Natural gas will remain a key player
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Exclusive Interview with Amine Mazouzi, President and General Director of Sonatrach. Gas will continue to be a very important fuel worldwide and especially for Algeria. One of the world's main producers, the country will invest $70 billion in the next five years, most of which will be for the development of blue gold

The decline in gas production investments will re-establish a balance between demand and supply and will bring prices to a ''fairer'' level. This is the forecast of the Chairman and CEO of Sonatrach, Amine Mazouzi, who, in an exclusive interview with Oil, outlines the future prospects for gas on a global level and describes the projects of one of the world’s main producers: Algeria. For a long time, blue gold will continue to play a major role in the energy arena, explains Mazouzi, announcing a $70 billion plan that is mostly intended for the development of conventional gas.

The Paris agreements project a zero-emissions future. What role do you think gas will play in this context? Are renewables a threat to gas or can the two sources complement each other, at least during the transition phase?

The development of renewables is not inconsistent with the development of gas; on the contrary, they must work together during the transition phase: to have electricity at an accessible price, we need an additional backup source that, in the absence of sun, wind or waves, still enables us to produce the electricity needed according to demand cycles. Therefore, gas will have an important role. We believe that the CO2market must also develop, which could give real value to the ecological aspect of gas.

The price of gas reached very low levels in the last two years. Why is this? Do you think this trend will continue in the medium term, or is it destined to reverse?

If we look at market fundamentals, the fall in prices seen since 2009 is due to the decline in demand, or rather to the fall in consumption and, therefore, in demand. This is primarily a result of the economic and financial crisis. In addition, we have witnessed the development of new sources of gas—the United States is now the top global producer of shale gas— and this has created an imbalance between demand and supply that leads to the decline in prices. However, this is only in a sense of abundance, because although the price is medium or low, there are peaks in demand: for instance, the European market is currently experiencing a sudden peak in demand due to difficulties in French nuclear power plants. The spot market is still not ready to handle these sudden peaks. Another factor is the development of LNG plants and FSRU, namely floating regasification installations, which are cheaper to develop. A global market is therefore taking shape. On the other hand, however, there are fewer upstream investments in production.

This, combined with the development of the LNG market for electricity production, will lead to a decline in supply that, in the medium term, will restore a balance that we believe will lead to a fairer gas price.

Amine Mazouzi

Amine Mazouzi

Sonatrach

He is Chairman and CEO of Sonatrach. In the same company he had already held several positions including Director of Strategy and Planning, Director of Research and Projects, Head of the Hassi Messaoud division, New Technologies Manager and Senior Engineer at the Petroleum-Engineering-Development (PED) Division. Mazouzi has authored many international publications.

Sonatrach is the sixth largest energy company in the world in terms of natural gas reserves and production, as well as the world's fourth largest LNG exporter and fifth largest natural gas exporter. What are your future plans? What moves will you make in a very rapidly changing world?

In Algeria, we have three types of gas reserves. Firstly, the conventional brownfield gas fields, which are in production and have not yet had the last word. We are optimizing them to maximize gas recovery. Also in this area there is gas associated with oil, which we have so far used for reinjection needs, but we are now seeking alternatives to increase recovery and, therefore, to enable its enhancement. This involves very significant volumes. A second type of reserve is tight gas, which to date we have not exploited: we are currently in an assessment stage and studies reveal that there is huge potential. In terms of shale gas, our reserves are the third largest in the world. We developed two pilot projects that produced results that exceeded our expectations. Our benchmark was the United States, and results have been higher than average, even in terms of rock features. All indicators show that development of the gas fields would be favorable and economic. In addition, we recall that so far in Algeria, 34 percent of the areas with mining potential have been explored. Our strategy plans for assessments in the north of the country: the mother rock from which the oil discovered in the 1940s was extracted is, in fact, the same rock from which shale is extracted. The advantage is that we already have the infrastructures; all research and assessment work is carried out in areas in which the necessary installations are already present. Therefore, if we decide to develop these fields, the existing infrastructures will be key factor to the economy. This is our gas development strategy that leads us to say that gas in Algeria has a bright future. At market level, we have export infrastructure such as the gas pipeline travelling east towards Italy and west towards Spain and Portugal, and we may have interconnections even further north. Our basic framework is therefore linked to these positions. We then have a scalable LNG capacity. Not all our gas goes into the gas pipelines—we are at approximately 50- 50—and LNG enables us to reach the most distant markets, and, on the other hand, to develop our local markets, which are east of the Mediterranean and potentially northern Europe. We are currently looking at markets with clear growth, especially in the eastern Mediterranean—Egypt, Turkey and the Middle East—and we are developing our capacity by increasing our flexibility to go beyond our existing position.

"In Algeria, we have three types of gas reserves. Firstly, the conventional brownfield gas fields, which are in production and have not yet had the last word. We are optimizing them to maximize gas recovery. A second type of reserve is tight gas, which we are currently in an assessing, and there are fields to put into production by 2017"

Algeria is one of Europe's main gas suppliers. How are the energy and trade relations between your country and the E.U., and how will they be in the future?

Sonatrach has been a major supplier to the European market for many years. We have been among the three largest supplier, and we are always here, with an impeccable, proven reliability for many years. We were able to respond when the European market had discontinuity issues from other suppliers, and we plan to maintain this position, developing it for the better and making our supplies increasingly reliable. In addition to gas, our energy relations with Europe also concern crude oil, condensate, LPG and refined products, and therefore we are a major player in the market and expect to maintain this role in the future.

Algeria is also the E.U.'s second largest LNG exporter. U.S. LNG has just arrived in Europe and currently accounts for a small part of E.U. imports. Do you think this proportion will become significant in the future?

The LNG market is globalizing, and the molecule goes where it has more value; thus the market that pays the most will be the target market. American LNG has two natural destinations: Latin America and Northern Europe. Perhaps with the expansion of the Panama Canal, if costs permit, it may also go to Asia. It depends on how the capacity holders decide to handle costs. Each has its line of reasoning. The proximity of Gazprom, Statoil and Sonatrach, with their existing infrastructure, is definitely more competitive.

To optimize gas production and exports, continuous investments in infrastructure and technology are needed. What are your plans?

We have very significant gas reserves, developed alone or in association with partners, such as the majors BP or Statoil. Approximately two thirds of Algerian production are produced by Sonatrach and one third jointly with partners that also collaborate in the upgrading of existing installations. Sonatrach has over 55 years’ experience. We are investing in upgrading the installations, to produce more and enhance liquids. In terms of gas, we have a number of investments that will enable us to maintain and increase production level. Finally, in the long term, there is shale, for which feasibility and economy has been demonstrated, potential has been confirmed and now a state policy is required to open the way for shale. For the next five years, we have a $70 billion investment plan, of which 70 percent is intended for the upstream activity.

Algeria is also focusing on renewables with the National Renewable Energy Development Program. Is Sonatrach also working on green energy?

Algeria set itself the goal of 22,000 MW from renewables in 2030, and in this context, Sonatrach has also been asked to contribute. We started with a hybrid solar-gas power plant, and we recently signed an agreement with Eni for a 10-MW power plant on the Bir Rebaa North field. Sonatrach wants to spread this approach so that our deposits, especially in the south of the country, are self-sufficient. In this way, we can allocate all gas to export or to domestic consumption. It is a recent initiative with Eni, with which we have had relations for a long time, and which we would like to extend to other fields. All this is part of the national renewables development strategy.

Oil book | ALGERIA | A giant in evolution between sea and desert