By Simon Martelli

Algeria is embarking on a $5.5bn upgrading and extension of its oil and gas pipeline network, as part of a huge expansion of its energy sector, under which national oil company Sonatrach is planning to invest $45bn along the entire length of the supply chain by 2012. Some $30bn is earmarked for upstream activities, while Sonatrach has allocated $9bn to the refining and petrochemicals sector. The third key challenge in this scheme, and a crucial element of Sonatrach’s plans to hike gas exports to Europe, is the development of the North African producer’s domestic pipeline network. To that end, the company has set itself the ambitious five-year target of upgrading the existing network, with its 16,200km of operational oil and gas pipelines, and extending it by almost 5,300km or 33%.

Just last week, Sonatrach’s CEO Muhammad Meziane re-affirmed that Algeria plans to maintain its crude production level at around 1.45mn b/d. But the country remains focused on developing its very large gas potential, and there are numerous projects underway that could see Algeria’s piped and liquefied gas exports rise by more than 50%. Mr Meziane has said that Sonatrach is targeting total gas exports of around 85 bcm/year by 2010, compared with 62 bcm/y now. Although the timing is likely to slip, three projects currently being implemented could raise Algeria’s natural gas export capacity to Europe by up to 23.5 bcm/y by 2012 (MEES , 26 November 2007), while two LNG trains with a combined capacity of 8.5mn tons/year are also being developed. The success of these projects hinges on the pipeline infrastructure being expanded to handle the extra gas.

The Algerian company’s midstream development program is focused on the construction of three 48in gas trunklines. The GK3/4 pipelines, which are in the study phase, would run from the Hassi R’Mel gas hub to Skikda, and from there to El Kala, supplying the planned 8 bcm/y Galsi pipeline linking Algeria directly to Italy, as well as the 1.2gw gas-fired Koudiet Eddraouch power plant, being built by Spain’s Iberdrola and US firm General Electric. The GZ4 pipeline, which is already under construction, extends from Hassi R’Mel to Beni Saf in northwestern Algeria via Arzew, and will be used to supply the 8 bcm/y Medgaz pipeline connecting Algeria directly to Spain. Finally, Sonatrach is planning to build the GR4 pipeline to transport gas production from the Gassi Touil fields in the Berkine Basin to Hassi R’Mel.

One key project that has not yet been decided on, however, is a new pipeline linking Hassi R'Mel to the gas fields in the Reggane Basin, which is essential to their development. Algeria hopes these gas fields, being developed principally by Gaz de France, Total, Repsol-YPF and Shell, will bring 9 bcm/y on-stream initially, by 2012.

Algeria currently has the capacity to ship 323mn tons/year of oil equivalent via its 29 operational oil and gas pipelines, including around 7,500km of gas pipelines, according to figures published by the Ministry of Energy and Mines. These supply two gas pipelines to Italy (via Tunisia) and to Spain (via Morocco) which together carry up to 40 bcm/y of Algerian natural gas. Of the $5.5bn capital outlay, some $1bn has been budgeted to overhaul Algeria’s existing transportation facilities. The country also has 79 pumping and compression stations, 109 oil and gas storage tanks with a combined capacity of 3.3mn cu ms, and three oil and gas export terminals, at Arzew, Skikda and Bejaia, as well as five single-buoy moorings there, which enable the berthing of large-tonnage crude tankers. As part of its midstream development plans, Sonatrach intends to build 83 additional storage tanks, 64 of them for crude, which will raise Algeria’s oil and gas storage capacity to 6.8mn cu ms.

Gas Exports To Rise Gradually

The strategic importance of Algerian gas supplies to Europe was illustrated at the end of last year when Gaz de France extended its LNG supply contracts with Sonatrach until 2019, and at around that time Italy secured an intergovernmental agreement with Algeria to jointly implement the Galsi pipeline project by May 2012 (MEES , 26 November 2007). Algeria was the third largest supplier of gas to Europe in 2007, delivering 32.7 bcm of natural gas by pipeline and shipping 20.5 bcm of LNG. With its ambitious expansion plans, the North African producer could soon rival Norway, which last year exported 86.2 bcm/y of gas to Europe.

The two-phased expansion of the TransMed subsea pipeline to Italy via Tunisia will add 5.5 bcm/y to Algeria’s gas export capacity. Phase one will boost the gas pipeline’s capacity by 3.2mn bcm/y to 30.2 bcm/y, and is due for completion by October this year, according to Eni. Phase two will add another 3.3 bcm/y of capacity to the export line by 2012. The European Investment Bank (EIB) announced in December that it had loaned €185mn to Eni for work on the expansion of the pipeline. The next export project is the Medgaz pipeline to Spain, where there are sure signs of progress. Construction of the 210km subsea section began in March and the project is scheduled for completion by end-2009.

Finally, the intergovernmental agreement on Galsi in November, together with the simultaneous memorandum of understanding signed by Eni subsidiary Snam Rete Gas and the Galsi consortium, has dispelled doubts over the latest natural gas export project. Dutch engineering firm Fugro is carrying out a detailed marine survey to determine the best route from Algeria to southern Sardinia and then from northern Sardinia to the mainland of Italy, with the report due to be concluded this month.

Security Concerns

Given that Algeria has sufficient gas to supply these projects, the single greatest threat to their completion is the deteriorating security situation in the North African country. There has been a rise in terrorist attacks since the end of 2006, by the remnants of Algeria’s Islamic insurgency. So far, insurgents have targeted expatriate oil experts but have left the oil and gas facilities untouched, and the Algerian government has taken pre-emptive measures to increase protection for both the experts and the facilities, since the industry accounts for almost 98% of its export earnings. French defense firm Thales signed three new contracts worth around €100mn last month, to improve the operational safety of oil pipelines in 10 different regions of western Algeria, including 20 pumping stations that serve the network, and to protect a gas pipeline in southern Algeria. Because they are the state’s life blood, and given that they cover such large, remote distances, the country’s pipelines remain potentially vulnerable, if the insurgency escalates. Throughout the early 1990s, during the most intensive period of the civil war then, the insurgents avoided attacking surface facilities.

Algeria’s Domestic Oil And Gas Pipelines

* Indicates bcm/y.

Source: Ministry of Energy and Mines.

© Copyright MEES 2008.

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