ALGERIA - The Global Market Perspective.

The Paris-based IEA on Feb. 6 said world oil demand growth will be rising 2% annually through 2011, in a forecast which is more optimistic about the rate of future energy consumption compared with previous five-year periods, because of rapid growth in Asia. It said world oil consumption growth would to rise on average by 1.8m b/d over the five-year period, from 84.5m b/d in 2006 to 93.3m b/d in 2011.

The 2% annual growth rate in consumption compares with growth of 1.8% in 2001-2006, and 1.4% in the 1996-2001 period. The 2006-2011 outlook assumes a downward revision in consumption of 385,000 b/d due to high energy prices, fuel substitution in industrialised countries and changes to US economic growth. (The IEA is the energy security watchdog for the Organisation for Economic Co-operation and Development).

Lawrence Eagles, who heads the IEA's oil industry and markets division, said: "Developing countries [like China and India] are the driving force. They are essentially consuming oil at three times the rate of [developed countries]". Oil production growth from non-OPEC states like Russia is expected to rise by 1.3m b/d over the five-year period even after accounting for a downward revision of 1.8% in total production from those countries to 62.3m b/d in 2011.

Spare oil production from the 12-state OPEC is seen rising to between 3.4m b/d and 5.2m b/d by 2011, up from an average of 2.2m b/d in 2006. Rapid growth from China, India and other developing countries in Asia and the Middle East will dilute some of that expected rise in spare oil production capacity. Because of this, the IEA said, oil producing states and international oil companies (IOCs) need to continue to sink money into new capacity over the next several years. The IEA said Chinese oil consumption growth would to rise annually by 5.7%, more than three times the oil demand growth pace in the US, while Middle East countries as a whole will use oil at an average annual rate of 4.9%.

Sonatrach In North America: Algeria has helped Anadarko of Houston, in which Sonatrach has a stake, become the largest independent oil and gas company in the US. Having found over 3 bn barrels of high quality oil and gas/condensates in Algeria, where it is the biggest foreign oil producer and investor, Anadarko is about to become the largest independent in the world. But Anadarko is suffering the most from Algeria's new tax on foreign oil companies profits (see DT of this week).

Sonatrach has been negotiating a planned stake in an oil refining venture in Canada in partnership with its term client Ultramar Diamond Shamrock (UDS). UDS has been purchasing Algerian crude for years.

In Algeria: Sonatrach now has to compete with foreign companies in acquiring E&P blocks in Algeria. A new state agency called Alnaft ise in charge of offering new E&P blocks as well as drafting and signing PSAs or service contracts and monitoring foreign companies' upstream operations.

Sonatrach will also lose its monopolies in local midstream and downstream operations. Another state unit will do the follow up work and make sure regulations are implemented in the areas of pricing, transport, the environment, etc. (see DT).

Med-Euro Ventures: Sonatrach is to expand outside Algeria, partly with the help of majors operating in Algeria, such as Total, Statoil, BP and Shell. Although BP in late 2001 was compelled to withdraw from In Salah Gas (ISG), a marketing JV related to the In Salah gas E&P venture (because the UK super-major had concerns it may break EU competition laws if it sold gas under Algerian contract terms), BP is still indirectly helping Sonatrach in selling gas to European companies. BP has an important share of the Spanish market, being supplied with In Salah gas.

ISG, based in The Hague, was set up in April 1997 when it signed its first sales deal with Enel of Italy, a significant client as the new company was targeting the power generation market in southern Europe. Enel has raised its purchase volume from 4 BCM to 6 BCM/y with deliveries beginning in 2004. ISG's second deal has since been signed with Italy's rapidly expanding gas and power utility Edison, and the two companies have agreed to bid for power plants being privatised by Enel.

MedGaz, an 8,000 MCM/y JV pipeline to Spain, will be expanded to allow for other African gas exporters to reach European markets. This is being discussed by Sonatrach and Nigeria's NNPC, which will be supplying gas by pipeline to Niger and Mali, after an initiative to that effect was made in 2000 by Minister Khelil (see DT of this week). In parallel, under an agreement signed in September 2002, Sonatrach was to take 30% in Cepsa's gas distribution and power unit, which is building gas-fired co-generation plants. Sonatrach is to supply 600 MCM/y of LNG for these businesses. Under the same deal, Cepsa and Sonatrach have set up a trading JV, SonaCep, for crude oil in Madrid.

A marine gas pipeline from Algeria to Italy and France will be a JV. A related JV called Galsi, based in Milan, is having an 8,000 MCM/y pipeline to be built from Algeria's eastern terminal of Skikda to Sardinia and Corsica. Galsi was formed in November 2002 of Sonatrach, Edison, EnelPower, Wintershall of Germany, and an Italian energy buying consortium Eos Energia. The pipeline will reach the Italian coast near La Spezia. It will be extended to France and Germany later on. A power line will be built along the route, as in the case of MedGaz.

