The success of shale gas production in the US is encouraging others to catch up with this revolution and bring additional gas resources into a world becoming more aware of the advantages of gas environmentally and economically.
But it is not always easy to copy the example of one country to another because factors may be different and prohibiting. One recent example is Algeria’s desire to develop its enormous shale gas resources.
The country’s conventional gas industry has been a developed one since 1956 and was among the first to liquefy gas and export it. It also used a number of pipelines to export to Europe as well. Algeria’s proven reserves stand at 4.5 trillion cubic meters (tcm) but have remained stagnant since 2003 due to a lack of additional exploration and development.
Algerian production, excluding injected and flared gas, has fallen from a peak of 88.2 billion cubic meters a year (bcm) in 2005 to 78.6 bcm in 2013 for the same reasons. Just to be clear, Algeria produces much more gas than the above numbers, but due to the nature of its condensate and crude oilfields, it needs to recycle more than half the gas it produces back to the reservoirs.
Domestic consumption of gas has surged from 23.2 bcm in 2005 to 32.3 bcm in 2013 with an attendant drastic reduction in exports and much needed revenue. The Algerian Electricity and Gas Regulation Commission projects domestic consumption to grow to 50 bcm by 2020.
Perhaps this is why Algeria is turning to develop its shale gas resources to maintain its export markets and meet growth in domestic demand. The US Energy Information Administration (EIA) says Algeria is endowed with the third largest “technically recoverable shale gas resources” after China and Argentina. In 2013, according to a study sponsored by EIA, Algeria has over 20 tcm of shale gas resources.
Encouraged by this, the Algerian Council of Ministers gave, in May 2014, its approval to allow shale oil and gas development and estimated that it would take seven to 13 years to confirm potential shale resources.
In July 2014, Algeria’s Sonatrach announced it expected to begin production of its shale gasfields by 2020, with an estimated production capacity of 30 bcm in the first stage. But opposition to this decision in the south of the country, especially in the town of Ain Salah, soon spread to other parts including the capital Algiers. Some of the demonstrations turned violent.
People felt that the decision was made without due debate on its implications with respect to water resources and the expected huge capital cost that may run four to five times higher that developing conventional gas resources. The threat to underground water resources cannot be underestimated as it is a matter of life and death for communities in the south.
They are not only concerned about the enormous amounts of water required but also about possible contamination of reservoirs by the chemicals used with water in the fracking process.
In spite of all this, Sonatrach is insisting on its programme as a “strategic decision destined to commercialise Algeria’s considerable unconventional resources”, according to Algeria’s foreign minister. It has attracted interest from BP, Eni, Total and ExxonMobil.
But critics point to the fact that the country’s conventional gas projects are delayed significantly through bureaucratic procedures, lack of sufficient incentive for investment or because of the security risk after the attack on BP’s Amenas gas plant. Critics rightly suggest that conventional gas development projects must be given priority as they will be more rewarding economically and without the environmental risk associated with unconventional means. More so, if they could bring about production of 20 bcm in the next five years.
The Algerian government is likely to yield to the fierce protest of the environmentalists, local communities and even political opponents. Prime Minister Abdul Malek Sellal said recently that the exploitation of shale gas “is not on the current agenda — we are just thinking about it”. He also said: “Between shale gas and water, the Algerian people will choose water; you think the Algerian state would be crazy enough to endanger the lives of its citizens?”
Some said that the development is now shifted to 2022 or beyond.
There is certainly a less risky way to proceed, and that is by concentrating resources on the development of conventional gas while watching the evolution of technology to find other possible means of developing shale resources.
Most importantly, the Algerian government should diversify its economy away from hydrocarbons as quickly as possible to reduce its dependence on their export earnings.
The writer is former head of the Energy Studies Department at the Opec Secretariat in Vienna.