Algeria - Natural Resources and Energy

Natural resources and energy

Algeria's economy was dominated by the hydrocarbon sector, which in 1990 represented just over 23 percent of GDP and which was the largest source of its exports. In 1990, for example, US$12.3 billion of the country's total export earnings of US$12.7 billion (i.e., 97 percent) came from oil, gas, and refined products exports: crude and condensates (US$6.1 billion), refined products (US$2.7 billion), natural gas (US$2.8 billion), and liquefied petroleum gas, known as LPG (US$730 million). Algeria's oil, a light variety with low sulfur content that commanded a premium in international markets, was the main natural resource on which the government depended heavily to sustain its economic development programs through the 1970s. Crude oil production, concentrated in the Hassi Messaoud field near Haoud el Hamra pumping station, south of Constantine, and in area of the Zarzaïtine and Edjeleh fields near the Libyan border, however, has been diminishing steadily; in the early 1990s it accounted for no more than 1 percent of world production.

Although about fifty oilfields have been producing since 1989, the peak production level of 1.2 million barrels per day reached in 1978 was reduced to approximately 700,000 bpd in 1990. The government imposed the output restriction to prolong the life span of the oilfields and to abide by production quotas of the Organization of the Petroleum Exporting Countries (OPEC). Algeria's total refining capacity stood at 475,000 bpd in 1990.

The country's oil reserves were expected to be depleted within three decades at 1992 rates of production. This alarming assessment, coupled with slumping world oil prices and diminishing prospects of growth in crude oil sales, prompted the government to focus on involving foreign companies in its oil industry by liberalizing the application of the August 1986 exploration code. When the parliament amended this law in December 1991, Sonatrach, which has retained firm control over all oil policies despite the 1980 restructuring of the hydrocarbon industry, was obliged to allow joint ventures with international companies interested in exploring low-deposit areas that require high-technology methods to enhance production. The government also announced that international arbitration would be allowed in case of dispute.

Algeria's considerable natural gas reserves of about 3,200 billion cubic meters of proven recoverable gas were expected to last more than sixty years at 1992 production rates. Natural gas had become the country's most valuable export as a result of the decline of oil production and prices--and as an outcome of the government's diversification strategy. The Hassi R'Mel field south of Algiers was the largest and contained almost two-thirds of the country's reserves. Other large fields included, in descending order, Hassi Messaoud, Alrar (in central Algeria, near the Libyan border), Gassi Touil (southeast of Ouargla), and Rhourd en Nous (in the center of Algeria).

The four plants that liquefy natural gas are owned by Sonatrach, which in the early 1990s sought to promote pipeline sales through the existing trans-Mediterranean pipeline. It was estimated that Algeria's 1990 sales of 12.5 billion cubic meters of LNG could be doubled if plans to build a second transMediterranean line to Spain were to materialize. After an illfated attempt by Sonatrach to raise LNG prices--at the insistence of politicians clamoring that Algeria was not getting fair compensation for its natural resources--the government decided to abandon OPEC fixed prices and switched to a more realistic market-based pricing policy. This new approach resulted in contracts extending into the 2000s with such clients as Gaz de France, Enagas of Spain, Distrigaz of Belgium, and Panhandle of the United States.

Algeria's condensate reserves, which were extensively used in the petrochemicals industry and most of which were located at Hassi R'Mel, were estimated at 400 million tons. Condensate sales in the 1980s helped to make up for the downturn in oil revenues. The respite was likely to be short-lived, however, because the drop in the condensate exports was expected to be accompanied by a corresponding decrease in output from 1989 to 1995.

Enhancing LPG production has been another government priority in its diversification strategy. Fortuitously, domestic demand for LPG in individual households and public transportation has increased steadily. To meet this constantly growing demand, Sonatrach reopened its old Arzew plant, west of Algiers, in 1990. It also renovated the equipment at Hassi Messaoud and planned a construction program of extraction and processing plants, pumping stations, 1,000 kilometers of pipeline between Alrar and Hassi R'Mel, and, finally, the long-awaited new massive LPG plant at Arzew. Despite Sonatrach's successful implementation of its diversification strategy, the government was well aware of its overdependence on the revenue from oil and gas exports to finance its ambitious national development program and service its external debt.

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