Algeria Moves Forward With Shale

Negative expectations due to a decline in Algerian hydrocarbon production has caused the North African country to make a move toward the unconventional. Christopher Coats reported in Forbes that the Algerian  government is now seeking parliamentary approval for shale gas exploration. Parliament is now discussing a regulatory restructuring to entice foreign investment interest, with nearly a dozen test wells to be drilled over the next 7 to 13 years.  The initiative comes after five years of research and development into the investment, but the political decision to move forward came only following the reelection of President Abdelaziz Bouteflika in April 2014.

Bouteflika's effect on gas market

Coats describes how, for several years, international investors have been demanding a revision in the hydrocarbon market, to overcome local business environment setbacks that resulted in lower overall output. According to a Platts report, Algeria’s oil production stood at 1.14 million barrels per day in November of last year, down 15% from 2005-2010 averages.

More dramatically, the natural gas production of the North African energy giant has declined since 2005, standing at 2.9 trillion cubic feet in 2011. Sonatrach’s head, Abdelhamid Zerguine, attributed this decline to the country’s awarding of some permits to small operators that did not have the “financial capacity” to meet local project requirements, leaving them “overstretched”.

Shale as an opportunity

Shale has come up as an opportunity to restructure the traditional industry, previously not likely to have been reformed for decades. For Coat, shale will be  a new lifeline for the country’s energy sector, as well as some foreign firms. According to the Washington-based  U.S. Energy Information Administration (EIA), Algeria has 707 trillion cubic feet of gas reserves in shale deposits. This is expected to be the world’s third largest, ranked just after China and Argentina, though this remains unproven. Following the EIA’s expectations, this shale potential has drawn attention from  international investors,  especially in light of Europe’s quest to reduce its dependence on Russian gas supply and divirsify its resource and supply routes. This trend could continue, with companies from importer countries like Italy and Greece seeking to expand their access to North African reserves.

However, while international investors will be able to provide the expertise and experience needed for the costly extraction process, Algeria will still face significant obstacles to provide the infrastructure for supporting shale extraction, known as hydraulic fracturing, or fracking. Therefore, Coats notes Algeria will still need to find a way to provide the millions of gallons of water needed for each active site.

Despite  infrastructure challenges, Algeria still remains a secure investment environment overall. The World Bank ranks Algeria 148th out of 183 in terms of the ease of doing business.  This ranking has held, even with 2010’s management shake-ups at Sonatrach, followed by its CEO being replaced 18 months later.