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Algeria and Saudi's differing shale development

Two of the most-watched countries in the expansion of unconventional gas adopt opposite approaches to tapping their substantial reserves

Handicapped by corruption and political delays, Algeria has made scant progress in the eight years since it identified shale gas as an important opportunity, even though its revenues from hydrocarbons are in decline. Algeria's foot-dragging is of particular concern to some of its customers such as Spain, which buys 55% of its total gas consumption from there. After Russia and Norway, Algeria is the third-biggest supplier to the European Union.

By contrast, Saudi Arabia is fully engaged in a heavyweight programme to develop its ample shale and tight-gas potential, estimated to be 10 times the volume of the kingdom's conventional oil and gas reserves, as the fuel of the future. It's pushing on rapidly with exploration, mainly in the northwest.

In Algeria, the usual problems apply. For instance, its restrictive foreign investment rules continue to deter outside operators. As Chloe Marie, research fellow at the Global Shale Law Compendium, a US-based organisation, explains in a paper in mid-2017, state-owned Sonatrach must by law own a minimum 51% stake in each oil and gas exploration and exploitation project. In a further deterrent to foreign investment, she adds, the "exploration and production activities are performed either by Sonatrach as sole operator or by Sonatrach and the foreign company as joint operators."

Although tax laws were amended a few years ago to make them apply to foreign operators' profits rather than revenues, as they had before, companies aren't exactly rushing into joint ventures. As Marie points out: "In recent years [the government] has granted several prospection permits and exploration and/or production contracts for shale development to many foreign companies including Eni, Statoil ASA and Royal Dutch Shell but…shale gas production has not yet been carried out in Algeria."

Saudi Arabia is fully engaged in a heavyweight programme to develop its ample shale and tight-gas potential

On the bright side, there's a possibility that Algeria's failure to do anything with its estimated 22 trillion cubic metres of shale resources may be coming to an end. Sonatrach's sixth chief executive in seven years, Abdelmoumen Ould Kaddour, a US-trained engineer, is trying to turn the company around. Appointed last March, Ould Kaddour said in September that "we need to change the way that [Sonatrach] operates". In the past, some Sonatrach management have faced charges of inefficiency and even corruption.

In late December, Ould Kaddour reached a long-term collaboration agreement with Eni that, although it didn't specifically mention unconventional gas, has upstream ambitions. Also, Total is negotiating with the government over the takeover of large projects, including unspecified gas-based ones.

It may be that the government is stepping back from exploiting its unconventional gas in the wake of the collapse three years ago of an ambitious shale-gas project. When Sonatrach drilled two exploratory wells near the Saharan town of Ain Salah in late 2014, the results were promising enough for the company to announce a giant $70bn investment in the region. But the local population, concerned that fracking would use too much water in an area where it's vital for irrigation, forced the company to back down.

Meanwhile, Saudi Aramco, untrammelled by political considerations, is exploring for unconventional gas in three areas considered highly promising: the northwest; South Ghawar; and the Saudi part of the Rub' al-Khali desert it shares with four other countries. As the oil company noted in its latest, 2016, annual report: "The full unconventional gas value chain such as site development, drilling, fracking, completion, well tie-in, production and maintenance is poised to grow rapidly between now and 2021." Saudi Arabia's target of doubling gas output by 2027, to 23bn cubic feet a day (623m cubic metres a day), will critically depend on production of unconventional, and particularly shale, gas.

Of the three fields explored so far, Ghawar is considered the most promising. Saudi Aramco has already discovered big volumes of shale gas in the Jafurah Basin, southeast of Ghawar. According to chief executive Amin Nasser, these fields are economically feasible.

Thus, with Saudi Arabia's plans for unconventional gas well on track, the pressure is on Algeria. Unfortunately, as Global Shale Law Compendium's Marie concludes, "the future of shale gas developments in Algeria remains fragile and uncertain".

This article is part of an in-depth series on Global shale. Next article is: Australia's one man show

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