Identifier
Created
Classification
Origin
08ALGIERS262
2008-03-03 15:52:00
CONFIDENTIAL
Embassy Algiers
Cable title:  

ENERGY MINISTER KHELIL: GOT GAS?

Tags:  ENRG EPET EINV ETRD AG 
pdf how-to read a cable
VZCZCXYZ0204
PP RUEHWEB

DE RUEHAS #0262/01 0631552
ZNY CCCCC ZZH
P 031552Z MAR 08
FM AMEMBASSY ALGIERS
TO RUEHC/SECSTATE WASHDC PRIORITY 5395
INFO RUEHHH/OPEC COLLECTIVE
RUEHMD/AMEMBASSY MADRID 8853
RUEHFR/AMEMBASSY PARIS 2606
RUEHRO/AMEMBASSY ROME 0455
RUEHRB/AMEMBASSY RABAT 2228
RUEHTU/AMEMBASSY TUNIS 7081
RUEHNK/AMEMBASSY NOUAKCHOTT 6277
RUEHNM/AMEMBASSY NIAMEY 1516
RUEHUJA/AMEMBASSY ABUJA 0056
RUEHBP/AMEMBASSY BAMAKO 0465
RUEHCL/AMCONSUL CASABLANCA 3311
RHEBAAA/DEPT OF ENERGY WASHDC
RHMFISS/HQ USEUCOM VAIHINGEN GE
C O N F I D E N T I A L ALGIERS 000262 

SIPDIS

SIPDIS

STATE FOR NEA/MAG (FLOWERS)
STATE PASS FOR USTR (BURKHEAD)
COMMERCE FOR ITA/MAC/ONE (NATE MASON) AND ADVOCACY CENTER
(REITZE)

E.O. 12958: DECL: 02/25/2018
TAGS: ENRG EPET EINV ETRD AG
SUBJECT: ENERGY MINISTER KHELIL: GOT GAS?

REF: A. 07 ALGIERS 1783

B. ALGIERS 102

CLASSIFIED BY: AMBASSADOR ROBERT S. FORD; REASONS 1.4 (B) AND (D).

C O N F I D E N T I A L ALGIERS 000262

SIPDIS

SIPDIS

STATE FOR NEA/MAG (FLOWERS)
STATE PASS FOR USTR (BURKHEAD)
COMMERCE FOR ITA/MAC/ONE (NATE MASON) AND ADVOCACY CENTER
(REITZE)

E.O. 12958: DECL: 02/25/2018
TAGS: ENRG EPET EINV ETRD AG
SUBJECT: ENERGY MINISTER KHELIL: GOT GAS?

REF: A. 07 ALGIERS 1783

B. ALGIERS 102

CLASSIFIED BY: AMBASSADOR ROBERT S. FORD; REASONS 1.4 (B) AND (D).


1. (C) SUMMARY: ALGERIAN ENERGY MINISTER KHELIL TOLD OPIC CEO
MOSBACHER FEBRUARY 23 THAT ALTHOUGH ALGERIA CAN MEET ITS
CURRENT NATURAL GAS CONTRACTS AND INTERNAL CONSUMPTION
DEMAND, THE COUNTRY NEEDS TO FIND MORE GAS. IN ORDER TO
INCREASE GAS CAPACITY, KHELIL SAID THAT HYDROCARBON
PARASTATAL SONATRACH IS OFFERING 15 NEW BLOCKS FOR
EXPLORATION. IN ADDITION, SONATRACH IS WORKING ON A PROJECT
TO BUILD A PIPELINE FROM NIGERIA TO EUROPE AND WILL COMPLETE
PIPELINES TO SPAIN AND ITALY BY THE END OF THE YEAR, HE
STATED. ON FEBRUARY 24, ALGERIAN NEWSPAPERS CARRIED
STATEMENTS BY KHELIL, WHO CURRENTLY HOLDS THE OPEC
PRESIDENCY, DISCUSSING THE CREATION OF AN OPEC FOR GAS.
MEANWHILE, FOREIGN OIL AND GAS EXECUTIVES TELL US THEY WILL
SEEK TO EXPLORE THE NEW BLOCKS, NOT BECAUSE THEY ARE ENAMORED
WITH WORKING IN ALGERIA, BUT BECAUSE THE ENTIRE MARKET IS
DESPERATE FOR NEW GAS DISCOVERIES. END SUMMARY.