The TransMediterranean Pipeline Co. (TransMed), which operates a gasline from Algeria to Italy, is a JV of Sonatrach and ENI formed in 1975. The pipeline has been expanded, with further expansions underway (see gmt7AlgerGasExprtFeb12-07).

Sotal Energy Ltd. is owned 50% by Sonatrach and 50% by Total. It markets LPG in Europe, North Africa and other areas. The LPG is produced by Total in Algeria. Total's output of LPG and condensates is set to rise considerably from the major TFT group of fields.

Similar JV companies to market LPG and condensates in Europe are under discussion between Sonatrach and each of Cepsa and Repsol, both producing oil in Algeria.

Sidem is a wholly owned Sonatrach engineering unit. In late 1998 Sidem and JGC Corp. of Japan, working in Sonatrach's gas plants for more than 30 years, formed an engineering JV to operate in Algeria and abroad. Based in Algiers with operations in Hassi Messaoud and other E&P areas, the JV provides turnkey services. It was created in order for Sidem to acquire advanced technology and experience in working outside Algeria.

Sonatrach Int'l Holding: SIH is in charge of the group's subsidiaries abroad (see background in Vol. 56, No 8). Sonatrach has more than 30 subsidiaries and affiliated companies operating within Algeria and abroad, many of them in partnership with foreign firms. The main units abroad under SIH are the following:

Sonatrach Petroleum Corp. (SPC), based in London, is a 100% Sonatrach-owned trading unit whose staff are drawn from the headquarters. It has trading units and representative offices on both sides of Suez. Each unit is self-sufficient. SPC handles the purchase, marketing and sale of up to 20m t/y of crude oil, refined products and LPG. Most of these are produced in Algeria and the rest purchased from non-Algerian sources and sold to SPC customers. SPC's areas of trading include Europe, the Mediterranean, Africa, the US and Latin America. A marketing unit of SPC has been set up in the US.

SPC's unit in Singapore, opened in late 1994, handles the Asian market for LPG and other products. Now it is marketing Algerian crude oils in the Asia/Pacific market, with Algeria's oil and condensate production capacity to exceed 2.7 b/d by 2010.

Sonatrading Amsterdam, 100% owned by Sonatrach, is a trading and marketing unit for piped gas and LNG. It handles Europe and has a unit for the American LNG market.

Sonatrach Petroleum Investment Corp. B.V., a Dutch unit, is a finance and investment firm owned 99.9% by Sonatrach and 0.1% by the Algerian foreign trade bank BACE. It is helping Sonatrach consolidate and expand its overseas operations. Its role has been in line with a plan to integrate Sonatrach's strategic subsidiaries overseas, which will include E&P ventures and associated logistics and services.

International Petroleum Investment Partnership (IPIP) is a financial holding unit for portfolio management. It is 99.9% owned by Sonatrach with BACE holding 0.1%.

Propanchem is a JV of BASF (51%) and Sonatrach (49%). It has a propane de-hydrogenation plant in Tarragona, a port city in northern Spain, on stream since 2001 producing 350,000 t/y of propylene. This is sold to Targor GmbH, a JV of BASF and Hoechst. The plant uses 450,000 t/y of Algerian propane supplied by Sonatrach. At the same complex another unit was inaugurated in April 2004. Tarragona is the site of a 225,000 t/y polypropylene plant built in 2001 as a BASF-Hoechst JV. Sonatrach and BASF have been negotiating a petrochemical JV to be built in Algeria. BASF Intertrade, based in Zug, has been a long-standing client of Sonatrach.

In ME & Africa: An E&P project in Iraq, under a deal signed in November 2000 for Block-8 adjacent to the huge Rumaila oilfields, is a JV of Sonatrach and India's ONGC and Reliance Industries. Sonatrach in 2001 signed a deal with Baghdad for development of the 5 bn barrel Tuba field in southern Iraq.

Agip and Sonatrach have an E&P venture in Yemen. In March 2002 Sonatrach's overseas E&P unit Sipex signed an E&P deal in Mali (see above). Sonatrach is also active in Sudan. It has been negotiating E&P deals in Mauritania, Niger, Cameroon, Equatorial Guinea and Namibia. Sonatrach has an E&P venture with each of NOC of Libya and ETAP of Tunisia. On Jan. 29, 2005, it got an interest in one of Libya's E&P blocks in partnership with Venerex Energy of Canada.

Moving Into Latin America: With Minister Khelil having worked for the World Bank in Latin America and developed friendships there, Sonatrach in May 2000 entered into a gas JV in Peru. This is moving gas and liquids from the Camisea fields in eastern Peru on Block 88 on stream since August 2004 to the western coastal cities of Lima and Callao under a 33-year, $1.45 bn contract with the Lima government signed in January 2001. The JV markets and distributes gas and liquids in the two cities (see omt8AlgOversFeb21-05).