Algeria Signals Need for Petroleum Investment
Algeria and its state oil and gas producer Sonatrach and state energy distributor Sonelgaz have signaled they are open to international financing, as the country suffers a halving in oil and gas export revenue which provides about two-thirds of government revenues.
“Sonatrach and Sonelgaz examine the possibility of mobilising concessional and preferential financings abroad,” Algerian finance minister Abderrahmane Benkhalfa told state news agency APS on April 16 on the fringes of the spring International Monetary Fund gathering in Washington DC.
Algeria was not envisaging an increase to national debt, he said, but would consider resorting to targeted preferential financings backed by profitable joint venture projects with foreign partners.
Benkhalfa, his prime minister Abdelmalek Sellal and the energy minister Salah Khebri rolled out the red carpet on April 19-21 for African Development Bank president Akinwumi Adesina’s first official visit to Algeria – a founding AfDB member and the bank’s fourth biggest African shareholder with 4.21%.
Khebri and Adesina discussed the possibility of AfDB financing Sonelgaz projects, particularly renewable projects, reported APS. Adesina also met Sonelgaz CEO Noureddine Bouterfa. The AfDB chief said it would lend to non-oil sectors of the economy and praised Algeria's efforts on job creation.
Khebri had previously said that Sonatrach might borrow more to increase its production.
Last month Reuters, citing an unnamed Sonatrach source, said the government would switch to offering foreign firms direct negotiations for licence stakes, rather than focusing on licensing rounds, adding that Sonatrach was already in such talks with Eni and several other firms. This week Eni CEO Claudio Descalzi met Khebri and Mazouzi in Algiers, but such direct talks were not publicly cited.
There’s little doubt that a plunge in Algeria export revenues is impacting the economy, including the state’s ability to invest in its own strategic companies.
The Algerian central bank’s latest quarterly bulletin in January said that oil and gas export revenues shrank by 45% to $25.79bn in the first nine months of 2015, compared with $46.86bn in January-September 2014, as average oil prices fell to $55.76/b from $106.65/b a year ago. Today's oil prices are in the low $40s. A new quarterly Banque d’Algerie bulletin is due out soon.
In a note earlier this month, the World Bank said that Algerian economic growth slowed to 2.9% in 2015, from 4.1% in 2014: “Under initial expectations that the fall in oil prices would be short-lived, lack of fiscal consolidation led the budget deficit to double to -15.9 % of GDP in 2015.”
“Hydrocarbon exports amount to 95% of total exports and around two-thirds of government revenues,” the bank’s note continued. “Hydrocarbon exports have fallen from a peak of 36% of GDP in 2011 to 19% of GDP in 2015, while hydrocarbon revenues have dropped from a peak of 27.4% of GDP to 14 % of GDP. Due to very large drawdowns, the size of the oil stabilisation fund has fallen from 25.6% of GDP in 2014 to 16.2% of GDP. International reserves remain high at 28 months of imports, but are declining fast.”
The World Bank's April 9 note also said that Algeria’s latest 2016 budget assumes an average oil price of $35/b, calls for a 9% cut in government expenditure, a 36% hike in gasoline prices, and higher taxes on electricity, gasoline and car registrations. The budget also empowers government to approve further cuts if oil prices fall below $35/b, and to engage in external borrowing if needed.
Despite weak interest in new licences to date, and a global investment cutback by international oil companies, Khebri on April 14 said that national oil and gas production would steadily rise to 241mn metric tons of oil equivalent (mtoe) in 2020 (equivalent to 4.82mn boe/d), thanks to a forecast "$73.5bn of investment in 2016-20".
But sourcing such investment will depend on whether Benkhalfa and others are sufficiently attractive to lenders.
Addressing the upper house of parliament (Conseil de la Nation), Khebri said that oil and gas production had peaked at 233mn mtoe in 2007 (4.66mn boe/d), had steadily fallen to 186.7mn in 2013 (3.73mn boe/d), but would reach 197mn in 2016 (3.94mn boe/d), 210mn in 2017 (4.2mn boe/d), 215mn in 2018, 225mn in 2019 -- and 241mn mtoe in 2020 “a level never before achieved in Algeria.” No provisional 2015 figure was cited in a summary of his speech on the energy ministry's website, nor did he refer to possibly developing shale gas – a strategy that led to local protests last year.
“All measures have been taken to boost production from next year,” the minister said, adding that “investment will be made by Sonatrach alone or acting in partnership with foreign companies.”
Many however will question such trajectories – even allowing for expansions already underway from BP/Statoil (In Salah/In Amenas) and Engie (Touat) – and the minister’s assurance that measures are already in place to attract foreign investors with scarce capital. Indeed, the World Bank noted that Algerian budget’s call for 9% cut in 2016 government expenditure will mostly fall on investments.
Mark Smedley