MORE NATURAL GAS NEEDED
--------------


2. (C) REFERRING TO ALGERIA'S NATURAL GAS CAPACITY, MINISTER
OF ENERGY AND MINES CHEKIB KHELIL TOLD OPIC PRESIDENT AND CEO
ROBERT MOSBACHER, JR., IN A FEBRUARY 23 MEETING THAT "NOT
MUCH IS LEFT TO SELL," CONFIRMING INDUSTRY SPECULATION (REF
A). KHELIL NOTED THAT ALGERIA HAS AN ADEQUATE SUPPLY OF
NATURAL GAS TO MEET ITS CURRENT CONTRACTS AND INTERNAL
CONSUMPTION DEMAND, BUT ADDED THAT ALGERIA NEEDS MORE.
KHELIL SAID THAT THERE WERE 20 NEW ONSHORE DISCOVERIES LAST
YEAR AND THAT REPSOL, TOTAL AND GAZ DE FRANCE ARE DEVELOPING
A NEW GAS REGION IN REGGANE, SOUTH OF ADRAR. KHELIL NOTED
THAT SONATRACH IS OFFERING 15 NEW BLOCKS FOR OIL AND GAS
EXPLORATION (REF B),WITH COMPANIES NOW SUBMITTING
EXPRESSIONS OF INTEREST TO PREQUALIFY. ACCORDING TO KHELIL,
THE EXPRESSIONS OF INTEREST WILL BE EVALUATED ON THE BASIS OF
EXPERTISE AS WELL AS FOR OFFERS FOR SONATRACH PARTICIPATION.
KHELIL HAS PREVIOUSLY STATED THAT SONATRACH IS INTERESTED IN

EXPANDING ITS INTERNATIONAL OPERATIONS. THUS FAR, KHELIL
STATED, 20 COMPANIES -- INCLUDING EXXON, SHELL, BP AND
CONOCO-PHILLIPS -- HAVE PRE-QUALIFIED, WITH ANOTHER MONTH
LEFT IN THE PROCESS.

SHELL COUNTRY DIRECTOR CAUTIOUS ON ALGERIA
--------------


3. (C) MICHAEL BLAHA, SHELL'S ALGERIA COUNTRY DIRECTOR, TOLD
AMBASSADOR ON FEBRUARY 13 THAT THE OUTLOOK FOR ALGERIA'S
ABILITY TO MEET CONSUMER DEMAND THREE TO FIVE YEARS FROM NOW
WAS GRIM WITHOUT NEW DISCOVERIES AND PRODUCING FIELDS. CHIEF
AMONG THE REASONS BLAHA LISTED WAS A DRAIN OF HUMAN RESOURCE
AND TECHNICAL EXPERTS FROM HASSI MESSAOUD AND HASSI R'MEL --
BLAHA SAID THAT OVER THE PAST YEAR SONATRACH HAD LOST 500
DRILLING STAFF TO HIGHER-PAYING JOBS ELSEWHERE. BLAHA
STRESSED THAT THERE WAS "NOT ENOUGH DEVELOPMENT WORK" GOING
ON, AND BECAUSE OF POOR MANAGEMENT THE ENTIRE SYSTEM WAS NOT
LIMBER ENOUGH TO ADJUST AND RESPOND TO MARKET IMPERATIVES.
ACCORDING TO BLAHA, KHELIL AND THE SENIOR MANAGEMENT OF
SONATRACH ARE AWARE OF THE PROBLEM, BUT UNABLE TO DO ANYTHING
ABOUT IT. THE RESULT, BLAHA SAID, IS A DESPERATE STRATEGY TO
PUMP AS MUCH OUT OF THE GROUND AS POSSIBLE IMMEDIATELY, TO
CAPITALIZE ON HIGH OIL AND GAS PRICES, WITH LITTLE OR NO
PRACTICAL CONSIDERATION FOR THE FUTURE. WHAT FIELDS DO
REMAIN IN ALGERIA, BLAHA SPECULATED, ARE NEVER LARGE AND
NEVER EASY OR COST-EFFECTIVE TO DEVELOP.

