrach as a group has been restructured several time since 1982, when the oil refining and products distribution units were merged into one division called Naftal.

In 1988 the refining unit was separated from Naftal and became known as Naftec, with Naftal remaining in charge of products distribution and local marketing. As part of yet another wave of restructuring in Sonatrach, Groupe Raffinage et Chimie des Hydrocarbures (GRC) was created in June 1996 to be in charge of both the refining and petrochemical sectors. It was to allow efficient functioning of the downstream within an increasingly liberalised economic environment in Algeria. The shift to market economics, backed by the IMF, was then a cornerstone of the government's goal of improving social conditions and of proposed integration with the European Union.

On June 19, 1996, Sonatrach announced three new companies: GRC for the downstream sector; Groupe des Services aux Hydrocarbures (GSH), focusing on well services, drilling and geophysics; and Groupe des Travaux et de Maintenance d'Installation Industrielle (GRM), in charge of construction, maintenance, engineering and technology development. The decision to create these companies followed long negotiations between the Energy Ministry and the National Federation of Oil, Gas and Chemical Workers.

In April 1998, Naftec became a 100% owned subsidiary of GRC. The creation of GRC as a holding company, with a paid up capital of AD12,000m, marked the reintegration of refining and petrochemical operations, with Naftec retaining both refining and products distribution operations in Mauritania called Naftec Sa Mauritanie and Naftal Sa Mauritanie. But within Algeria, the distribution and marketing of petroleum products remained Naftal Spa's responsibility. (Naftal remains an abbreviation of Entreprise Nationale de Raffinage des Produits Ptroliers, while Naftec stands for Entreprise Nationale de Commercialisation et de Distribution des Produits Ptroliers)

GRC's responsibilities as a holding group include strategic planning, organisation and control as well as co-ordination of the refining and petrochemical sectors in terms of marketing, financial management and personnel. GRC is also responsible for project development and for marketing strategies in the refining and petrochemical sectors. It is in charge of technical decisions related to these sectors as well.

Sonatrach and GRC in 1998 highlighted a $19.3 bn investment plan for downstream projects to be ready by 2002. These included refining, petrochemicals and power ventures. Of the total outlay, Sonatrach wanted foreign companies to provide $6 bn. It was then said that GRC was hoping to see total oil refining capacity reach 750,000 b/d by 2002 and 1m b/d by 2010. GRC wanted foreign companies to invest in nearly all the expansions in the refining sector.

Needed as one of the "priority projects" is a complex 150,000-200,000 b/d refinery to be built for the Greater Algiers area, which GRC is offering as a BOT venture to be run by a qualified international company. Together with associated facilities, the refinery would cost about $1.5 bn and this is beyond Sonatrach's financial means at present. GRC has been empowered to get a foreign company, or group of firms, to build the planned refinery on BOT basis. Among the candidates are integrated majors operating in Algeria's upstream sector and firms with which Sonatrach markets refined oil products, condensates or LPGs, such as TotalFinaElf.

The existing Algiers refinery, with a nameplate capacity of 58,000 b/d, is very old and inefficient. GRC intends to close the plant - after the proposed complex refinery has been built - because it is incurring losses. The Algiers area is being supplied mainly with products from the Skikda complex and from the Arzew plant.

One major obstacle mentioned by the majors is a heavy state subsidy on refined oil products sold to the local market, with the government insisting on maintaining control over product pricing. The other problem is the country's legal framework, still based on a tough attitude towards foreign capital, which is yet to be improved.

GRC executives foresee an "eventual solution" to the problem of state control over the pricing of refined oil products, LPG and petrochemicals for the domestic market, although this has been promised since late 1998. Of the fact that the Mediterranean market remains constrained by refining over-capacity, the executives say this does not concern Greater Algiers which would absorb the output of the proposed 150,000-200,000 b/d plant.

Another priority is a 100,000 b/d condensate refinery to be built at Arzew or Skikda. GRC is also promoting a methanol/MTBE venture to be built at Arzew with a capacity of 800,000 t/y, to use gas and butane feedstocks which are available there at advantageous prices. Other projects promoted by GRC are an aromatics complex to be built at Arzew or Skikda, an ethane-based olefins venture with a capacity of 650,000 t/y and a polypropylene plant with a capacity of 300,000 t/y. One of the other GRC projects, a second helium plant in Skikda with a capacity of 600 MCF/y is to be built as a JV with Linde holding 50% (see DT No. 7).

Sonatrach is venturing into the IPP business both within Algeria and abroad. It wants foreign companies to become its partners in several IPPs of various sizes. The state gas and power utility Sonelgaz is losing its monopoly over the electricity generation sector (see DT No. 5). Conoco Phillips is one of the foreign majors with which Sonatrach has an alliance promoting gas-based IPPs to be built in Algeria and abroad.

Sonatrach delegations, including GRC executives, have been actively promoting these project. They have gone on promotional tours of Europe, North America, the Middle East, and the Far East since the second quarter of 1998. They have made presentations in London, Geneva, Brussels, Berlin and other European cities, Houston, Washington and Toronto. In the industrial centres of Arzew and Skikda there are plenty of oil and gas-based feedstocks at advantageous prices. Methane and ethane are available at $0.80/m BTU, for example, and to the new refiners crude oil supplies would be cheaper than in the West. Participation in the Algerian refining sector has several advantages. Algerian refined products, which are of high quality, are in demand among the environmentally conscious societies of Europe, located nearby, as well as in the US and Japan.