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Algeria sees petchems progress

A contract award marks a rare sign of movement on Algeria’s stalled downstream development plans

The Step joint venture between Algeria’s state-owned oil-and-gas firm Sonatrach and Total chose in September US congolmerate Honeywell as technology supplier for a propane dehydrogenation and polypropylene (PDH-PP) plant planned at the Arzew downstream hub in western Algeria. 

Honeywell’s selection by Step—51pc owned by Sonatrach with Total holding the remaining 49pc—came as no surprise, given the firm’s extensive local and regional experience. But the award was a welcome sign that the project is moving beyond the drawing board. The partners have discussed a petrochemicals venture for more than a decade, while Algeria’s wider plans for downstream expansion over the same period have progressed at a similarly glacial pace. 

The timing was also importantcoming just after yet another change of leadership at Sonatrach and potentially indicating that the company’s new head would maintain his predecessor’s policy of nurturing often rocky ties with international oil companies (IOCs). 

Progress on the PDH venture does not seem to signal the start of a trend

Sonatrach and Total signed the Step shareholders’ agreement in October last year and the articles of association in January. The planned plant will convert 640,000t/yr of locally-abundant propane into 550,000t/yr of polypropylene, a crucial petchems building block, the supply of which Algeria currently relies on imports. Honeywell will supply its C3 Oleflex propylene technology. 

In a late September strategy update, Total anticipated an FID on the estimated $1.4bn plant in 2021 and noted that the projected internal rate of return was more than 7pc. Front-end engineering and design (Feed) work was said to be under way. 

Variety of headwinds

Progress on the PDH venture does not, though, seem to signal the start of a trend. Cracker and methanol projects have been on the drawing board for years without nearing execution: Sonatrach’s recently-updated website names among the major projects in the pipeline a putative JV for the long-planned ethane cracker with Versalis, the petchems subsidiary of Eni, but little has been heard of the scheme since an MoU to conduct feasibility studies was signed in January 2017.

1.5mn bl/d Algerian oil output in 2018

Sonatrach and Total signed a memorandum of understanding as far back as 2007 to develop an ethane cracker and derivatives complex at Arzew but negotiations dragged on inconclusively for years before finally being abandoned in 2014. Specific points of difference between the prospective partners were compounded by issues long besetting the state’s hydrocarbons industry across the board, including corruption, a hostile environment for foreign investors, labyrinthine bureaucracy and frequent changes of leadership at the national oil company.

Abdelmoumen Ould Kaddour, appointed Sonatrach CEO in 2017, had taken steps to mend relations with the majors as part of a drive to increase gas production, which is a central plank of the Algerian economy, and reverse a prolonged decline in oil output—which averaged just over 1.5mn bl/d in 2018, compared with 1.95mn bl/d a decade earlier.

Conclusion of the Step JV last year coincided with a new upstream agreement with Total covering a field in the south-west. Kaddour was replaced in April by the company’s former head of exploration and production, Rachid Hachichi, as part of a government reshuffle sparked by the resignation of president Abdelaziz Bouteflika. The new CEO signalled intent to adopt a similar approach by devoting one of his first public statements to the importance of international partnerships.

Total’s current upstream priority is securing approval from Algiers for the $8.8bn acquisition of the Algerian assets owned by US independent Anadarko before its takeover by compatriot Occidental earlier this yearcomprising a 24.5pc stake in several producing fields in the Berkine basin.

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