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It didn't take long after the positive news on Libya, with
production of the country's major oil field expected to fully
recover by end of this month, and we now have another Maghreb
country feeling the pressure of political instability. The latter
could translate into significant challenges for the local oil
industry and involuntary declines in the near term.
Protests recently began in opposition to President Abdelaziz
Bouteflika running for a fifth term in office in next month's
elections and then after his announcement to withdraw while pushing
elections for later this year, for a new constitution to be drafted
by then. Focusing on the country's oil infrastructure, most oil
fields are located deep inland, far from the major towns along the
sea coast, where the protests take place. But meanwhile, it's ports
next to these urban centres export more than 90% of the country's
oil, primarily to countries across Europe. The continent's refiners
have been absorbing large volumes of Algerian light, sweet crude
and condensate, with the UK and France dominating the trade. This
might be another opportunity for US cargo, which could fill any gap
created in the future, but the distance would be much longer, up to
ten times as far.
In parallel to that, the country's national oil company,
Sonatrach, recently announced its plans to commence offshore
drilling on the eastern coast, between Bejaia and Skikda, in the
second half of 2019. Oil is believed to be contained on the western
coast, with several million barrels to be drilled from the first
wells, with TOTAL and ENI already carrying out prospects in the
region. There is significant potential, but only assuming political
stability remains for the long term. Algerian production reached
almost 1.4 million barrels per day in 2008 but dropped closer to
one million bpd during last year. All new fields could increase
output in the early 2020s but are set to decline quickly after
without any other significant new finds. Oil and gas represent 95%
of the country's total exports.
The question now is whether a new president would be good or bad
news for the country's oil industry. This might cause some delays
in energy reforms considered essential to encourage new investment.
Algeria hasn't been as successful as other African countries such
as Egypt and Angola in creating an appealing scenario for rather
selective foreign investment companies. But Bouteflika's withdrawal
might mean more uncertainty, especially if big protests last for
long.
