Algeria booming

Mohamed Meziane, the chairman and the chief executive officer of Sonatrach, discusses in an exclusive interview the downstream sector in Algeria and the opportunities it provides to foreign investors.

Algerian state energy company Sonatrach has launched plans to develop a comprehensive range of world scale facilities intended to put the country back on the petrochemicals map after years of decline. The early signs are very positive and the process of awarding projects is proceeding smoothly.

In a recent statement, Algerian energy minister Chakib Khalil said that his country is planning an investment of $28 billion in its petrochemicals industry over the next five years. The number is higher for the entire energy sector. "We aim to invest US$65bn in the energy sector in the next five years, $1.5 billion on average each year for the next five on exploration only," says Mezian.

These investments aim to significantly increase oil and gas output. "Our target was to reach 1.5m bpd by 2005-2007, we have now capacity of 1.45m bpd, but our real production is around 1.2m bpd due to the OPEC quota. For gas, we have capacity of 150 billion cubic metres per year; for condensates, 13 to 14million metric tpa and 8.69m tpa of LPG. These production [levels] will be increased through the developments I mentioned earlier," he adds.

The country benefits from different advantages, such as its geographical location along with the abundance of ethane feedstock at competitive prices of around one dollar per million btu. "I don t have the exact figure, the figure is calculated according to the internal market, but the price is around one dollar. There is a specific formula we use to calculate the prices," says Mezian.

Self Finance

While others are struggling to secure loans to finance their projects, Sonatrach uses its own cash and rarely resorts to local banks. "The decision on projects is taken according to our financial situation. On the national level, we finance our projects using our cash flow or through Algerian banks, whereas for international projects, we also use our cash flow or banks, but generally we look case by case and we mainly use our own resources to finance our projects," says the CEO.

The cash windfall the company generates from high oil prices has allowed it to invest in many projects in upstream and downstream sectors outside the country. "We are investing in downstream in different countries. We are present in Spain through a petrochemical plant for dehydrogenation of propane with BASF in Paragon, and we are also present in gas distribution in Spain," says Mezian. "In the UK, we have gas reserve capacity of 5bn cubic metres, we are also trading oil products and gas, LNG and natural gas," he adds.

The presence of the company in the old continent is very strong, "In Italy, we have a distribution company. We also have a presence in Spain and Portugal. In Peru, along with an international consortium, we are producing some liquids and gas. The project is still in development. We are looking at other projects and opportunities that will generate excellent business," Mezian reveals.

New Era

Expressions of interest in investing in the petrochemical industry have flooded in from some of the biggest international players in the sector, and the wholesale changes promised by the new hydrocarbons law of July 2005 have helped to create a sense of optimism and forward momentum.

In July 2007, Sonatrach awarded a contract worth around $5 billion to France's Total to build an ethane cracker. The project encompasses the construction of an ethane cracker and three product lines. The cracker will have a capacity of 1.4 million metric tons per year. The cracker will produce around 1.1 million metric tons of ethylene per year, which will be processed into 410,000 metric tons of monoethylene glycol, 350,000 metric tons of high density polyethylene (HDPE) and 450,000 metric tons of linear low density polyethylene (LLDPE), mainly for export to international market.

"The ethane cracker in Arzew is linked to liquefied plant GNL 1 and 2, we did all the technical studies to supply ethane to the cracker," says Mezian.

The joint venture of Total and Sonatrach, which tendered the cracker work, has started the prequalification process for technology licensing and two front-end engineering and design (FEED) contracts, which were expected to be awarded in the second half of 2009. Only five companies have the technology to develop the ethane facility: the Germany's Linde; Paris-based Technip, the US' Stone & Webster, CBI Lummus and
KBR Company.

The joint venture originally released tenders in January 2008, but the tender process was halted after contractors raised concerns in December 2008. These included an announcement in July by the Algerian authorities that the state was to take a majority stake in all downstream projects in the country. Total holds 51% of the project under its original contract.

READERS' COMMENTS

MORE FROM ARABIANBUSINESS.COM