Energy and Security in Africa Conference

Speech by M. Ghanem, Manager of Energy and Mining Patrimony,
on the behalf of Dr. CHAKIB KHELIL, Minister of Energy and Mining

Abuja. 6-11 march 2005

Mr. Chairman,
Excellencies
Ladies and Gentlemen,

I am very much honoured to be the formal representative of his Excellency Dr. Chakib KHELIL, the Algerian Minister of Energy and Mines, who is unable to attend this meeting, due to his very tight schedule in this period.  He has entrusted me to convey to you all his thanks and wishes of success and also present on his behalf, the speech he was expected to read out to your honourable assistance.

I would like at the outset, to extend my gratitude to the organisers and to General Carlton in particular for giving me the opportunity to address such a prestigious audience and tackle the Energy and Security in Africa; a topic which has been at the core of our permanent concerns this last decade.

The presence among us of so many International Organisations is in itself reassuring. It indicates if needed, that Africa is not alone in its endeavour to overcome the alarming poverty situation that adversely affects its population.

The high level of representatives gathering here today indicates how increasing the African interest for linking Energy to Security is; it clearly shows our determination to achieve this goal for the sake of our people’s comfort, serenity and peace.

Mr. Chairman,
Excellencies,
Ladies and Gentlemen,

Let me first give you some brief important information about my country. Algeria is located in Northern Africa, bordering the Mediterranean Sea, between Morocco and Tunisia. With a total surface of 2, 400,000 km², Algeria is the second largest country in Africa after Sudan; it is mostly constituted of high plateau and desert with two parallel chains of mountains and a long corridor of plains along the sea side. Only 4% of the land is used. And the practised culture is permanently crops.

According to 2004 estimations the population is slightly over 32 million inhabitants with a balanced ratio of males and females; 70% of witch is under 25 years old. The birth rate is near 18 birth /1000 and the death rate is very close to 5 deaths /1000; for the total population the life expectancy at birth is about 73 years old.

Algeria, thanks to its geographical location and its huge gas reserves, has set as objective to increase production and exports capacities in order to meet the growing needs of its local and external demand.

Since 1964, Algeria committed itself to achieving this goal in setting up the first LNG unit of the world, enabling some countries to get their natural gas supplies, when there was no gas pipeline. Besides the liquefying units, SONATRACH started laying huge transportation pipeline network. Now there are two Trans Mediterranean gas transmission lines connecting Algeria to Europe: one to Italy via Tunisia and the other to Spain via Morocco.  Algeria has been involved with the greatest adventure of natural gas development for forty years. Today, its natural gas reserves stand on a par with its oil reserves. Not only we increased our crude oil production and doubled the gas exports within few years, but we further expect to reach by 2006, the record of 1.5 million crude oil b/d and 85 billion m3 of exported natural gas by the end of 2010, given the huge confirmed resources and the vast untapped sedimentary basins; (wells density is 8 per 10.000 km2, whereas the average number of wells in USA is 500 per 10,000 km2). Nevertheless Algeria ranks fifth on the global market of natural gas exporters, and second for LNG. The construction of important gas infrastructures and LNG factories, the development of gas fields, the laying of gas pipelines and the acquisition of LNG carriers, require huge amounts of capital investments with their inherent financial risks.

In spite of the tragic events that my country has been trough earlier in the past decade, we have never stopped supplying our clients. Algeria has made all required efforts to ensure energy supply and meet its commitments towards partners whatever the circumstances. Surprisingly, for the same period, exports to Europe have steadily improved. The outcome has been a significant increase of Algerian gas in European market and its share of energy supply: 88% for Portugal, 64% for Spain, 38% for Italy, 24% for France, 26% for Greece to name a few pursuant to this policy. Taking into account the promising prospects of European gas market, SONATRACH, while engaging in huge investments, has publicly made known its strategy: that of a reliable and regular gas supplier.