NEW GAS INFRASTRUCTURE IN THE PIPELINE
--------------


4. (U) IN ADDITION TO THE NEW BLOCKS FOR EXPLORATION, KHELIL
OUTLINED FOR MOSBACHER SONATRACH'S PIPELINE PROJECTS. KHELIL
SAID THAT SONATRACH IS CURRENTLY WORKING WITH SHELL AND
E
CHEVRON ON A PROJECT TO BUILD A NEW PIPELINE FROM NIGERIA.
THE TRANS-SAHARAN GAS PIPELINE WILL CONNECT NIGERIA TO EUROPE
WITH AN ESTIMATED SPAN OF OVER 4,100 KILOMETERS. (ACCORDING
TO ALGERIAN PRESS REPORTS, KHELIL VISITED NIGERIA FEBRUARY
25-26 TO DISCUSS THE PROJECT.) IN ADDITION, KHELIL NOTED
THAT THE EXPANSION OF THE EXISTING TRANSMED PIPELINE THROUGH
TUNISIA TO ITALY AND THE PIPELINE TO SPAIN WILL BE COMPLETED
BY THE END OF THE YEAR. THE PROJECT WILL EXPAND EXPORT
CAPACITY BY SEVEN BILLION CUBIC METERS EACH YEAR, ACCORDING
TO KHELIL. BLAHA SAID THERE IS "NO WAY" TO MIRACULOUSLY
FINISH THESE INFRASTRUCTURE PROJECTS ON THE TIMELINE KHELIL
ADVERTISES IN PUBLIC. BLAHA ACKNOWLEDGED THAT HIGH MARKET
PRICES HAVE MADE THE TRANS-SAHARA PIPELINE FROM NIGERIA
COST-EFFECTIVE. THE TRANS-SAHARA PROJECT SHOULD BRING SOME
RELIEF TO EUROPEAN CONSUMERS, EVEN THOUGH IT WOULD RENDER
ALGERIA ESSENTIALLY A TRANSIT ROUTE RATHER THAN A PRODUCING
COUNTRY.

A GAS OPEC?
--------------


5. (U) ON FEBRUARY 24, ALGERIAN NEWSPAPERS CARRIED STATEMENTS
FROM KHELIL REGARDING THE CREATION OF AN OPEC FOR GAS.
KHELIL, WHO CURRENTLY HOLDS THE OPEC PRESIDENCY, STATED THAT
THE CREATION OF SUCH A GROUP WOULD BENEFIT ALGERIA. HE
CONFIRMED THAT A WORKING GROUP COMPOSED OF ALGERIA, RUSSIA,
IRAN AND QATAR IS CURRENTLY STUDYING THE IDEA AND WILL SUBMIT
PROPOSALS AT THE JUNE OPEC MEETING IN MOSCOW. ACCORDING TO
KHELIL, THE CREATION OF A SIMILAR ORGANIZATION FOR GAS WOULD
FIRST NECESSITATE THE CREATION OF AN INDEPENDENT MARKET FOR
GAS, WHERE GAS PRICES ARE NOT INDEXED TO OIL PRICES.

COMMENT: CAN SONATRACH KEEP UP WITH KHELIL?
--------------


6. (C) AS HYDROCARBONS EXECUTIVES HERE ARE QUICK TO NOTE,
CHEKIB KHELIL IS AN INFORMED EXPERT IN HIS FIELD, OFTEN TO
THE POINT OF ARROGANCE. IT IS CLEAR FROM OUR FEBRUARY 23
MEETING WITH HIM THAT THE ENERGY MINISTER IS AWARE OF THE
SUPPLY PROBLEM IN ALGERIA'S GAS SECTOR, AND HE PAINTS AN
AGGRESSIVE AND IDEALISTIC PICTURE OF THE WAY THINGS SHOULD
BE. AS WE HAVE REPORTED IN REF A, HOWEVER, THE CHALLENGE FOR
ALGERIA TO MAINTAIN GAS SUPPLIES TO EUROPE IS A BIG ONE,
ESPECIALLY IF BLAHA'S GUESS PROVES TRUE THAT FUTURE GAS FINDS
WILL BE SMALLER THAN THE LARGE HASSI R'MEL FIELD NOW
PROVIDING THE BULK OF ALGERIAN PRODUCTION. FOREIGN OIL AND
GAS EXECUTIVES TELL US SONATRACH IS BURDENED BY A HEMORRHAGE
OF QUALIFIED PERSONNEL COMPOUNDED BY CHRONIC MISMANAGEMENT OF
EXISTING OIL AND GAS FIELDS THAT CRIPPLES ALGERIA'S ABILITY
TO MATCH THE PACE KHELIL OUTLINES IN PUBLIC AND PRIVATE.
SONATRACH IS EAGER TO BE A MAJOR PLAYER IN THE EUROPEAN
MARKET, A BRAND NAME TO RIVAL REPSOL, TOTAL AND AGIP, BUT ITS
AMBITION HAS EXCEEDED THE PACE OF EXPLORATION AND
INFRASTRUCTURAL DEVELOPMENT WITHIN THE DOMESTIC GAS SECTOR.
FOREIGN OIL AND GAS EXECUTIVES TELL US THEY WILL SEEK TO
EXPLORE THE NEW BLOCKS BECAUSE THE MARKET IS DESPERATE FOR
NEW GAS DISCOVERIES. THE OUTCOME OF EXPLORATION AND
DEVELOPMENT OF THE 15 NEW BLOCKS APPEARS TO BE KEY IN
DETERMINING WHETHER ALGERIA WILL REMAIN ONE OF THE WORLD'S
TOP NATURAL GAS EXPORTERS INTO THE 2020S.
FORD