Algeria is moving to strengthen its position in downstream energy industries, part of a program to further develop the value added component of its energy and natural resources and increase local employment opportunities, especially in outlying regions. Total investment in the energy sector over the next four years is expected to reach $45 billion.
Over the past 18 months, Algeria has launched a series of projects to develop new petrochemical plants or to upgrade existing facilities. One of the major planks in the campaign to expand downstream capacity is a massive ammonia and urea fertilizer production plant to be located at Arzew in the country’s west.
The new plant is a joint venture between Algeria’s state-owned hydrocarbons company, Sonatrach, and Orascom Construction Industries (OCI) of Egypt. The Egyptian firm will act as lead project developer, with a 51% stake in the development and total investment is expected to be $746 million. When completed in 2010, the plant will produce 1 million tons of ammonia/urea fertilizer a year, along with an additional 700,000 tons of ammonia. Local press reported on January 28, 2008, that as many as 7,000 jobs will be created during the construction phase of the project, more than twice the original estimate. The 33-hectare site of the facility is located close to the port of Arzew, which has been extensively developed since the 1960s as a hub for Algeria’s petrochemical industry. The site is home to several large gas liquefaction and LPG units, which will ensure the new ammonia plant will have access to the necessary hydrogen feedstock. Last year a joint venture, Sorfert, was incorporated to manage the operations of the facility. The company brings together two of the biggest players in the Algerian economy: Sonatrach, the state-owned gas and petroleum operator, is the country’s largest company, while Orascom is one of the leading foreign investors in Algeria, with holdings totaling around $10 billion.
Poised to become leader in production
Ammonia and urea are produced by taking nitrogen from the atmosphere and lining it with hydrogen from hydrocarbons, a method known as the Haber process. Natural gas is the most cost effective and environmentally-friendly feedstock for this process. Algeria, with strong gas reserves, has the wherewithal to become a market leader in fertilizer production — domestic gas costs are around 12% of those in Europe or in the States.
According to Osama Bishai, OCI’s director of projects, rising gas prices are resulting in the shifting of gas-based industries from the developed world to developing countries.
“Lots of plants in Europe are being shut down and their markets are being served by new plants in Algeria, Egypt and the Gulf,” Bishai said in an interview with local media last December. OCI’s involvement in the fertilizer industry is fairly recent. In October 2005 it gained a 50% stake in Middle East Petroleum Company (MEPCO), which is currently constructing a 2000 ton per day ammonia plant in Ain Sukhna, Egypt, through its 60% owned subsidiary Egyptian Basic Industries Corp (EBIC). This $540 million plant is due in early 2009.
Algeria already has a chemical fertilizer industry. An existing ammonia production facility, sited at Arzew, has an annual output of 365,000 tons and an associated urea plant able to turn out 146,000 tons per year. However, the original facilities were built in the early 1970s and, though upgraded in the late 1980s, do not have the same capacity or modern technology as the new plant.
Demand for chemical fertilizers is growing, and OCI and Sonatrach are confident their joint venture will be a profitable one. In addition to the advantage of low production expenses, it will benefit from Algeria’s proximity to European markets, meaning that Sorfert can keep shipping costs down. Bishai said that OCI was looking at an annual return on its investment of between 16% and 18%. “There are good margins now and we are very optimistic about the future,” he said. “Once we are in production, we expect to enjoy relatively good margins, and if shipping costs continue to be high we will have a major advantage.” With global fertilizer prices at near record highs, prompted by increased demand due to the drought conditions experienced in many parts of the world and soaring gas prices, Algeria’s policy of investing in downstream industries could result in a rich harvest.