Mr. Chairman,
Excellencies,
Ladies and Gentlemen,

In Algeria, more than in any other country, we know how much impact legislation changes can be tremendous on the liberalisation process. We experienced that in the late 70s, as we had to deal with a formidable blow in LNG transport and production capabilities.

In the past, gas and electricity markets, were totally under the monopoly of the state company SONELGAZ. Recently Algeria has launched a reform program of the energy and mines sector to establish social and economic well being in Algeria.
The law on electricity and gas distribution, passed in February 2002, liberalising and opening up power generation to competition provides equitable treatment of all. The major objective of this law is to offer incentives to attract private, foreign or local investors for promoting power generation. As a matter of fact it ends the state monopoly on production, transportation and distribution of gas and electricity and achieves net boundaries between these activities. SONELGAZ is presently a joint-stock company, run by an executive board and a general assembly of shareholders.

This is a decisive reform indeed in the electricity sector. Hopefully, it will enhance and diversify the downstream development of gas resources and equally help Algeria smoothly become part of the Euro-Maghreb market. The law offers regulatory basis for promoting renewable energies ecologically clean. In the course of the new law, several projects for integrated sea water desalination units with power generation were launched in western, centre and eastern part of the country, on the basis of a new partnership schemes. Soon the first desalination unit which will be coupled with a power station of 300 MW capacity and produce 90,000 m3 a day of potable water; will lift water scarcity constraints in the region of Oran which suffered of drought for many years.

A decree, on diversification of power production costs was enacted the 25th of March 2004; it establishes several incentives for renewable sources of power generation. According to criteria set out by the Regulatory Commission on Electricity and Gas, and the above-mentioned law, premiums are granted to electricity producers.

Another law currently examined by the Parliament for adoption, provides incentive, economic measures to further ecologically sound power generation from renewable sources. As for harbours facilities, the rehabilitation works are under way in order to improve the operations of oil ports. SONATRACH with a national enterprise in charge of harbours will start jointly the rehabilitation and modernisation works with the co-operation of a foreign company specialised in this field.
Just like the electricity sector, the Mines sector benefited from the momentum induced by the new Mine’s law passed in July 2002. The implementation of this very attractive law resulted in granting more than 220 mining titles in 2001 and 2002 and has created 2000 jobs. Private sector is very active in mines and quarry with 720 enterprises involved in extraction of marble, salt, aggregates and other materials. The total work force is 12,700, and the turnover is around 10 billion AD which represents 42% of total sales for this sector. The new policy has attracted foreign investors, from Lebanon for gold exploration, Australia for gold also, South Africa for gold as well, India for iron ore, Egypt for cement etc. As you may notice the challenge In Algeria calls for the combination of state companies, private and civil society partnership. The latter parameter plays a role more and more dynamic, more and more familiar with the population needs and hence more and more acceptable.

There are also joint ventures with national companies which bring in the so much needed capital and technologies, creating wealth, employment for our graduated technicians and engineers, and stimulating the overall economic growth.

The new transparent and fair contract-awarding procedures applied to the selection of investors in the Mines and Energy sector, brought encouraging results: about twenty contracts were signed during these last 3 years with foreign oil companies, coming from the 5 continents. As far as the Algerian strategy is concerned, the country is ready to welcome investors in the form of direct investments or through partnerships, in all energy sectors (oil, gas and electricity).

International partnership has been a decisive leverage in favour of such remarkable increase, since 50% of our crude oil production will be achieved in partnership in 2005. Given the success of the bidding procedure, the same method has been extended to others branches: procurement contracts, equipment and services. We consider this approach as the most appropriate tool to ensure stability of trade transactions.

Remote places, far away from the power network can only benefit from electricity supplied by an adequate use of renewable energy. There are several ongoing projects for the electrification of rural zones, using solar energy as a complement to classical power network. We realise that a strong take-up of renewable energies can be achieved through progressive power generation programs and connected to the domestic distribution network. The underlying objectives are not only justice or social cohesion but also incorporating renewable electricity in the national grid and eventually beyond our borders through international interconnection and looping.

