Algeria Petrochemicals Report Q3 2009

A two-year delay in the Arzew petrochemical complex is a set-back for the development of the Algerian petrochemicals industry, but is typical of project delays seen across the world amid the global economic downturn and the financial crisis, according to BMI's latest Algeria Petrochemicals Report. Sonatrach has announced that it will invest US$63.5bn on petrochemical plants and refineries as well as oilfield expansion between 2009 and 2013. This represents a 41% increase from an estimated US$45bn planned for the five-year period 2008-2012. The investments are in expectation of a rise in demand for oil and oil prices, reflecting the company's strategy of maintaining 1.4mn barrels of oil equivalent per day (boe/d) of production. Algeria plans to invest a total of US$45.5bn in its energy sector over 2008-2012. Sonatrach is expected to invest the majority of the figure, US$35.8bn, while foreign partners will make up the remainder, US$9.7bn, according to energy minister Chakib Khelil. The investment is specifically aimed at increasing the North African state's oil production and gas exports, Khelil was quoted as saying.

Sonatrach is expected to invest heavily in the development of North Africa's pipeline network, which will be crucial if it is to boost gas exports to Europe. Over the course of the next five years the company plans to upgrade the existing network of 16,200km of oil and gas pipelines and extend it by over 5,000km.

The round of contracts signed in July 2007 will see the construction of a 1.1mn tonnes per annum (tpa) ethane cracker at Arzew, which will be used to manufacture 410,000 tpa of MEG, 350,000 metric tonnes of HDPE and 450,000 metric tonnes of LLDPE. This will be overseen by a 51:49 joint venture (JV) between Total and Sonatrach and is expected to be commissioned in 2012. Early 2009 reports suggest that the technology and design contract awards for the cracker will be made in H209 and that the completion of the complex would take place in 2014 and not 2012 as originally planned. The Almet consortium was also granted a US$1bn contract to construct a 1mn tpa methanol plant. However, there is a possibility that project targets will overrun. The projects are already well beyond the timeframe originally envisaged by the government, although the contracts mean that they are now likely to go ahead.

In addition, two major new fertiliser complexes are on track in Arzew. The US$1.9bn Sorfert Algrie complex, a 51:49 JV between Egypt's Orascom Construction Industries (OCI) and Sonatrach, is scheduled to complete in 2011.

Algeria's ethylene and PE capacities are forecast to remain static at 130,000 tpa until 2014, after which they will increase with the addition of new capacity. By 2014, ethylene capacity should be 1.23mn tpa and PE capacity should reach 930,000tpa, with new capacity in the production of other derivatives. This is two years later than we forecast in the previous quarterly report. In the Middle Eastern Petrochemicals Business Environment Rankings matrix, Algeria remains in 10th place with an overall score of 35.2 points, down 2.7 points since the previous quarter due to the two-year delay to the Arzew petrochemical.

On nearly every indicator, Algeria comes last by a long margin and is likely to remain that way until the complex comes onstream.