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May 22, 2019

Algeria’s delays to new hydrocarbons law threaten long-term gas exports

The country is looking to boost hydrocarbon reserves and production to meet growing domestic demand, preserve its European export market and expand its exports to Asia, against a backdrop of political instability and uncertainty.

By GlobalData Energy

Algeria’s revised hydrocarbons law, designed to encourage exploration, has been drafted, and following its enactment into law, a licensing round is planned.

Algeria oil and gas exploration

With the reforms, the country is looking to boost hydrocarbon reserves and production to meet growing domestic demand, preserve its European export market and expand its exports to Asia.

However, following the resignation of President Abdelaziz Bouteflika in April 2019, and the subsequent removal of the Minister of Energy, it is likely that progress will be limited in the short-term, and sector reform will be frozen until political instability and uncertainty subside.

Without the new law to stimulate exploration investment, production is forecast to decline within a few years. It may reduce the volume of gas available for export in emerging markets in Asia.

Algeria is seeking to increase gas exports to Asian markets, but with domestic demand rising, and new projects stalled, significant new supply will be required into the medium term to achieve this goal. In 2018, Algeria’s total annual production decreased and although eight new projects may yield some output increases in the next few years, existing fields will be in decline after 2022.

Algeria gas production and demand forecast to 2025

Source: GlobalData Oil and Gas

To boost production, Algeria will need to secure exploration investment into the longer term and the country is currently reviewing its Hydrocarbons Law to encourage this. The final version of the draft is expected to reduce the administrative burden faced by investors and to introduce tax incentives to promote project development.

However, it is uncertain whether the amendments will be significant enough to attract major investment, and stability may also be a worry for investors. The hydrocarbons law has changed relatively frequently since 2005, which has created an unstable investment environment.

Ongoing political instability may also slow the progress of reform and put off potential investors. For instance, In April 2019, ExxonMobil reportedly halted discussions to develop the Ahnet shale gas field, citing political unrest as a contributing factor to the decision. It is likely that other companies will mirror this response in the short-to-medium term, while a new government is formed. However, forming a new government will also take time. This will limit the progress and enactment of the new hydrocarbons law and may frustrate the country’s ambitions to increase or even maintain export levels.

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