The Algerian energy policy major concerns and priorities have always been the important link between energy management, environment and sustainable development. It will be meaningless to tap new sources of energy if the existing is not efficiently used. Since the 80’s, public authorities have adopted an orientation framework for energy demand as a national energy consumer’s pattern based on the principles of promoting and developing effective technology to enhance energy yields, use natural gas and LPG as clean and available energy sources and phase out progressively liquid hydrocarbon (more polluting) from global energy balance.

According to the law on energy management enacted in 1999, institutional measures and a strategy have been put in place to establish first a National Energy Management Agency (APRUE) in charge of the initiation and implementation of the energy management programs, An Interdepartmental Energy Management Council (C.I.M.E) for consulting and co-ordinating the relevant stakeholders and a National Energy Management Fund, as a catalyst for actions and programs. All such efficient promoting measures provide the appropriate environment for direct large private and partnership investment opportunities.
To meet transparency, fairness and diligence, the procurement agreement is carried in two phases. The first phase is the technical adjustment of selected offers. The second is a commercial phase in which the selected bidder is immediately appointed on the basis of unique criteria during a public session.

Following the implementation of the new procedure and the prevailing global economic situation foreign investment in Algeria, in the Energy and Mine sector has reached recently a significant level, we are committed because we need resources and know-how for international co-operation but also because we are determined to effectively contribute to the global effort.

Mr. Chairman,
Excellencies,
Ladies and Gentlemen,

Our strategy, once again, involves adjusting and making all the investments we need, to meet future demands. Doing so means getting all the intervenient in the gas chain, including those in the gas upstream involved. This will bring new momentum to our partnership with organisations which are likewise affected by the change. We are looking to the future of the gas industry with confidence and we are counting on international partnerships to meet the needs of consuming countries.
The issue is to extensively develop the energy infrastructure and systems and integrate them at the national, sub-regional and regional levels. It is a prerequisite for eradicating under-development, and ensuing evils in our vast and remote regions. It relies on the establishment of an adequate program capable to end the unacceptable contradictions between the considerable available energy potential and the low level of energy consumption, in order to improve the quality of life of the population, ensure stability and opt for peaceful conflicts settlement. The very important projects launched these few last years are the best proof of our determination to pursue such a strategy.

There is no doubt that the available energies won’t disappear soon, nevertheless the era of abundance and cheap energy will not last long. We will have to consider alternate sources of energy. It is clear that renewable energy is linked to environmental issues.

This is the reason why the quest for unlimited and clean renewable energies should become the priority. It is clear that renewable energy is linked to environmental issues. Algeria has definitely decided to pursue an active role within the global mobilisation for environmental protection and the promotion of sustainable development. Promoting renewable energies is now one of the major pillars of the Algerian policy; we are aware of how beneficial are their effects on the social and economic development of our country. Thanks to solar energy, we are able to complete our program for rural electrification, and 95% of the country is covered by the domestic grid. Since Algeria is mainly a semi-arid land, its limited water reserves have been intensively exploited during the last decades. And the installed hydroelectric capacity is no more than 300 MW.

Fortunately, its solar power capacity is one of the largest on earth. More than 2.000.000 km2 receive yearly a sunshine exposure equivalent to 2500 kWh/ m2. In this extend photo-voltaic power is successfully used for water pumping in order to develop steppe areas irrigation, fort the sake and benefit of remote southern populations. As the major solar field in Algeria is located in hydrocarbon regions endowed with natural gas, our strategic goal is to create a mixed solar-gas synergy, taking advantage of our abundant natural gas and solar resources.

To develop renewable energy, we have established the New Energy Algeria (NEAL) Company in which two state corporations, SONATRACH and SONELGAZ, and a private Algerian corporation (SIM) are shareholders. NEAL Company launched an important hybrid gas/electricity project based on powerful solar concentrators (PSC). This initiative already revealed some particular interests. The outcome will enhance the solar energy share in the global energy balance, and increase renewable electricity connected to the national distribution network. Such project will allow meeting the domestic energy needs and delay the depletion of our hydrocarbon reserves while providing large quantities of gas for our European clients. In promoting renewable energies, Algeria is enhancing the European energy security, since 95% of natural gas exports are dedicated to Europe. Parallel to this project we are actively developing an approach and looking for the necessary means to achieve the installation of 1000 MW using mixed gas-solar energy.

