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Interview

Daoud Sahbi – President, Energy Club – Algeria

21.07.2015 / Energyboardroom

The president of Algeria‘s Energy Club discusses the future of Algeria‘s energy mix and the evolution of the country’s energy regulation environment.

What does Algeria offer international markets, particularly in terms of unconventionals?

I think Algeria will be forced to move towards shale gas, regardless of the situation, for domestic market reasons and need to cover our resource demands, which will continue to grow. Conventional production has already started to decrease. In the short term we will not be able to increase it, but enhancing the recovery rate of fields and making new discoveries, even though they will be minor and harder to exploit.

Yet on the other hand, domestic residential consumption is climbing at an extraordinary rate. As for fuel, the ministry announced that we consumed 14 million tons in 2013, and expects 30 million in 2030! Will we discover enough hydrocarbons to maintain the annuity while supplying the domestic market? As for gas, we consume 32 million cubic meters to date, expecting 75 in 2030. The Algerian strategy to guard against this will probably be the following: enhance production, discover new fields and most important of all, if we want to keep an annuity and cover domestic needs at the same time, learn to save on domestic consumption. There are great resources that exist via implementing a new model of consumption, as well as through the use of equipment that is less energy consuming. We still build under the same rules that we used in the 1920s and 30s! Bricks and concrete consume a lot of energy, and there is no energy-efficient material development ongoing. Here are areas to explore.

Meanwhile, the recovery rate on our fields tops 30 percent, whereas elsewhere it reaches up to 45 percent. If we invest in this area, to increase recovery rates, a one percentage point improvement can represent 500 million additional barrels! So it is a huge field, especially if our target is set to a ten percent improvement.

Finally, in the energy mix, the development of renewable energy sources, solar in particular, may extend the life of our oil and gas reserves beyond 2030 or 2040, and allow us to deal with domestic consumption without giving up the financing of economy by oil and gas revenues.

It appears to us that the nuclear projects which are developed in Gulf countries represent a great danger for the region, for ultimately, the decommissioning costs of these power plants are huge, and waste management is a major problem, even in Europe. That being said, Algeria can try, although there are two major constraints: we do not have enough uranium, and management of nuclear power implies waste management, which is a particularly problematic issue.

To get back to energy saving opportunities, we should mention the petrochemical industry: we must no longer build plants that transfer gas annuities; if the gas is sold at a tenth of the international price to produce fertilizers which will, in turn, be enjoyed by the international markets, then what is the long-term interest?

In the future, Sonatrach should therefore be cautious with downstream investments, double check their studies before any commitment, especially since it is very difficult to renegotiate prices once the contract is signed: take Orascom for instance, who benefited from an extremely low price. When Sonatrach wanted to review the price of the gas that was sold to them at a tenth of the normal rate, they simply refused, on the grounds that a contract is a contract, and that this price represented comparative advantage for them. That kind of thing should no longer happen. We will have to implement a good performance approach in the management of this resource.

In the next three or four years, what do you think could be the best thing happen to Algeria with regards to oil and gas?

First of all, the renewal of hydrocarbon reserves and improved management of our reserves and fields through appropriate conservation policy.

Another challenge is that of regulation: the current law needs adjustment; what was done is not sufficient to ensure attractiveness to the mining sector, particularly regarding the relationship with partners. Taxation has changed, contracts have evolved, but nothing has been done with regards to relationships, transparency of actions, and fight against bureaucracy.

Then, there is the challenge of new discoveries and improvement of recovery rate, which requires major efforts on the part of Sonatrach and the Algerian service companies.

There are competent people and core competence centers, and training will have to continue. These changes should secure more autonomy and open opportunities to work with new models, so that a consensus can finally emerge.

Finding an agreement on the review of the energy consumption model would be the first consensus, because waste will soon be beyond us. Now, the social impact is huge, meaning that it becomes the concern of politicians and civil society: e.g. Algiers is getting completely polluted simply because diesel is twice as cheap as regular petrol.

Reconsidering these prices would also jam up the hydrocarbons leak at the borders: just like Venezuela and Colombia, the trans-border trafficking of Algerian fuels has become a scourge.

Similarly, regarding renewable energies, the program decided by the authorities in 2011 must finally be implemented for real, so that we have combined electricity production at last. However, all of this will require massive technological and educational efforts, on top of the other investments.

Click here to read more articles and interviews from Algeria, and to download the latest free oil and gas report on the country.

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