It’s a big deal that Algerian Sonatrach and Chinese SOOGL have just signed. The two groups announced on Saturday, May 28, the signing of one “sharing of oil production” of an amount of $ 490 million relating to a plot of land in the south-eastern part of Algeria.
For a period of 25 years, this contract covers the construction of a perimeter of Zarzaitine, in the province of Illizi, of a “project to enable the recovery of almost 95 million barrels of crude oil reserves”, according to the statement issued by the official Algerian agency APS.
The agreement was signed by the Vice President in charge of Sonatrach’s exploration and production activities, Mohamed Slimani, and the Director General of Sinopec Overseas Oil and Gas Limited (SOOGL), Wu Xiuli. The distribution of shares between Sonatrach and SOOGL has not been communicated.
More investment in oil, but also in gas
In early January, the Sonatrach Group announced investments of $ 40 billion between 2022 and 2026 in oil exploration, production and refining, as well as gas exploration and production.
Last Thursday, Sonatrach also signed an agreement with the Italian group Eni on the development of gas fields in Algeria., Italy wants to reduce its dependence on Russian energy, which in 2021 accounted for 40% of the country’s gas imports.
At the same time, Eni and Sonatrach will investigate a pilot project for the production of “green hydrogen” on the site of the Bir Rebaa North oil well in the Algerian desert, which they jointly operate.
Algeria is benefiting from Russia’s rejection
In addition to Italy, several countries seeking to reduce their dependence on Russian supplies since the invasion of Ukraine have turned to Algeria, also an ally of Moscow. The North African country, whose proven reserves of natural gas amount to almost 2.4 trillion m3, supplies about 11% of the gas consumed in Europe, against 47% to Russia.
But Algiers has only a very limited capacity to increase its exports. Algeria is the first African exporter of natural gas and the 7th in the world, but infrastructures to be modernized and an increase in local consumption limit its room for maneuver in terms of a significant increase in its supplies abroad.
For Anthony Dworkin, expert at the European Council for International Relations (ECFR), interviewed in April, Algeria is trying to take advantage of the current context of the war in Ukraine to increase its supplies to Europe and its revenues. But in an apparent concern not to alienate Moscow, Algeria reiterates that its additional export capacity to Europe is too limited to replace Russian gas. The country “will probably stick to a balanced policy in order to maintain both its relations with Russia and Europe,” Anthony Dworkin believes.
Sonatrach and Eni and announced last Thursday that they had signed a new agreement on the development of gas fields in Algeria and “decarbonisation in green hydrogen” projects. This agreement, initialed in Rome by the heads of the two companies, Claudio Descalzi and Toufik Hakkar, is part of the efforts made by Italy since the invasion of Ukraine to reduce the country’s dependence on Russian energy.
Specifically, Eni, a key player in the hydrocarbon sector in Algeria, and the state giant Sonatrach will assess the potential “for accelerated development of specific fields already discovered by Sonatrach in Algeria”. The expected production volumes on these fields are around three billion m3 per year, this “will help increase Algeria’s export capacity to Italy via the Transmed gas pipeline”, which connects the two countries via Tunisia, according to Eni. At the same time, Eni and Sonatrach will study a pilot project for the production of “green hydrogen” at the site of the Bir Rebaa North oil well in the Algerian desert, which is operated by Eni and Sonatrach. Italy imports 95% of the gas it consumes, of which about 40% came from Russia in 2021. Algeria, one of Italy’s most important trading partners, is the country’s second gas supplier. The gas sales contract between the two countries was renewed in May 2019 for a period of eight years until 2027, with two more optional years.