As oil producer, Algeria has decided to reduce flared gases which are a major source of pollution and play the pioneer role in taking  the first international initiative on flared gas reduction. This action is carried out in accordance with the World Bank program called Global Gas Flaring Reduction (GGFR). During the Algiers meeting, held in May 2004, we presented a whole range of achievements as well as the significant investment in gas re-injection projects to enhance recovery rate of fields. We are confident that we have chosen the right sustainable development option in using flared gas, from neighbouring oil fields to supply the mixed-resource project.

On the international side, dialogue and consultations remain more than ever the  ideal approach to reach and secure harmonious development without jeopardising the interests of all concerned parties. This is the true spirit of the new Algerian energy policy.  Natural reserves are sufficient enough to meet adequately the market demand for the next decades. However, geographical distribution of those reserves is neither matching the size nor the expected increase of different markets. LNG production will gain momentum due to the increased capacity of both liquefying units and LNG tankers, and opening up and extension of new maritime gas routes. Nowadays LNG tankers can travel more than 10 000 km. liquefying units and LNG terminals are developing accordingly to the late finds and new access to gas fields. This is the challenge for an industry which has been massively investing in development and exploitation of new reserves, new liquefying facilities as well as transportation and re-gasification.  LNG global trade has more than doubled during the early 90’s till 2003 reaching a record level of 168 billion m3. According to the International Energy Agency estimates there will be a further increase during the coming years to reach 270 billion  m3/y by 2010.

Being an oil and gas producer, Algeria is closely following the energy market development, at a global levels; its development and energy strategies are build upon partnership and co-operation opportunities with producers, industrial operators, dealers and consumers. Best proof of it, is the recently signed contract between SONATRACH and STATOIL. Both Algeria and Netherlands have signed a sale contract on an ex-ship base for the Cove Point Terminal (Maryland), with a yearly amount of 1 billion m3 as from November 2003. The Terminal capacity is 7.5 billion m3/year, equally distributed (2.5 billion m3/year) between SHELL, BP and STATOIL.

Mr. Chairman,
Excellencies,
Ladies and Gentlemen,

Since the tragic, painful events of September 11, 2001, the need to address security from a global perspective is in the limelight more than ever before. No nation can enjoy long-term security without international stability, and international stability cannot be secured without establishing mutually beneficial economic co-operation. In this light, hydrocarbons, given their central role in the economy and their particular status in international relations, appear as the challenge. They also bring development to countries, and they bring countries closer together. One of Algerian Energy and Mine Sector duties is to gain support for its program, especially in the field of energy and to become a tool for implementing and consolidating the overall national developing strategy. In this respect we had to enhance institutional reforms at international level and increase our efforts in order to create a favourable environment for attracting investors. This is a huge challenge to tackle.

Algeria’s country risk shifted from category 5 to 4, a step that has been followed by a notable reduction of its insurance premium as established by the EXIM BANK; relations between Algeria and EXIM BANK benefited from this new synergy. As a consequence many air lines companies restarted landing on our airports after along and endless period of air embargo. EXIM BANK has shown its readiness to support SONATRACH’s financing schemes, preferably those based on a guaranteed income of the "projects financing" model; however EXIM BANK remains open to support export credits.  To deal with the legitimate concerns of the EU, related to the elimination of risks inherent to supply, and in order to ensure sustainable, reliable, diversified sources of energy, we consider that consensus based approaches should be adopted between consumers, producers and exporters, since Europe will have to import ? of its gas consumption starting from in 2020.  In this context, long-term contracts are a sort of a guaranty for the gas supply to Europe. Algeria is convinced that everything should be done in order to maintain a balance between the various actors, from the producer to the final trader, and reinforce co-operation among all sectors of the gas industry. For sure security of supply and problems resulting from market opening will be the prevailing factors in the strategies of concern to natural gas stake-holders.

