BMI Algeria Oil and Gas Report Q3 2011.pdf

Q3 2011 www.businessmonitor.com oil BMI Oil use of 3.06mn b/d in 2001 rose to an estimated 3.63mn b/d in 2010. It should average 3.62mn b/d in 2011 and then rise to around 4.09mn b/d by 2015. Algeria Oil BMI Regional oil production was 8.08mn b/d in 2001, and in 2010 averaged an estimated 10.74mn b/d. From an estimated 9.66mn b/d in 2011, it is set to rise to 12.91mn b/d by 2015. Apart from disruption caused by the Libyan civil war in 2011, oil exports are growing steadily, because demand growth is lagging behind the pace of supply expansion. In 2001, the region was exporting an average of 6.02mn b/d. This total rose to an estimated 8.15mn b/d in 2010 and is forecast to reach 9.85mn b/d by 2015. Angola has the greatest production growth potential, with Nigerian exports set to climb if it can resolve recent quasi-political issues. Algeria Oil BMI Refining capacity for the region was 2.77mn b/d in 2001, rising gradually to an estimated 2.89mn b/d in 2010. Algeria, Egypt and Nigeria are all expected to increase significantly their domestic refining capacity, with the regions total capacity forecast to rise to 3.63mn b/d by 2015. Algeria Oil BMI Algeria Oil BMI In terms of natural gas, the region in 2010 consumed an estimated 120.6bcm, with demand of 162.3bcm forecast for 2015. Production of an estimated 208.7bcm in 2010 should reach 295.2bcm in 2015, which implies net exports rising from an estimated 104.7bcm to 151.0bcm in 2015. Algeria Oil BMI The highest growth in LNG exports by 2015 will come from Nigeria (+58% from 2010) and from Algeria (+11%) thanks to its IOC-partnered schemes. There should also be growing volumes from Egypt, although unrest casts doubt on that and the country is struggling against rising domestic gas demand. Angola has significant longer-term gas export potential, although the first volumes have yet to flow and the most rapid growth phase will occur in the next decade. Equatorial Guinea aims to become a regional LNG export hub. Algeria Oil na = not applicable. Source: Historical data, BP Statistical Review of World Energy, June 2010. Forecasts: BMI. Key Risks To BMIs Forecast Scenario Oil price sensitivity is high and has a dramatic impact on the Algerian economy. Should the OPEC basket price average US$50/bbl to 2015, end-period export revenues (crude oil and natural gas combined) would be US$54.0bn. However, at an average of US$100/bbl, the total would be US$108.0bn. Long-Term Oil And Gas Outlook Details of BMIs 10-year forecasts can be found in the appendix to this report. Between 2010 and 2020 we are forecasting an increase in Algerian oil and gas liquids production of 26.9%, with volumes rising steadily from 2.08mn b/d in 2010 to 2.64mn b/d by the end of the 10-year forecast period. Oil consumption between 2010 and 2020 is set to increase by 47.9%, with growth of 4% assumed per annum and the country using 491,000b/d by 2020. Gas production is expected to rise to 140bcm by the end of the period. With demand rising by 65.8% between 2010 and 2020, export potential should rise from an estimated 52.5bcm to 91.1bcm, in the form of LNG and by pipeline. Algeria Oil for forecasting, we use owr own calculation based on O real GDP by expenditure components are worked out using nominal data from IFS, which is; Sources: 2 IMF/BMI. 3 World Bank/BMI calculation/BMI; 4 ONS/BMI. Algeria Oil e = estimate; *Includes 49% stake in CEPSA. Source: BMI. Overview/State Role State oil company Sonatrach operates in partnership with various IOCs, taking the major share of production from key projects and accounting for 80% of the countrys oil output and more than 90% of gas. Sonatrach is hoping to increase Algerias crude production capacity significantly with the help of foreign capital and expertise. Energy minister Chakib Khelil is aiming to double the number of companies operating in Algeria to 40 by the mid-2010s. Oil refining is controlled directly by Sonatrach, following the reintegration of its Naftec subsidiary in May 2009 after 11 years as separate entities. Oil distribution is carried out by Sonatrachs Naftal subsidiary. In 2008, the government announced plans to end Naftals retail monopoly and to liberalise fuel prices, although progress in this area is glacial. Licensing And Regulation Three main legislative changes since the mid-2000s have had a negative impact on foreign investment in Algerias oil and gas sector. First, in 2006 Algiers introduced a higher windfall tax on oil production. The Algeria Oil na = not available/applicable; Sources: BMI, Company data 2009, *2008 Table: Key Downstream Players Company Refining capacity (000b/d) Market share (%) No. of retail outlets Market share (%) Sonatrach/Naftal 456 100 1,709e 100 e = estimate. Source: BMI, Company Data Algeria Oil a 34.6% interest in HBN; 12.25% in the Hassi Berkine South (HBNS); 12.25% in the Hassi Berkine South East (HBNSE), Berkine Northeast (BKNE) and Rhourde Berkine (RBK) fields; 4.59% in Ourhoud; and a 49% stake in ZEA. The acquisition of First Calgary will boost Enis Algerian reserves by about 190mn boe, with the Menzel Ledjmet East (MLE) field project set to start production in 2010. The Italian firm also has interests in the exploration Block 212 in Amedjene, Block 440 at Wadi El Teh, blocks 402a/401a (55%) in the Berkine Basin and Block 222 in the Sahara Desert. The groups oil field services and construction