"Algeria Oil & Gas Report Q1 2014" is now available at Fast Market Research

Algeria continues to dominate the African gas market. We expect that the country will progressively switch towards a higher proportion of LNG use for its exports as pipeline consumers in Europe are expected to see a flattening demand over the coming years. These exports will be fuelled by a steadily growing gas production, with projects such as Menzel Ledjmet Est, Touat, Ain Tsila, Reggane Nord and Timimoun set to come online in the next few years. Adoption of new hydrocarbons regulation in January 2013 could spur exploration in Algeria in the coming year, especially in offshore and unconventional acreages. We are nonetheless sceptical about the tax reform, which could prove burdensome for oil and gas producers.

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The key trends and developments in Algeria's oil and gas sector are:

* The Touat projects appear to be on schedule, with target start-up date for 2016. The field could add 4.5bcm of gas to the country's output at peak, contributing to our view that despite rapid depletion of major fields, the country could revive its gas production.
* Anadarko's El Merk oil project started production in line with planned scheduled throughout Q213. The project reached an output of 12, 000 barrels per day (b/d) in May, which is expected to peak at about 130,000b/d by late 2015-early 2016.
* There have been three other key developments in Algeria's hydrocarbons sector since the beginning of the year. Firstly, the attacks on the In Amenas plant and Ain Chikh pipeline. Secondly, the adoption of the 2013 Hydrocarbon law, revamping the production tax system, state ownership and exploration incentives. Finally, the start up of gas production at Eni-operated Menzel Ledjmet Est.
* The Algerian Parliament in January 2013 approved a new national hydrocarbons law that reforms some of the more unwelcome policies that were established in 2005. We believe that while it creates strong exploration incentives, the new production tax regime remains unclear and burdensome, and could deter some companies from entering the market. Additionally, increased state ownership, especially in downstream and midstream, is creating further uncertainty for investors.
* Terrorist attacks, in particular at BP's In Amenas gas plant, are creating security concerns for investors, further fuelled by the armed conflict in neighbouring Mali. Most likely, these events will push state hydrocarbons regulator ALNAFT to postpone the long-expected offshore licensing round in order to wait for improved investor sentiment.
* We forecast that total oil production will rise from an estimated 1.875mn b/d in 2012 to 1.908mn b/d in 2016 as ambitious new projects, mostly located in the Berkine basin, come on stream. Production will steadily decline afterward to reach around 1.753mn b/d in 2022 if no new fields come online.

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