Gordon Feller
In 2007, the energy sector accounted for 97% of Algeria’s goods exports, 81% of fiscal revenues and 46% of total economic output. High oil and gas prices have endowed Africa’s third-largest economy with a surge in revenues and, thus, the means to start anew and run down debt. Algeria is now in the process of healing old wounds and joining the league of internationally important business partners.
Market-oriented reforms launched by Algeria over the past few years are beginning to bear fruit. Following a sharp slowdown in growth in 2006, Algeria managed to turn around its economy in 2007 and achieve robust expansion of 5% or so, which was mainly attributable to the non-energy sector. Government investment, especially in housing and infrastructure, was the main driver. Similar growth rates are expected this year.
Last year, the inflation rate remained firmly anchored in the single-digit range, at 3.5%. It is expected to accelerate to around 5% this year, driven by rising food prices. Moreover, Algeria reports sizeable budget surpluses equaling roughly 12% of its gross domestic product; part of the surpluses flow as savings into the FRR hydrocarbon stabilization fund (Fonds de Régulation des Recettes). FRR funds have partly been used to redeem Algeria’s foreign debt, reducing it from around 58% of GDP in 1999 to roughly 4% in 2007. The dispute with Morocco over Western Sahara still appears to be far from any sort of settlement.
In global ranking, Algeria occupies 7th for natural gas reserves and 16th for oil. In terms of global output it has already achieved 6th and 13th, respectively. Algeria produces about 2 million bpd of liquids, including crude, NGLs and condensate and has about 12 Bbbl of similar liquid reserves. LNG remains the biggest growth area.
The Tinrhert project involves Sasol Chevron, Royal Dutch Shell and PetroSA, a 30-year development project that we reported on last year. The project involves both upstream gas and oil fields and a 65,000-bpd GTL plant to be built at the port of Arzew. The bidding process for the $3 billion Tinrhert integrated GTL project started in April 2005, but has been repeatedly delayed and has been delayed yet again this year. Assuming that it gets built, Tinrhert should take five years to develop, with production operations to last 25 years. The concession will include 17 gas and oil fields in the Tinrhert Block, which has about 5.3 Tcf (150 Bcm) of sweet gas in-place plus LPG and condensate reserves.
Rising energy prices and concerns about the reliability of natural gas deliveries from Russia will make Algeria an increasingly important trading partner. Algeria already supplies 20% of the European Union’s gas imports. Competition for future LNG supplies is increasing, with Germany and Gazprom recently opening offices in Algeria. Sonantrach agreed in March with StatoilHydro to start supplying about 3 Bcm of LNG a year to a Maryland, US, terminal starting next year. Also this year, Sonantrach negotiated long-term contracts to sell LNG to Gaz de France and Distrigas of Belgium. This is a diversification from its traditional markets in Spain and Italy, which are served by pipelines.
Algerian newspapers reported in June a far-reaching plan to develop hybrid solar-gas energy plants in the Sahara. State-owned company, New Energy Algeria (NEAL), is planning to build a 1,875-mi (3,000-km) power cable to export electricity from the Sahara to Europe. 
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