Unconventional gas exploitation approved in Algeria but opposition poses operational challenges

As domestic energy demand grows and existing fields decline unconventional gas development in Algeria is seen by some as part of Algeria's future resulting in new laws and the current licensing round .. In contrast, social protests and media activity are focused on the scarcity of water needed for such development and the protection of water resources.

Algeria's President Abdelaziz Bouteflika has agreed to sanction unconventional exploitation after a Council of Ministers meeting on 21 May, with the proviso that the environment and water resources are protected. The approval is part of a government effort to boost production from unconventional resources, with initial hopes that unconventionals could provide around 60 Bcm of new source production over 50 years. The first specific fiscal terms for unconventional resources have already been incorporated into the 2013 Hydrocarbon Law revisions, which provide the framework for the current licensing round involving 17 unconventional areas, as well as conventional frontier zones. That round has just been extended for a month - to 4 September - to enable potential investors more time to review acreage. However, there are early signs of public opposition to the use of unconventional techniques, with one small demonstration held in the capital Algiers in early June and extensive media commentary on the issue. This has focused, in particular, on the impact of unconventional techniques on water resources given the relative scarcity of water in southern regions of the country where unconventional resources are thought to be more abundant.

Significance: Hydraulic fracturing has already been carried out in Algeria and is expected to be used to optimize some current conventional developments. However, the more explicit campaign to start exploitation of the country's unconventional resources, supported by the inclusion of specific fiscal and contract terms for unconventional gas in the 2013 Hydrocarbon Law amendments, has brought the issue to greater public prominence. Current levels of opposition are unlikely to yield a change in overall policy objectives, given the likely importance of unconventionals in Algeria's future production and export plans. Still, there is potential for localized campaigns to gain traction. The Council of Ministers will still need to sign off on awards from the 2014 licensing round, a potential focal point for anti-unconventional lobbying. Significant lobbying may lead to changes in the license area of more controversial license perimeters. In time, southern regions targeted for shale gas exploration could see greater activism and potential disruption to future unconventional operations. The level of action will also depend on the distance of facilities from populated areas, a factor that has tended to dilute civil society pressures in the past (particularly around employment generation).

This article was provided by the Oil & Gas Risk Service (formerly World Markets Energy Service).

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.