Algeria’s sales gas production has increased by 25% over the last four years, driven by reduced reinjection volumes and new greenfield developments. But moving forward, the country needs more new gas sources to offset declining production from legacy fields.

At Wood Mackenzie, we recently published a report called What next for Algeria’s burgeoning gas market?, which examines the outlook for Algeria’s gas production and investment opportunities.

Fill out the form at the top of the page to access our full report and graphics, or read on for some key takeaways:

1. OPEC quotas enable optimised gas sales
Prior to 2020, Algeria typically reinjected 30-40% of its gross gas production to support its liquids production. Since then, reinjection rates have been around 25%. With OPEC quotas expected to unwind in 2025, Algeria may need to increase its rates to historical levels of 70-80 billion cubic metres (bcm) per annum.

Despite this, the country is well positioned to increase its reinjection volumes with recent increases in gross gas output. Algeria’s marked increase in production has materialised mostly through new greenfield developments.

Over the last year, Sonatrach, the national oil company, has brought two long-delayed developments onstream – Hassi Ba Hamou, and Hassi Mouina – which form Phase 2 of the frontier southwest projects. Together, they’re expected to add 4.5 bcm of sales gas. Other developments, including Ain Tsila, followed.

2. A rapidly growing domestic market pressure exports
Algeria’s longstanding trend of strong domestic gas demand growth was interrupted by the pandemic. However, growth has returned, and we expect domestic demand to average 1.3% per annum until the late 2020s, before the trend flattens out next decade.

The Algerian government aspires to diversify the energy mix within the power sector, which will be key to maintaining the country’s gas export potential. The target is to have 22 GW of installed renewable capacity by 2030, comprised of 13.5 GW of solar PV, 5 GW of wind, 2 GW of concentrated solar power (CSP), and 1 GW of biomass. Longer-term, renewable capacity will start to displace gas power generation, shoring up gas availability for exports to piped gas and LNG buyers in Europe, particularly those in Spain and Italy.

3. Algeria’s upstream landscape likely to diversify in 2025
The country has capitalised on renewed interest in its upstream sector and is reaping rewards with record levels of capital investment. Six new contracts have been signed under the country’s improved 19-13 Fiscal Terms, committing investment of more than US$7 billion.

We anticipate TotalEnergies’ Timimoun project to switch to 19-13 terms next year. Eni and Equinor will also likely agree new 25-year licences for existing projects under the country’s new hydrocarbon code in 2025.

Algeria has signed 14 memoranda of understanding (MoUs) with foreign oil companies over the last year, which signifies a marked shift foreign investor appetite. If converted into binding agreements, this would represent a sea change in Algeria’s upstream fortunes.

The driver for increased foreign interest in Algeria’s gas sector is a refocus on energy security, diversification of supply and improved fiscal terms.

4. Undeveloped conventional resources could backfill declining production
Beyond 2030, we think Algeria must consider other options to maintain its status as a significant gas exporter.

We estimate that Algeria has at least 480 bcm, or 17 trillion cubic feet (tcf) of undeveloped conventional resources. Many of these are disparate, remote discoveries and will remain commercially challenged.

ALNAFT, the regulator, may yet offer discovered resource opportunities (DROs) in a competitive offering in 2025. The development of these resources may be combined with infrastructure led exploration. Development of conventional resources could extend Algeria’s sales gas plateau into the 2030s, but not much beyond this period. And future developments will focus on smaller, more marginal discoveries which will be more technically challenging than previously developed gas fields. Development of frontier areas will be considerably more costly also.

Algeria is a prolific gas flarer. But most flaring is concentrated in the oil producing Berkine Basin which has limited gas processing facilities. Monetisation of flare gas would only free up a few hundred mmcfd at best.

5. Unconventional gas could be the answer to maintaining export share long-term
Longer term, we believe that Algeria’s best bet to backfill declining conventional production is through unconventional gas. The resource potential of shale and tight gas is enormous – likely in the hundreds of tcf.

However, the commerciality of shale gas is unproven. Drilling, development, and operating costs for shale gas are high in Algeria. Costs for horizontal wells (typically around US$15 million) will have to come down for full scale unconventional development. Likewise, while Algeria has a well-established supply chain, operations and approvals can be slow.

Despite these challenges, ExxonMobil, and Chevron both signed MoUs with Sonatrach earlier this year with a view to evaluating and developing unconventional opportunities. Both companies have extensive technology transfer and strong balance sheets to bring to the country. Securing either’s entry into Algeria could go a long way to making unlocking Algeria’s unconventional gas potential.

Source: Wood Mackenzie