The Sahara desert is being billed as a potential cure for the European Union’s gas problems, and all eyes are on Algeria’s 321 trillion cubic feet of recoverable shale gas.
In money terms, this is about $2.6 trillion in gas at the current UK prices.
Algeria, for its part, is keen to promote this image and taking serious steps to boost investor confidence. To that end it is offering tax breaks to potential explorers.
Infrastructure is already in place in the form of Mediterranean pipelines connecting Algeria to Spain and Italy.
Algeria’s gas estimates come from the International Energy Agency.
Where are we with legislation? The newly announced tax breaks still need parliamentary approval, but officials are confident they will get it in a matter of weeks.
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Who’s being lured in by the promise of tax breaks? For starters, ExxonMobil Corp (XOM) is reportedly in talks with the government over shale. A number of majors have already signed exploration agreements, including Eni SpA (ENI), Royal Dutch Shell Plc (RDSA) and Canada’s Talisman Energy Inc. (TLM).
Eni has already begun exploration, and Shell and Talisman will dig their first exploration wells soon.
Algeria plans to outpace its neighbors, and is already working out how to import hydraulic fracturing technology to speed things along.
It could be the answer to the EU’s dilemma. Fracking has been hindered in the EU over environmental concerns. While the EU recently rejected a proposal that would ban fracking, individual EU member countries will still make it difficult if not impossible. But they have no qualms about supporting fracking in Algeria’s deserts as an alternative to Russia’s gas stranglehold.
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The potential is that Algeria could double production in the next two decades and might be able to export as much as 110 billion cubic meters by 2030.
So far, investors seem confident, and the new tax package would go a long way to solidify that confidence. Contractual terms are already favorable and the new tax law, if passed, will adjust royalty fees for levels of production. It will also adjust taxes on oil revenues to be proportionate with exploration difficulty and exploration risk.
But Algeria is just getting off the starting blocks, and commercial viability has yet to be determined. This will require the drilling of more than 400 test wells.
There’s also this: Compared with Libya, Algeria is a model of stability. Even though investors are increasingly foraying into high-risk areas with an unusual amount of bravery, if Algeria’s reserves prove commercially viable on the level predicted, the relative political stability will make it a very attractive venue.
By Charles Kennedy for Oilprice.com