Sonatrach readying for Europe's liberalization

Algerian state oil and gas firm Sonatrach is poised to jump on the band wagon of Europe's soon-to-be-liberalized gas market and is adapting its strategy accordingly, Sonatrach Chairman and CEO Abdelhak Bouhafs told a press conference at the World Gas Conference in Nice. The company is also pursuing international upstream partnerships.

NICE�Algerian state oil and gas firm Sonatrach is poised to jump on the band wagon of Europe's soon-to-be-liberalized gas market and is adapting its strategy accordingly, Sonatrach Chairman and CEO Abdelhak Bouhafs told a press conference at the World Gas Conference.

As a leading supplier of the Mediterranean countries, Sonatrach will change its commercial policy to obtain a stronger foothold in southern France, he said. The company will also pursue the trading business. In preparation for the changes the market is undergoing, Sonatrach and Gaz de France today signed a cooperation agreement to develop their 40-year gas supplier-buyer partnership to encompass a gas marketing 50-50 joint venture to sell, either on a long-term or spot basis one bcm/year to new gas users, in Europe, the Mediterranean area, and elsewhere.

The purpose is to capitalize on their partnership to cope with the emerging uncertain gas market environment in Europe. Simultaneously, the partners agreed to extend to 2013 one of four long-term contracts involving some 2bcm/year or 20% of the total 10 bcm/year contracted. The original contract was scheduled to expire in 2002; the three other contracts expire in 2013.

The agreement also involve the joint upstream development of gas fields, either in Algeria or elsewhere. All these projects have yet to be defined.

Besides this agreement with GdF, Bouhafs outlined other plans to cope with a changing gas environment. Since electricity generation is expected to drive gas consumption, Sonatrach will take shares in the new power stations, particularly co generation, which will be built in Europe.

Sonatrach Restructuring
In this context, Sonatrach is expected to benefit from a restructuring taking place in Algeria in the oil and gas industry as the roles of the Algerian state and the company are redefined. Bouhafs indicated that within the next 12 months, Sonatrach will be relieved of its state mission and will be able to devote its time to purely an oil and gas matters.

A government agency will take over its role of awarding exploration and production contracts . In the future, foreign firms will not be compelled to form joint ventures with Sonatrach, he said. Rather, the decision will be jointly made with international companies wishing to work in Algeria.

With this new freedom, Sonatrach will be able to devote its energies to pursuing a strategy devised 3 years ago to become a major international oil and gas company. Although this not does not mean privatization of Sonatrach is imminent, the groundwork is being laid, Bouhafs said. He explained at best it will not take place for another 5 years.

Sonatrach will be divided in three different sectors: Sonatrach Exploration, Sonatrach Production and Sonatrach Transport. Concerning its international ambitions, Sonatrach is already actively involved in overseas projects.

Bouhafs indicated projects in India , a country set for "a remarkable gas expansion" has requested a partnership with Sonatrach. The group's oil strategy is also taking shape. In Niger, Sonatrach, together with a Canadian firm has been awarded a block not far from the one being developed by Exxon Mobil Corp. In case of an oil discovery, he said, the plan is to join with Exxon Mobil to build a pipeline to lift the oil northwards to connect with an Algerian pipeline.

Project Partners
Bouhafs also said there are advanced discussions for projects in Yemen, South America (with US oil companies he did not identify). Sonatrach also has association projects with an Argentine group involving the Camisea field in Peru.

Bouhafs agreed with Eurogas Pres. Dr Burckhard Bergmann, with whom the press conference was being jointly held, that long-term contracts will continue to prevail , all the more so as Europe's need for secure supplies will increase as gas comes from distant regions.

Bouhafs said he is confident all gas capacity extensions will be quickly provided by Sonatrach. For instance he said,"The addition of a compression station at In Salah has already been decided to supply more gas to Spain."

He also said he is interested in supplying eastern Europe, adding hopefully, that "the solution for us would be to go on these markets with Ruhrgas."

Asked if he believed LNG spot sales by the "very aggressive and sophisticated" US operators discussed the previous day, will undermine natural gas prices in Europe and hasten the liberalization trend, Bouhafs said he expected the effect to be "marginal."

Bergmann concurred. He said the LNG spot trade will be limited since most of Europe's gas needs are satisfied by long-term contracts. Bergmann also criticized the number of EU Commission regulations, explaining the deregulated EU gas and electricity markets will fare better unfettered. He quoted a previous speaker who said consumer wishes will ultimately replace regulation in the US. Bergmann said he felt this will also be the case in Europe.

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