affiliates Snamprogetti and Saipem have been involved in a number of key projects in Algeria, including the design and construction of the Algerian section of the Transmed pipeline system. Strategy Eni continues to secure Algerian hydrocarbon interests for the Italian market. The country forms a key part of Enis historic North African focus and a high level of ongoing financial commitment seems assured. Thanks to its oil services subsidiaries, Saipem and Snamprogetti, Enis powerful connections and track record put it in a strong position to win field development, pipeline and processing contracts. Continuing supply concerns over Russian oil and gas is bound to increase political pressure on Eni to expand its Algerian output. Latest Developments Eni is to invest in Algerian unconventional gas, a company executive told Dow Jones on April 6 2011. It has now signed a cooperation agreement with Sonatrach. In a statement, Eni said the deal will have particular focus on shale gas as the Italian company said there are significant reserves of such gas in Algeria. Eni's statement comes on the heels of the announcement by Sonatrach on March 23 that it would launch a pilot project to develop Algerian shale gas in 2012, and that it would proceed even in the absence of a foreign partner. Algeria's energy minister YoucefYousfi said on March 9 that Algeria could have up to 28trn cubic metres (tcm) of unconventional gas, with preliminary evaluation suggesting that the potential for Algerian shale gas was 'comparable' to major shale plays in the US. Algeria Oil ? Company-specific capacity data, output targets and capital expenditures, using national, regional and multinational company sources; ? International quotas, guidelines and projections, such as OPEC, the International Energy Agency (IEA) and the US Energy Information Administration (EIA). Algeria Oil ? Government projections for oil, gas and electricity demand; ? Third-party agency projections for regional demand, such as the IEA, EIA and OPEC; ? Extrapolation of capacity expansion forecasts, based on company- or state-specific investment levels. Cross Checks Whenever possible, we compare government and/or third party agency projections with the declared spending and capacity expansion plans of the companies operating in each individual country. Where there are discrepancies, we use company-specific data as physical spending patterns to ultimately determine capacity and supply capability. Similarly, we compare capacity expansion plans and demand projections to check the energy balance of each country. Where the data suggest imports or exports, we check that necessary capacity exists or that the required investment in infrastructure is taking place. Oil And Gas Ratings Methodology BMIs approach to our Oil Downstream Oil Risks To Realisation Returns Evaluates both Industry-specific dangers and those emanating from the states political/economic profile that call into question the likelihood of expected returns being realised over the assessed time period. Algeria Oil low penetration scores highly. Growth outlook Oil demand growth, 2009-2014 Proxy for BMIs market assumptions, with strong growth accorded higher scores. Gas demand growth, 2009-2014 As above. Refining capacity growth, 2009-2014 As above. Import dependence Refining capacity vs oil demand, %, 2009-2014 Denote reliance on imported oil products and natural gas. Greater self-sufficiency is accorded higher scores. Gas demand vs gas supply, %, 2009-2014 As above. Country structure State ownership of assets, % Used to denote opportunity for foreign NOCs/IOCs/independents. Low state ownership scores higher. Number of non-state companies Indicator used to denote market competitiveness. Presence (and large number) of non- state companies scores higher. Population, mn Data from BMIs Country Risk team. Indicators used as proxies for overall market size and potential. Nominal GDP, US$bn As above. GDP per capita, US$ As above. Risks to realisation of returns Industry risks Regulation Subjective evaluation of government policy towards sector against BMI-defined criteria. Bureaucratic/intrusive states are marked down. Privatisation trend Subjective evaluation of government industry orientation. Protectionist states are marked down. Country risk Short-term policy CRR. Evaluates the risk of sharp change in broad direction of government policy. Algeria Oil & Gas Report Q3 2011 © Business Monitor International Ltd Page 84 Table: BMIs Downstream Oil & Gas Business Environment Ratings Methodology Indicator Rationale continuity risk Short-term economic external risk CRR. Evaluates vulnerability to external economic shock, the typical trigger of recession in emerging markets. Short-term economic growth risk CRR. Evaluates current growth trajectory and states position in economic cycle. Rule of law CRR. Evaluates the governments ability to enforce its will within the state. Legal framework CRR, to denote risk of additional illegal costs/possibility of opacity in tendering/business operations affecting companies ability to compete. Physical infrastructure CRR. Evaluates constraints imposed by power, transport and communications infrastructure. Source: BMI Sources Sources include those international bodies mentioned above, such as OPEC, the IEA, and the EIA, as well as local energy ministries, official company information, and international and national news agencies.