People's Democratic Republic of Algeria

Ministry of Energy and Mining

19 ^th World Energy Congress
 
Introductory Speech to the Ministerial Panel, by Dr. CHAKIB KHELIL

Sydney, Australia, 5^th -9^th September 2004

Mr. President,
Excellencies,
Ladies and Gentlemen,

Allow me to express Algeria's point of view, a Member of OPEC, on world energy issues and give an overview on the current situation of the international oil market, characterized by price levels, rarely seen in the past.

The situation is of concern to all countries, starting with OPEC members.

The lack of signals allowing to foresee a price trend reversal or a return to a “normal” situation in the oil market are of great concern to all of us.

Analysts and observers agree that the origin of this situation comes from the interaction of multiple factors, among which:

•  Strong growth of the world economy inducing large needs of energy and oil consumption, with an increasing demand in large consumer countries such as the United States, China and Japan. As an example, Asia and the United States represent two third of the growth in the world oil demand since 2002.
   
• A maximum use of the world production capacities, which suffer from the consequences of lack of investments which plagued the sector these last years.
   
• A very reduced spare production capacity of OPEC, which in the past, acted as a swing producer absorbing disruption coming from an unbalance between supply and demand.
   
• Strong geopolitical tensions of various natures, in several key producing areas, increase the perception of uncertainty on the regularity of world oil flows (impact of the political and security situation in Iraq, with repeated destructions of pipelines, as well as internal issues *in other countries: Venezuela, Saudi Arabia, Nigeria, the "Youkos" affair in Russia)
   
•  Evolution of strategic stocks and reduction in the spare refining capacities in the United States.

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.

Speculation also remains a strong factor which feeds on uncertainty and price volatility.

Despite a balance between supply and demand speculation is carrying a 7 US dollar/bbl premium on oil.

It has to be recognized that OPEC has and is making enormous efforts to stabilize oil prices at reasonable levels. However OPEC cannot stabilize the market alone.

OPEC is almost producing at full capacity, while develop Mig short term capacities in countries that still have possibilities. These additional production capacities are meant to stabilize prices at acceptable levels for all.

A profitable dialogue between non OPEC producers, petroleum companies and consumers, under the leadership of OPEC, gave encouraging results. Algeria sees this dialogue as essential and has always strongly supported it.

Ladies and Gentlemen,

Algeria, for its part, is increasing its current production of 1.3 MMBOD to 1.5 MMBOD by 2005.

Since 2000, Algeria implemented a vast program aiming at reforming in an in depth manner its energy sector so as to widen its base of hydrocarbon reserves, develop its production and export capacities and so as to contribute to satisfy an increasing world oil demand.

Within this framework, we have set up an attractive legal environment to national and foreign private investments, which had an impact on all energy and mining activities.

As such:

•  A new mining law was adopted in 2001. It implements the opening, liberalization and establishes competition between operators within a transparent framework. It increased mining activities levels in Algeria, and the arrival of major foreign investors, Australian in particular. 
   
• A new law on electricity and natural gas distribution promulgated in 2002, which liberalized the sector and separated the segments of : electricity production, gas and electricity transmission, and electricity and gas distribution

The historical operator was restructured accordingly and foreign private investments have already been engaged in three new power plants. Within this framework, a Regulation Agency for Electricity and Gas was created.

•  Lastly, new open transparent and competitive procedures were put in place in the Mines and Energy sector, for the selection of investors.

These changes have already brought encouraging results:

•  In the field of oil and gas exploration, about twenty contracts were signed during these last 3 years with foreign oil companies coming from 5 continents.

The first works allowed several significant discoveries, highlighting the potential of the Algerian hydrocarbon sector, which remains largely under explored. Oil and gas production is expected to grow, in the coming years, allowing Algeria to produce 2 MMBO/D and export 85 billions SM3/Y gas by 2010.

• Large scale projects are being prepared to respond to market demand: Medgaz project, an undersea gas pipeline (Algeria Spain); Galsi project, an undersea gas pipeline (Algeria Sardinia Italy). Two projects of electric cables will follow these two gas pipelines to export electricity produced in Algeria. A project of gas pipeline (NIGAL) Nigeria Algeria will supply the European market thanks to its connection to the Algerian network. Sonatrach is reinforcing its LNG exports towards the US market.

Ladies and Gentlemen,

Regarding the general evolution of supply and demand, most of the medium and long terms scenarios (2030-2050) highlight that existing reserves will be able to cover the high increase in forecasted demand.

However, in order to sustain oil production and face growing needs, significant investments are to be made to discover, develop, produce and transport these hydrocarbons towards different markets.

Financial resources are available on the international financial market, and investment opportunities exist in many producing countries. It is the role of the international community and concerned institutions to mobilize these means.

With regards to Algeria, the country is ready to welcome investors in the form of direct investments or through partnerships, in all energy sectors (oil, gas and electricity).

Thank you for your attention