Pending E&P Investment, But Supply and Price Challenges Exist

Sonatrach has promised a large investment in gas exploration and production in Algeria over the next five years – several contracts were awarded in late-May 2009 for blocks in the southeastern desert near Adrar -- and several LNG facilities under construction are to be completed around 2013 (repairs to Skikda, a new train at Arzew, and completion of Gassi Touil). Yet, these developments, and new undersea pipelines to Spain and Italy, will likely not be sufficient to meet Sonatrach’s existing near-term natural gas contract commitments because exploration and development has lagged in the last five years as the company became increasingly mired in bureaucracy and nationalistic economic policies. Contract terms considered too steeply in Sonatrach’s favor were at the root of the largely failed oil and gas bid round of December 2008, just as oil prices plummeted. And Sonatrach’s penchant for tough contract negotiations scuttled preliminary talks in 2008 with two US-based IOCs over long-term LNG supply contracts to projects in the US. As new LNG facilities come online in the Persian Gulf and elsewhere for both supply and demand, Algeria’s global position, currently fourth among LNG exporters, is questionable for the mid-term.