Algeria: Will Sonatrach benefit from the crisis in Ukraine?

By Yara Rizk
Posted on Friday, 4 March 2022 09:57, updated on Tuesday, 8 March 2022 15:36

Logo of the Algerian company Sonatrach on the roof of a building, 9 February 2018. © Anis Belghoul/NYOTK/AP/SIPA.

Sonatrach’s export revenues have increased by 75%. This upward trend is expected to continue, due to the effect that the Russian-Ukrainian crisis has had on the price of oil and gas.

It seems that 2021 was a good year for the Algerian hydrocarbon company Sonatrach. Its turnover went from $20 to $35bn within the space of a year, its exports increased to 13m tonnes of oil equivalent (TOE) in 2021 and its import fuel bills decreased by $1.5bn compared to the previous year.

According to Rachid Zerdani, vice-president in charge of strategy, planning and economics at the national oil company, these results can be explained by “the recovery of global economic activity in 2021, supported by unprecedented fiscal and financial stimulus measures.” This has “led to an increase in global oil demand of more than 5 million barrels/day compared to the previous year,” he said on Algerian Radio’s Channel III last month.

Sustained production and ongoing exploration

Sonatrach’s production rose from 176 million TOE to 185 million TOE between 2020 and 2021. This considerable increase has resulted in export levels of around 95 million TOE (+18%), according to the official statement.

Zerdani argues that this increase in production has been made possible by the strategy put in place in recent years. “The national company has made investments in the order of $8bn/year, on average, during the last three to four years, including more than 70% in exploration/production. Thus, more than $17bn have been allocated to exploration over the last 10 years.”

Towards self-sufficiency

In accordance with President Abdelmajid Tebboune’s desire to achieve energy self-sufficiency, the country of the Fennecs has been importing “neither petrol nor diesel” since 2020, as Zerdani pointed out, but rather $300m worth of MTBE (Methyl Tert-Butyl Ether: an additive that improves the octane rating of automotive petrol.) This has allowed Algeria to save $1.5bn in imports. According to official sources, the Arzew refinery will be responsible for producing this valuable additive.

The Algerian press agency (APS) also states that Sonatrach is preparing to launch the production of alkyne-benzene lines. Two production sites will be built with “their own funds.” Other projects such as producing propylene with Total and the Turkish Renaissance are also underway.

According to Sonatrach’s vice-president, the objective is to reduce Algeria’s “vulnerability” to “price fluctuations by transforming raw products in order to capture more value once they have been transformed.”

A 70% increase in oil prices

Whatever Sonatrach’s efforts in 2021, it is important to note that the price of a barrel of oil has been stagnant at around $69 over the last 12 months, compared to around $41 in 2020. This represents an almost 70% overall increase, which has had an undeniable impact on revenues.

 

Oil price per barrel in US dollars © Prixdubaril.com

In addition, Sonatrach’s overall revenues fell by 34% in 2020 compared to 2019, a finding that tempers the 2021 results. Finally, the level of refinery production remained stable at 27.9m tonnes in 2021, compared to 27.8m tonnes the previous year.

A promising future

The 2021 rebound could be prolonged by the global economy’s recovery, but also by disruptions in the hydrocarbon supply caused by the crisis in Ukraine.

According to its CEO Toufik Hakkar, Sonatrach plans to invest $40bn between 2022 and 2026 in “oil exploration, production and refining, as well as in gas exploration and extraction.” The first offshore oil drilling is planned for 2023.

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