The unconventional gas revolution has begun spreading to ever more countries around the world. Many regions outside North America believe that the shale gas boom can be replicated thus transforming their economic prospects. For energy-importing countries in the Middle East and North Africa (MENA), unconventional energy production would not be just a boon for the economy but a matter of survival in times of declining competitiveness and political instability. Morocco is a case in point.
The country, located on the northwest tip of Africa, is more than 90 percent dependent on foreign energy imports. Crude oil and coal purchases accounted for almost 3 percent of the country’s GDP ($3 billion) and energy purchases made up 23 percent of total imports in 2013. Natural gas consumption is relatively low at around 42 billion cubic feet (bcf) per year but expected to rise in the future as Morocco tries to cut its energy import bill and move to gas-fire power generation.
Fig.1 Share of Technical Recoverable Shale Gas Resources in MENA
Source: EIA
The government hopes to meet growing gas demand by boosting domestic production. So far that has proved difficult, but there are reasons to be optimistic. Related: This Is Why Californians Pay More For Their Gasoline?
In late June, the Irish exploration company, Circle Oil, announced it had conducted a successful exploration drill from its first gas well in the Lalla Mimouna basin. The company reported that the gas flow rate was 1.9 million cubic feet per day, a more optimistic figure than expected. Circle Oil is continuing exploration by drilling a second well in the nearby Anasba ridge, the results of which are expected in the near future.The discovery is the culmination of a three-year long study in the Tadla Block, heavily promoted by the Kingdom’s Office National Des Hydrocarbures et Des Mines.
The shale gas drilling comes amid a surge in offshore gas exploration interest from both small energy companies and their larger peers. However, the prize could be much more lucrative onshore, where according to a study by the EIA, Morocco could potentially hold up to 566 billion cubic meters in shale gas, which is around 6 percent of the MENA total. Algeria is by far the biggest shale gas reserves holder with around 20 trillion cubic meters.
Weak gas spots
Despite the initial success, Morocco will face many difficulties on its way to realizing a shale gas bonanza. Related: More Job Losses Coming To U.S. Shale
Unconventional gas production requires the use of large quantities of scarce water resources for the hydraulic fracturing process. However, water scarcity is not the only issue. The country, which has almost no history in oil and gas production, will need to build costly infrastructure and lure capital investment, which is fleeing at the moment from the North African region in the aftermath of the Arab Spring chaos.
On the demand side, the government can hardly provide investors with an economic stimulus to expand exploration efforts. The most challenging factor is domestic gas prices, which are kept artificially low as a subsidy mechanism for industrial and residential consumers. Despite a wide-ranging subsidy phase-out in 2014, electricity prices are still almost half the average household prices in the EU. Gas tariffs are three times lower than the import price charged by the chief gas supplier to Morocco, Algeria. Without a viable export infrastructure to transport the gas to high-priced markets, it is unlikely that energy companies will be willing to risk billions of dollars with no adequate rate of return.
Security of Supply
Morocco is facing the conundrum of rising electricity production and lack of supply diversification. Domestic electricity demand increased fourfold in the past 20 years. Most of the power generation in the country has been using costly diesel and coal imports, and limited amounts of natural gas and renewables. Related: Mexico’s First Offshore Auction A Major Disappointment
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However, in 2014 the government unveiled an ambitious gas plan aiming to expand the role of natural gas in power generation from around 6 percent from the primary energy supply today to 13 percent by 2025. The policy shift envisions the construction of an estimated $1.4 billion LNG regasification plant in Jorf Lasfar. Apart from the regasification plant, the National Board for Electricity and Drinking Water (ONEE) plans to invest another $800 million in a gas pipeline linking the plant and a storage facility to balance seasonal fluctuations. In addition, two gas-fired power plants worth $245 million should come online by 2021.
That is when the long-term gas supply contract with Algeria’s Sonatrach will expire, leaving Morocco open to consider new gas options. The country is likely to remain a key gas transit state (Algeria exports its vast gas resources via the Maghreb-Europe pipeline passing through Morocco) but would remain vulnerable to sudden supply cuts caused by violence across the border. By both diversifying imports and accelerating domestic gas production efforts, the Moroccan government would improve the country’s dismal current account imbalances, ensure the security of supply and boost energy investment. Amid the regional turmoil, Morocco’s plan should be to maintain its image of a safe haven with substantial but underdeveloped energy potential.
By Martin Vladimirov of Oilprice.com
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