Algeria Oil and Gas Report Q4 2009

The latest Algeria Oil & Gas Report from BMI forecasts that the country will account for 8.93% of African regional oil demand by 2013, while providing 19.62% of supply. African regional oil use of 2.98mn barrels per day (b/d) in 2001 rose to 3.60mn b/d in 2008. It should average 3.58mn b/d in 2009 and then rise to around 3.96mn b/d by 2013. Regional oil production was 7.84mn b/d in 2001, and in 2008 averaged 10.20mn b/d. It is set to rise to 11.98mn b/d by 2013. Oil exports are growing steadily, because demand growth is lagging the pace of supply expansion. In 2001, the region was exporting an average 4.86mn b/d. This total had risen to 6.60mn b/d in 2008 and is forecast to reach 8.02mn b/d by 2013. Angola has the greatest production growth potential, with Nigerian exports set to soar if it can resolve recent quasi-political issues.

In terms of natural gas, the region in 2008 consumed 115bn cubic metres (bcm), with demand of 181bcm targeted for 2013. Production of 211bcm in 2008 should reach 354bcm in 2013, which implies net exports rising from 96bcm in 2008 to 173bcm by the end of the period. In 2008, Algeria's share of regional gas supply was 40.98%, easing to 36.71% by 2013. The country's share of demand in 2008 was 22.07%, with 17.75% predicted by 2013.

For 2009 as a whole, we are now assuming an average OPEC basket price of US$55.00 per barrel (bbl), a 41.5% decline year-on-year (y-o-y). This represents an upgrade from the US$52 forecast we have stuck with during the past three quarters. Our OPEC basket assumption delivers likely Brent, WTI, Urals and Dubai prices of US$56.30, US$57.50, US$55.60 and US$55.60/bbl respectively. For 2010, we expect to see a recovery to US$60.00/bbl for the OPEC price (up from our previous forecast of US$58), gaining further ground to US$65.00 in 2011 and to US$70.00/bbl in 2012. Our post-2010 forecasts are unchanged and we are continuing to use a long-term price assumption of US$70.00 for 2013-2018.

In 2009, BMI is now assuming a global average gasoline price of US$62.12/bbl, with the fuel having peaked in June. The overall y-o-y fall in 2009 gasoline prices is put at 40.0%. The BMI gasoil forecast is for an average price of US$68.62/bbl, assuming a monthly high of US$92.49/bbl in December. The fullyear outturn represents a 43.4% fall from the 2008 level. The annual jet price level for 2009 is forecast to be US$65.17/bbl. This compares with US$124.95/bbl in 2008. The 2009 average naphtha price is put by BMI at US$49.06/bbl, down 43.9% from the previous year's level.

Algerian real GDP growth is now forecast by BMI at 2.4% for 2009, following 2.9% in 2008. We are assuming 3.1% growth in 2010 and 3.9% in 2011, followed by 5.6% in 2012 and 4.7% in 2013. We therefore expect estimated oil demand of 311,000b/d in 2008 to rise by up to 4.0% per annum to 353,000b/d in 2013. State oil company Sonatrach dominates the industry, operating in partnership with various international oil companies (IOCs), but accounting for 60% of the country's oil output. Thanks largely to IOC investment, combined oil and gas liquids output is forecast to increase from 1.99mn b/d in 2008 to 2.35mn b/d in 2013, with exports heading towards 2.00mn b/d. The country's OPEC membership and assigned production quota could frustrate volume growth ambitions. Gas production of 86.5bcm in 2008 should reach 130.0bcm by 2013. Consumption of 25.4bcm in 2008 is expected to rise to 32.1bcm by the end of the forecast period, providing exports of 97.9bcm.

Between 2008 and 2018, we are forecasting an increase in Algerian oil and gas liquids production of 30.5%, with volumes rising steadily from 1.99mn b/d in 2008 to 2.60mn b/d by the end of the 10-year forecast period. Oil consumption between 2008 and 2018 is set to increase by 38.2%, with growth slowing to an assumed 4.0% per annum towards the end of the period and the country using 430,000b/d by 2018. Gas production is expected to rise to 180bcm by the end of the period. With demand rising by 56.9% between 2008 and 2018, there should be export potential increasing from 61bcm to 140bcm, in the form of LNG and by pipeline. Details of BMI's 10-year forecasts can be found in the appendix to this report.

Algeria holds sixth place in BMI's updated Upstream Business Environment rating, and is three points behind regional heavyweight Angola. It has the potential to move higher over the medium term. The county's score benefits from healthy oil and gas reserves, a large number of non-state companies active in the upstream sector and decent licensing terms. It may be able to pull further away from Egypt below it.

The country is near the top of the league table in BMI's updated Downstream Business Environment rating, with some high scores but progress further up the rankings unlikely. It is ranked third behind South Africa and Egypt, thanks to high scores for gas consumption, nominal GDP, likely refining capacity expansion and oil demand growth.