Higher world oil prices in recent years — which apexed in mid-2008 — as well as advances in technology and reforms easing foreign investment have renewed interest in hydrocarbon production in the North African countries of Algeria, Tunisia and Morocco. For Morocco, an almost complete dependence on foreign sources of oil and gas, which account for 90 percent of the country’s energy needs, has become a source of growing discomfort. In resource-rich Algeria, skyrocketing prices generated a sizeable wealth in foreign exchange reserves. Tunisia moved ahead with exploration and production of its own modest upstream industry. The hydrocarbons sector is of varying significance to each country’s economy: Morocco and Tunisia are encouraging growth in the sector, while Algeria benefited immensely from the sector’s profitability, as global oil prices soared to $150 a barrel in mid-2008. But even as North African countries race to find and produce new sources of hydrocarbons, the global economic downturn is already leading many countries, including the OPEC cartel, to seek vast cuts in production, as waning demand and inflated summer prices created a dangerous surplus of supply.
Morocco
Morocco’s dependence on foreign sources of oil and gas has made the country highly vulnerable to market fluctuations and steep rises in the costs of energy on the global market, especially since 2005. Domestic energy resources fall far below local demand, leading Morocco to import as much as 90 percent of its energy needs. According to the National Office of Hydrocarbons and Mines (ONHYM), the country’s 2007 energy bill reached $6 billion. The 2008 energy bill is expected to soar to $7.8 billion and the government was granted $800 million from the UAE and Saudi Arabia to offset rising costs. In spite of higher prices on the international market, domestic prices remained unchanged all year, since government subsidies on gasoline and butane are considered essential to the country’s functioning. The country’s energy sector is locked in a difficult situation, squeezed by rising domestic consumption, social pressure to keep prices low and unstable world prices for hydrocarbon imports.
As for domestic oil exploration and production, hopes endure. Seeking some degree of energy self-sufficiency, Morocco is laying the foundations for a stronger domestic upstream industry. To fortify domestic oil exploration, Morocco modernized its hydrocarbons code in 2000, making royalties, exploration and drilling rights more attractive to foreign investors. Since then, the number of exploration permits accorded to international oil companies has shot up. Though the upstream oil industry remains quite modest, analysts point out that many sedimentary basins are unexplored and offshore drilling has potential.
In 2005, Moroccan Minister of Mines and Energy Amina Belkhadra expressed the country’s renewed optimism for discovering domestic oil, thanks to new technologies, like the introduction of seismic 3D studies. New drilling and production technologies have also made it possible to drill as far down as 3000m. The massive investment in oil exploration in Morocco since 2005 has yet to pay off. But advances in offshore and deep-water offshore drilling could pave the way for a discovery in the near future. Out of the 76 permits for oil exploration Morocco has awarded since 2005, 61 of these are for offshore.
Algeria
Algeria, the only North African country to belong to OPEC, is the world’s 14th-largest oil exporter and one of the largest producers of natural gas, which it exports by pipeline or in the form of LNG (liquefied natural gas). The hydrocarbon industry is a mainstay of the country’s economy and is playing an important role in the economic upturn that has followed decades of civil unrest and political turmoil. Hydrocarbons accounted for 98 percent of export earnings in 2006 and the country’s foreign exchange reserves rose to an astounding $137 billion at the end of July of 2008. The country has used this wealth to repay most of its foreign debt and plans to invest heavily in developing the national economy and massive public works.
In spite of the steep downward trend for oil prices that set in several months ago, Chakib Khalil, Algerian minister of energy and mines, predicted record high oil revenues for Algeria in 2008, estimated at $76 billion, up from $59.3 billion in 2007. Ninety percent of the country’s crude oil exports go to Western Europe, with Italy as the main recipient, followed by Germany and France. Algeria’s Saharan Blend oil is considered one of the highest quality blends in the world; EU countries are subject to tight restrictions on fuel content and have come to rely on the purity of Saharan Blend.
Algeria’s rich supply of natural resources may be the envy of neighboring countries, but the country’s flip-flopping on regulations continues to damage its investment environment. Foreign operators have increased their share in Algeria’s oil production, but at the risk of fickle mood-changing on the part of the government. Bouteflika’s administration passed a long-awaited hydrocarbons law in 2005 to liberalize the sector. This seemed promising, until parliament passed a measure the following year demanding that the national oil company, Sonatrach, hold at least a 51 percent stake in all oil and gas projects. Foreign companies considering investment face the strong probability that the government will renegotiate their projects, and a 15 percent tax was recently added to all oil profits sent abroad.
Tunisia
Compared to Algeria, Tunisia has a modest upstream oil industry. Its fields are concentrated in the eastern and southern regions, particularly around the border with Algeria. The country produced 0.11 percent of the world total in 2007, and had proven reserves of 400 million barrels at end-2007. Tunisia’s state energy company, ETAP, is considered one of Africa’s most progressive and Tunisia’s geographical proximity to important markets in Europe is complemented by a long-standing political stability and close ties to neighboring countries in Africa and the EU. Oil production, which peaked in the 1980s and has since been declining, shot up 50 percent in 2006 thanks to the development of the Oudna offshore field. This progress is not expected to last, however, as the Oudna field will not sustain high production levels for long. Like Morocco, Tunisia is investing in more offshore exploration and hopes to discover and put new fields online in the coming years.
Sector outlook
A global recession is unfurling. For the moment, North Africa is protected from the direct fallout of the credit crisis and failing financial markets. But plummeting oil prices and contracting demand are already prompting the region to rethink its approach to the energy sector. On December 17, OPEC announced the largest across the board production cuts in the organization’s history at 2.2 million barrels a day. OPEC’s pledge to readjust supply to meet waning demand will be supported by production cuts made by countries outside the 13-member cartel, like Russia, the world’s largest producer outside OPEC. The organization has predicted that the troubled market’s recovery will be delayed at least until the second half of 2009.
North Africa’s awareness of environmental concerns lags far behind Europe, but there is a growing interest in reducing emissions and exploring renewable sources of energy. Analysts expect massive investments in renewable energy sources over the coming years and the sun-drenched Maghreb has great potential for developing solar power and wind power. Alternative sources of energy like solar and wind power would be of great benefit to the Maghreb’s domestic energy market, where consumption is growing rapidly — at eight to nine percent annually in Morocco — and carbon dioxide emissions are accompanying this growth.
Maghrebi governments are encouraging investments in renewable energy, both nationally and in partnership with other countries and organizations. The World Bank loaned $100 million to Morocco to diversify its energy supply sources, including an increase in the share of renewable sources in the country’s energy consumption from around four percent to 10 percent in 2012. The projects include the 1000-megawatt plan for wind energy and the Program Chourouk, to install 500-megawatts of solar energy before 2015, by promoting solar photovoltaics in urban areas and by conceding energy production from solar power stations. Algeria’s renewable energy agency, New Energy Algeria (NEAL), has its sights set on exporting solar energy to Europe and is planning solar energy plants in its eastern and western regions. NEAL has said that Algeria aims to produce five percent of all electricity from renewable sources by 2010. Tunisia will look to wind power to provide four percent of electricity production and it is also considered to have great potential for renewable energy. North Africa need not wait for an Obama administration to bring renewable energy sources to the forefront of the quest for energy reform. In these troubled times, renewable energy is one of the rare investments that can be considered ‘safe.’
Analysts expect massive investments in renewable energy sources in the sun-drenched Maghreb
