Algeria’s top oilman pushes for swift industry change

The turn towards the United States is an indication of the industry’s vulnerability.
Sunday 10/06/2018
New strategy. Sonatrach CEO Abdelmounen Ould Kaddour (C) attends a meeting at the company’s headquarters, last April. (AFP)
New strategy. Sonatrach CEO Abdelmounen Ould Kaddour (C) attends a meeting at the company’s headquarters, last April. (AFP)

TUNIS - Algeria’s oil and gas industry is changing quickly behind the country’s new business chief who looks to make important changes gains in the crucial hydrocarbons sector.

Since his appointment as chief executive officer of state-owned energy group Sonatrach in March 2017, Abdelmoumen Ould Kaddour has struck extensions and contracts with leading firms, including Total and ENI, worth billions of US dollars.

Ould Kaddour said Sonatrach had hired US law firm Curtis, Mallet-Prevost, Colt & Mosle and other American consultancies to help revise the country’s energy law to bring in much-needed investment and new technology.

Algeria, an OPEC member and major gas supplier to Europe, has worked to attract foreign investors but tough legal conditions, high taxes and red tape have been prohibitive. Competing visions of the country’s energy law, as well as the dominant role of Algeria’s old guard that is wary of a US presence, have stalled reforms.

Ould Kaddour, however, says reforms are needed to tap into huge shale reserves.

“The sooner we have an attractive law, the better,” Ould Kaddour said in an interview with Algerian daily Le Quotidien d’Oran. “Foreign firms want to know how much they will get when they will invest.”

Algerian experts said the lack of foreign investment and technology left Sonatrach to invest in its resources alone, with no significant discoveries to bolster reserves.

“Sonatrach had deployed all its resources to expand output capacities in the recent years in the absence of hoped-for foreign investors. This colossal work had led to the depletion of its resources namely since the decline of oil prices in 2014,” said Ali Tatouche, an instructor at the state-run Algerian Energy Institute.

“This is the main argument behind the push by government to change the law on hydrocarbons.”

Algeria is the third-largest oil producer in Africa and the largest natural gas producer in the continent. However, oil and natural gas production has declined in the past decade, pressuring the Algerian government to amend laws to attract foreign investment.

Analysts said Algeria’s leaders were betting on Ould Kaddour, who has links to the American energy industry, to bring in US firms that could help Algeria develop its shale industry and increase output from older fields.

Foreign companies have been reluctant to invest in Algeria’s energy sector because the law mandates Sonatrach maintain a 51% share in any joint venture involving exploration, production, transportation and refining activities, on top of taxes that increase with oil prices and revenues.

“The revised law will bring us foreign investors. Since the last law was enacted (in 2006), no new investor came,” said Ould Kaddour. “The majority stake for Sonatrach of 51% is not the problem for foreign investors. The fundamental aim for them is the fairness in sharing the gains.

“If we want to develop new reserves we need expertise and technology.”

The turn towards the United States is an indication of the industry’s vulnerability, analysts said. They cited Algerian President Abdelaziz Bouteflika’s warning that, if the United States had a significant footprint in Algeria, it would have invaded the country, as it did Iraq.

“By picking Ould Kaddour in March 2017 as the head of Sonatrach, Algerian leaders underlined their willingness to draw closer to the Americans,” said Algerian analyst Mokrane Ait Ouarabi.

In 2007, Ould Kaddour was sentenced to two years in prison after being convicted of betraying Algerian economic secrets to foreign interests when he worked for an Algerian-US engineering venture owned by Sonatrach and oil services firm Halliburton.

“Like the Americans, Ould Kaddour advocated tapping shale gas despite the opposition of environment defenders,” Ait Ouarabi said. “Algerian leaders seek in their rapprochement the US umbrella for their future political and economic projects.”

Former Sonatrach CEO Abdelmadjid Attar said the share of oil and gas Algeria exports abroad will diminish by 2025, resulting in less revenue unless hydrocarbon reserves are renewed.

“Developing shale gas is no more a choice for Algeria. It is an obligation,” he said.

Sonatrach announced plans to invest at least $70 billion by 2035 to produce some 20 billion cubic metres of shale gas per year from 200 drill sites. However, demonstrations rocked Algeria’s southern desert town of In Salah in 2015 after Sonatrach said it had completed its first pilot drilling.

Environmentalists argue that the process, known as hydraulic fracturing technology — fracking — can contaminate ground water and cause small earthquakes.

Algiers shelved shale projects out of concerns about the country’s political stability.

Ould Kaddour’s efforts, however, point to a new era of energy in Algeria.

“Algeria has the third largest shale gas reserves in the world. This assessment is made by top professionals in that field,” Ould Kaddour said.

He promised good jobs and training for gas-producing regions. He invited activists in those regions to visit Argentina, Canada and the United States to see that the “shale gas industry is not a poison.”