New Market Study Published: Algeria Oil & Gas Report Q2 2014

From: Fast Market Research, Inc.
Published: Wed Apr 30 2014

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.

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

* In January 2014, Algeria launched its tenth licensing round, with a total of 31 blocks up for tender. Of those, 17 are in the south of the country, five in the north and nine in the centre. This will be the country's first licensing round since the terrorist attack on the In Amenas gas facility and hydrocarbon law reform in January 2013.
* The Touat projects appear to be on schedule, with a 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 the 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 in 2013. 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
* 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. These events will probably push state hydrocarbons regulator ALNAFT to postpone the long-expected offshore licensing round in order to wait for improved investor sentiment.

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