Discussing Algeria’s 2019 oil & gas potential

In the wider context of the global oil and gas industry and that of the continent of Africa, OPEC member Algeria is right up there. In volume terms, it is the number one producer of natural gas in Africa, and among the top three when it comes to crude oil.

The oil and gas sector accounts for 20% of the country's GDP and bulk of its exports. But of late Algeria has faced production challenges, including a double-digit decline in oil production last year; something the government is looking to change. 

The need for investment is pressing, and courting foreign direct investment (FDI) in the current climate of a fairly high oil price range [~$65-75 per barrel] could be timely. To further FDI, the government is drafting a new hydrocarbon exploration law that is expected to be released in July 2019.

The idea is a simple one - make Algeria more competitive in terms of royalties and taxation, simplify licensing and bidding procedures, and most importantly reduce red-tape. How this all pans out would matter because from an outside-in perspective the country is still relatively underexplored with less than 25 wells per 10.000 square metres. 

This for a nation which has the tenth-largest proven reserves of natural gas and the third largest proven reserves of shale gas in the world. Not to mention the fact that it is also the sixth-largest natural gas exporter in the world.

With an objective of reconciling thoughts over global market permutations and ongoing developments in the Algerian oil and gas sector, the Oilholic is delighted to be speaking at the Algeria Oil & Gas Summit in Algiers, November 19-21, 2019, being organised by IN-VR Oil & Gas. 

Arbiters of the country’s potential are the National Agency for Hydrocarbon Resources Valorization (ALNAFT) and Hydrocarbons Regulatory Authority (ARH). The domestic exploration project partner, as mandated by law, is state-owned national oil company Sonatrach, which holds around 80% of total hydrocarbon production in Algeria, with International Oil Companies (IOCs) tapping the remainder. 

BP, Equinor, Eni and Total, are among the many IOCs looking to expand within Algeria. So at this fitting time there should be no shortage of talking points, and this blogger keenly awaits the summit. But that’s all for the moment folks! Keep reading, keep it ‘crude’!

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OPEC’s cut is not an oil market panacea

Manic few weeks of travel and speaking engagements meant the Oilholic could not pen his thoughts on the Saudi-Russian agreement over the need to lower oil production, and other OPEC shenanigans sooner. 

Plus the last fortnight has given much food for thought news-wise, with the oil price registering a noticeable uptick (see chart left, click to enlarge).

Forget, the world’s two leading producers, it appears all of unruly OPEC is onboard for a production cut too, going by recent soundbites. But is it? Really?

For starters, while the market has been told there is consensus among the cartel's members about the need to cut oil production; details on how OPEC would go about it would only be provided on 30 November, after the conclusion of it’s next ordinary meeting. 

It implies that until December, everyone within OPEC can keep pumping regardless, ahead of its pledge to limit “production to a range of 32.5m to 33m barrels per day (bpd).” Seeing is believing, as the old saying goes.

Secondly, how is OPEC going to enforce the quota? That's something it has been particularly poor at going by recent form. The market has not been given individual members’ quotas since 2008, and OPEC's latest monthly report acknowledges the prospect of rising production from Libya and Nigeria. 

So assuming Libya, Nigeria, Iraq and Iran would not partake in either cutting or freezing production – will it be left to Gulf oil exporters, led by the Saudis, to cut production? The Oilholic finds that very difficult to believe, but stranger things have happened. 

Thirdly, will the latest attempt succeed and are the Russians really in agreement this time around? That is anybody’s guess, but if it fails – OPEC and Russia will have a serious credibility problem for the future, as it would be the third attempt at capping crude production this year alone to falter. 

For all intents and purposes, it appears both OPEC and Russia are aiming for a $60 per barrel oil price. If that is their aspiration, it would suit North American players just fine, whose pain threshold - in the Oilholic's opinion - happens to be around $30 per barrel. 

Anyway you look at it, non-OPEC production will rise. So such short-term overtures, should they materialise, are bound to reap only short-term rewards. That's all for the moment folks! Keep reading, keep it 'crude'!

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