Algeria Petrochemicals Report Q2 2008

With inadequate investment hindering the growth of the petrochemicals industry to date and government policy creating uncertainty that has threatened feedstock availability and investor confidence, recent developments show a revival of interest in the Algerian petrochemicals sector, according to BMI's latest Algeria Petrochemicals Report.

State energy company Sonatrach is to take its first major step towards the development of an integrated liquefied natural gas (LNG) facility at Arzew, following the dismissal of its Spanish partners in September 2007. In Q108, tenders were understood to be imminent on the US$4bn contract to build the 4mn tpa LNG export terminal. The purification process in the production of LNG produces ethane as a by-product to use as feedstock for ethane crackers for the production of ethylene. However, progress towards downstream diversification has been slow, with Sonatrach reportedly scaling back its ambitious plans launched in early 2005 for large-scale petrochemical plants from seven to just two: methanol and ethylene crackers. An integrated purified terephthalic acid (PTA) and polyethylene terephthalic complex, and a linear alkyl benzene complex, were shelved due to a lack of interest. The naphtha/condensate steam cracker, a fuel oil catalytic cracker at Skikda, and an integrated propane dehydrogenation (PDH) and polypropylene (PP) plant at Arzew have been 'deprioritised'.

Despite the scaling back of Algeria's ambitious plans for the development of the petrochemicals sector, progress is being made. In February 2008, Oil Minister Chakib Khelil announced that US$28bn would be invested in Algerian petrochemicals projects over the next five years. In July 2007, the Algerian government awarded contracts to Total and an international consortium, Almet, worth a combined US$3bn to build two new petrochemical plants as part of a 10-unit petrochemical complex with an estimated investment of US$12bn. Total signed a contract worth US$3bn to build a 1.1mn tonnes per annumn (tpa) ethane cracker at Arzew to manufacture 550,000tpa of MEG, 350,000 metric tonnes of HDPE and 450,000 metric tonnes of LLDPE, mainly for export. In December, Total announced that it had formally agreed a joint venture with Sonatrach, in which it will hold a 51% stake and will invest around US$1.5bn. Total was competing with Saudi group Sabic for the order, but the French group won the order as it offered Sonatrach a 70% share of the profits, while Sabic only offered 55.12%. The units are expected to be commissioned in 2012. Sonatrach awarded France's Technip with a contract for the front-end engineering design (FEED) for two units to extract ethane from the LNG produced by the GL1Z and GL2Z trains at Arzew. In BMI's Middle Eastern Petrochemicals Business Environment Rankings matrix, Algeria remains at the bottom of the 10 countries surveyed, with an overall score of 36.9 points, down 0.4 points over the previous quarter and 19.7 points below the regional average. On nearly every indicator, Algeria comes last by a long margin. However, the development of the Arzew petrochemical complex will elevate Algeria's score in the years ahead.