Algeria’s Sonatrach to buy refinery in Italy as it expands abroad

The shift in strategies supports Ould Kaddour’s ambitions to turn Sonatrach into one of the five leading oil firms in the world.
Sunday 13/05/2018
A general view of the headquarters of Algerian state energy company Sonatrach in Algiers.                (Reuters)
Outbound ambitions. A general view of the headquarters of Algerian state energy company Sonatrach in Algiers. (Reuters)

TUNIS - Algeria’s state-owned energy company Sonatrach, buoyed by rising oil prices and the leadership of its new head, will buy Augusta oil refinery in Sicily and three oil terminals in Italy in an expansion plan to propel it as “one of the five major oil firms in the world,” its chief executive officer said.

“This purchase is our first biggest acquisition and one of our major projects abroad,” Sonatrach CEO Abdelmoumen Ould Kaddour said in a statement.

“The Augusta refinery opens an outlet for Algeria’s crude oil while it improves the supply of Algeria’s domestic market in petroleum products. This will give us more autonomy and reduce costs as we control the whole chain of production.”

Algeria’s average domestic consumption of petroleum products is 15 million tonnes per year but its refineries produce 11.5 million tonnes annually, leaving a deficit covered by importing $2 billion worth of petroleum products a year, government figures showed.

Sonatrach in 2012 unveiled a plan to process crude oil at home by upgrading its refineries in Algiers, Arzew and Skikda at a cost of $4.5 billion. Sonatrach also planned to build five new refineries, including a plant near its biggest oilfield, Hassi Messaoud, at the cost of $10 billion. That would increase its oil refining capacity to 31 million tonnes this year and to 41 million tonnes by 2020.

Algeria’s demand for petroleum products had risen 7% per year on average for ten years through 2017, data from the Energy Ministry stated.

Algerian experts argued that refining oil abroad costs the country less than producing the commodity at home because of a bloated workforce at its refineries. Algerian officials defend local refining to protect energy supply security and create jobs at home.

The apparent shift in strategies supports Ould Kaddour’s ambitions to turn Sonatrach into one of the five leading oil firms in the world. The energy sector accounts for 95% of Algeria’s total exports and up to 60% of the state budget.

Familiar with the challenges of Algeria’s environment, Ould Kaddour was jailed for two years after being convicted of betraying Algerian economic secrets to foreign interests in 2007 after he worked for an Algerian-US engineering venture owned by Sonatrach and oil services firm Halliburton.

Analysts said his sentencing was part of the usual infighting among military and civil elites, which makes the top job at Sonatrach vulnerable to changes among factions of the ruling elites.

After serving his prison term, Ould Kaddour worked in France, Senegal and the United Arab Emirates before becoming chief of Sonatrach.

Ould Kaddour was brought in by Algerian President Abdelaziz Bouteflika in March 2017 to run Sonatrach because of his ties to US oil companies, which he has asked to invest in Algeria and improve its oil facilities technologies.

Observers said Ould Kaddour’s plan to expand Sonatrach is another indication that Bouteflika will seek a fifth term as president next April.

“We had already completed the development plan of Sonatrach for the 2018-22 period of $56 billion,” said Ould Kaddour. “Our ambition is to provide the necessary conditions for the successful implementation of this plan to transform Sonatrach into one of the biggest oil firms in the world.”

“Making Sonatrach one of the five biggest oil companies is not a dream. It will be a reality in 2030 when its turnover will be $60 billion,” Ould Kaddour said.

Sonatrach is the 12th biggest energy company in the world with a turnover of $33.5 billion last year when its oil and gas output was at 195 million tonnes of equivalent oil. Sonatrach has oil and gas interests in Peru, Bolivia, Niger, Libya and eyes gas joint ventures in Iraq.

Algerian analysts said Ould Kaddour’s projection about Sonatrach turnover and size in the next 12 years means that Algeria would be tapping its shale gas resources. Algeria developed plans to tap shale gas by committing $70 billion to the industry after Bouteflika said it was a duty to use natural resources to help the Algerian economy.

Sonatrach drilled two exploration shale gas wells outside the desert town of In Salah in 2014. Authorities described the results of the exploration as “very promising.” However, violent protests in 2015 over concerns about threats to nomadic life and to water resources forced the government to stop development efforts.

The US Energy Information Administration estimates that Algeria contains 707 trillion cubic feet of technically recoverable shale gas and 5.7 billion barrels of oil.