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Newer face, older problems

A new energy minister will try to end the stagnation in Algeria's upstream

Algeria's government hopes the appointment of a new energy minister and optimistic assessments of the oil and gas sector by senior officials all point to a change in fortunes in 2017. But there is little sign at present that the aspirations can be converted into expectations.

The dismissal of Salah Khebri in June after only a year at the helm of the energy ministry was an acknowledgement of his failure to attract international investment and inspire upstream momentum. Natural gas production is static at around 82bn cubic metres a year and oil output is struggling to stay at 1.1m barrels a day.

The appointment of an experienced energy sector professional to replace Khebri provided grounds for optimism. Noureddine Bouterfa is the former head of Sonelgaz, the state natural gas and electricity distribution company, where he had worked for four decades.

The uphill task facing the new minister has to be seen in the context of Algeria's battle to stay economically afloat during a period of sustained low oil and gas prices.

The appointment of Bouterfa was part of a reshuffle that saw no fewer than eight changes, including the naming of a new finance minister-hard on the heels of a change of leadership at the country's central bank.

The immediate prospects for the Algerian economy are bleak, with a sharp decline in revenue from energy exports-natural gas in particular-forcing the government to draw extensively on foreign-exchange reserves. Prime minister Abdelmalek Sellal predicted in June that reserves would stand at around $116bn at the end of this year, down from $194bn in mid-2014.

Fresh horizons

The immediate task of the new energy minister is to convince international firms to spend their money in Algeria's upstream, especially in natural gas exploration and development.

But global and domestic conditions will complicate his task: abundant supply from rivals, especially in liquefied natural gas, leaves Algeria trying to perk up a sector at the worst time possible.

As for its own upstream, the International Energy Agency points out that "even before the price collapse, Algeria was struggling to attract foreign investment due to unattractive fiscal terms, a complex bureaucracy and security concerns". Reflecting these pessimistic assessments, the agency has trimmed its forecast of Algerian gas production made a year ago, saying that it will reach only 85bn cm/year by 2021, rather than 93bn cm/year.

Despite the gloom, Algerian officials are putting on a brave face. Sellal says that further public funding cuts will ensure that foreign exchange reserves do not fall below $100bn. Amine Mazouzi, state company Sonatrach's chief executive, has pointed to increased rig activity over re-cent months as a sign that a period of stagnation in the energy sector has passed.

But whether such assurances will convince international investors is doubtful. One company, Total, is seeking arbitration in a dispute with Sonatrach over changes made to profit-sharing terms in oil and gas contracts a decade ago. Sonatrach is to counter Total's action. While Bouterfa will hope that the state is judged to have been in the right, he is likely to consider that particular issue to be of relatively minor importance when measured against the other problems facing Algeria's energy sector.

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