Mr. Chairman,
Excellencies,
Ladies and Gentlemen,

Nations, as we know, are interdependent so it follows that courses of action must seek the common good. Indeed, the fundamental role of the oil market in the world economy and its enormous impact whether financial or of strategic nature, can not be separated from the political, economic and social context The energy is an issue that must be placed at the centre of all the challenges to be faced as our constantly changing world moves ahead on the path to life improvement.

Only three weeks ago, Algiers hosted the Second African Petroleum Congress and Exhibition-CAPE II, under the leitmotiv of the African hydrocarbons industry facing the challenges of sustainable development. The convening of this Congress should stimulate the African petroleum activities over the coming years and mobilise political as well as technical potentialities. The basic obstacle in Africa is not always the availability of primary energy sources as illustrated by the vast hydro-electric potential and the considerable hydrocarbon reserves in Algeria for example, Africa is expected to live up to its responsibilities in promoting the energy sector which is, as you all know, the vector and catalyst for socio-economic development. The efforts that are to be done collectively on one hand and separately on the other hand, must focus on the sustainable development issues. The new initiative for the sustainable development of Africa (NEPAD) is for our continent an excellent work base for reaching these results. Africa enjoys many energetic resources.  But unfortunately they remain unexploited. 7% of the world crud oil and natural gas proven reserves are located in Africa, essentially in its Northern and Western part. More than 81% of these reserves belong to OPEP countries; i.e. Libya, Nigeria, Algeria and Egypt. 60% of the so called reserves are stuck in Northern Africa and 30% in Nigeria. More over many areas are still not explored yet. This is a supplementary promising issue.

In the framework of the New African Development Initiative, NEPAD, Algeria and Nigeria have decided to build a new gas pipe going from Nigeria up to the Mediterranean cost. The pipe will be connected to the Algerian network and will substantially contribute to improve gas supply to Europe; it will have a positive impact on socio-economic life in transit countries and preserve environment integrity by flared gases recovery. The initiative taken by both Algerian and Nigerian Governments for the construction of this 4400 km Trans-Saharan gas pipe line, conveying 25 billions m3/y of natural gas, is the best prove of our will to enhance regional African co-operation.   Africa is also within the international outreach of SONATRACH, and several bilateral agreements have been signed during the last three years with Tunisia, Niger, Mali and South Africa. Such international approach is based on the need to enhance mutually beneficial partnership with international African oil companies.

Algeria is strengthening its position as "Energy Bridge" between Africa, Europe and the rest of the world, and reaffirming its role within the "American energy initiative for Africa" as stated by Secretary for Energy, Spencer Abraham, He once said:" Algeria may become an important and secure energy supplier for the United States; it is a trustworthy ally, an important source of crude oil and one of the major world LNG producers".

With our African partners, we are jointly promoting a co-operation scheme involving private and public economic operators within Africa. It is with this objective in mind that regional and continental groupings are to be established to enhance south-south co-operation.

Mr. Chairman,
Excellencies,
Ladies and Gentlemen,

Let me express the hope that I clearly put forward the consistency and coherence of the overall Algerian mines and energy policy in order to improve population wellbeing, to accelerate pro-poor growth, reduce poverty remove obstacles to the efficient functioning of a healthy market, establish transparent, non-discriminatory and stable regulatory procedures, increase environmental investments on clean development mechanisms and that I have succeeded in convincing you about the vast range of business opportunities, partnership, alliances that it offers. Indeed, the fundamental role of the oil market in the world economy and its enormous impact whether financial or of strategic nature, can not be separated from the political, economic and social context. In other words, stability in the oil markets can only be improved with more international political stability, I am of the opinion that it is essential for all actors to work together, with a sense of dialogue, a spirit of partnership and co-operation in order to ensure the development of this industry for the benefit of all. No doubt that with good governance, energy efficient management will lead to security, peace in a clean environment.

Thank you for your kind attention