Page 2 of 4Monetisation
But it’s a big if — and not just in the case of solar. Both renewables and the exploitation of unconventional gas resources are tricky areas to monetise, given such questions as whether the technology available is up to the job and whether the business models stand up. Especially problematic in the latter context is Algeria’s apparent rejection, since the middle of the last decade, of liberalisation of the energy sector in favour of a more resource-nationalistic approach. It’s an approach that has made fiscal terms so tight that many would-be investors have been put off.
Nor is that situation likely to change. Samuel Ciszuk, senior Middle East energy analyst with IHS* explains, “Right now, speaking up for liberalisation — improving terms in order to attract investment — comes at a political cost.”
But speaking up may eventually be necessary when many existing oil and gas fields are approaching maturity and new sources of gas in particular are needed. And there’s another problem: spiralling domestic power demand and the need for more and more gas to meet it. That, as Ciszuk notes, is where Algeria, like so many other countries, has brought problems on itself. “The general problem is the same as in the rest of the Middle East: subsidy-driven demand growth,” he says. And given recent regional unrest, cutting subsidies and trying to rein in demand is unlikely to be an option.
So new sources of gas are needed for the long term. The gas reserves being targeted are likely to be found in the south-central and south-western Sahara desert areas, where significant discoveries have already been made and there seems to be a high potential for more. But Algeria has already failed to unlock development, much of it of unconventional gas, in those areas. It's hardly surprising. Getting at tight and shale gas is an expensive undertaking technically, and if they are a long way from centres of population, there are additional logistical demands, as equipment may need to be flown out to very isolated areas. This does not bode well for future large-scale production of unconventional gas.
Hold-ups
To make matters worse, Algeria’s ability to meet existing gas export commitments, even from gas-rich areas, does not inspire confidence. Ciszuk explains, “A lot more export capacity is coming on stream — but it is not being matched by upstream capacity, especially if we look towards 2013 and 2014 because so many of the projects that were supposed to have come on stream by that time are running very big delays.” LNG capacity hold-ups after the explosion and fire in Skikda in 2004 (where new capacity has just come onstream) were obviously to be expected, but other projects have simply not happened on time or were delayed by the 2010 corruption scandal at state NOC Sonatrach and the Energy Ministry, which led to the departure of just about anybody who might be able to make a decision.
At the same time the running of existing export facilities over the past few years has not been at the production levels one might have hoped for. Ciszuk says, “That might have something to do with feedstock problems and transport problems, because they've saved money on their maintenance for years. The mid-stream infrastructure especially is said by some people to be a in a rather precarious state in many cases.”
