State-owned Sonatrach took the decision in April to revoke UK independent Sunny Hill Energy’s interest in the highly prospective Ain Tsila gas field on the grounds that Angelo Moskov — who controversially took over Irish producer Petroceltic in 2015 and changed its name to Sunny Hill — is more interested in a speculative investment than a long-term commitment to Algeria.

The issue of compensation will now be decided in the arbitration courts. Unfortunately, however, this is only the latest self-inflicted damage to Algeria’s hydrocarbons sector and the country as a whole. For decades, Sonatrach has played hardball with IOCs — whether it was long-term take-or-pay gas contracts which became uneconomic or punitive E&P fiscal terms for blocks — which have made Algeria far less attractive than more flexible neighbours such as Morocco, Tunisia and Egypt. Simultaneously, different factions of the so-called ‘le pouvoir’ Algerian political establishment have fought for control of Sonatrach, which is Algeria’s milch-cow.

This instability has resulted in: eight Sonatrach CEOs in the past decade; numerous corruption scandals; unsuccessful licensing rounds; glacially slow and poor decision-making; delayed projects; falling foreign direct investment; numerous arbitration cases; and much more.

Production drop

Even before the COVID-19 pandemic oil production had fallen from nearly 2.0 million b/d in 2015 to less than 1.5 million b/d in 2019, which is similar to the levels of 20 years ago. Algeria continues to export less than its 876,000 b/d OPEC quota.

At the same time, domestic gas consumption is constantly increasing — from 32% of production in 2000 to 62% today — thereby reducing exports and government revenues. When Algeria’s population reaches 50 million by 2030 there is the very real risk that it will be no long be able to export gas.

The disastrous situation in the hydrocarbons sector is mirrored in the country as a whole. It had been hoped that the political and economic paralysis of former president Abdelaziz Bouteflika’s final five years would be replaced by a more dynamic proactive government.

Instead, Abdelmadjid Tebboune was fraudulently installed by the army in late 2019 in yet another election in which the actual turnout was less than 10%. Tebboune is now insisting on holding legislative elections on 12 June despite them almost certainly being boycotted, not only by most of the political parties, but also the vast majority of the population.

These are designed to divert attention away from the vast anti-regime ‘Hirak’ demonstrations which resumed in February after a COVID-19 lockdown. Despite increasing police violence and mass arrests, hundreds of thousands, sometimes millions, of Algerians protest on the country’s streets each week.

So far, they have done so 115 times on Fridays, and there are also large weekly student demonstrations every Tuesday. The regime’s violence, intimidation, arbitrary arrests, rigged trials and propaganda have failed to stop the Hirak demonstrators, who continue to demand genuine democracy and an end to the incompetent kleptocracy that has ruined post-independence Algeria.

Tebboune, who spent three months in a German hospital, is suffering from long-COVID and is currently physically, and probably mentally, incapable of running the country. He is increasingly seen as a lame-duck president and one faction of the army and intelligence services — who imposed him on the country — are considering replacing him. Another believes that increased repression will re-exert the regime’s control over the Algerian people. 

The lethargy in the Presidency is mirrored by total paralysis in Prime Minister Abdelaziz Djerad’s office, where there are at least 255 economic files currently awaiting attention. There has been no progress on major economic reforms and — because of a combination of the June elections, summer holidays, and autumn local elections — this situation is unlikely to change. It is therefore feared that 2021 will be yet another of the many ‘blank years’ that Algeria has experienced. 

Charles Gurdon, managing director of Menas Associates, for the Petroleum Economist, May 2021