SUMMARY: ALGERIAN ECONOMIC DEVELOPMENT IS DEPENDENT
ON THREE FACTORS--REVENUE FROM HYDROCARBONS, EDUCATION
AND TRAINING OF WORKERS, AND SMOOTH AND IMPROVED OPERATION
OF THE ECONOMY BY THE GOVERNMENT. THIS CABLE FOLLOWS
REF A ON THE OVERALL SITUATION IN ALGERIA AND FOCUSES
ON ALGERIAN HYDROCARBON REVENUES. SPECIFICALLY, THE
OIL REVENUES FORESEEN BY THE FOUR-YEAR DEVELOPMENT PLAN
ARE TOO OPTIMISTIC UNLESS SUBSTANTIAL NEW PRODUCTION
IS FOUND, BUT STILL LARGE ENOUGH TO MEET ALGERIA'S
PRIORITY NEEDS. TOWARD THE END OF THE PERIOD ADDITIONAL
REVENUE FROM ALGERIAN LNG IS FORECAST, BUT THE TECHNICAL
PROBLEMS IN OPERATING THESE HUGE FACILITIES AND RISING
CAPITAL COSTS CAST SOME DOUBT ON ALGERIAN BASE LOAD LNG
PROJECTS. WE SUGGEST A FINANCIAL AND TECHNICAL
REEXAMINATION. END SUMMARY.
1. ALGERIA'S ECONOMIC DEVELOPMENT IS DEPENDENT ON
HYDROCARBONS. IN 1973, ABOUT 21 PERCENT OF THE GROSS
LIMITED OFFICIAL USE
LIMITED OFFICIAL USE
PAGE 02 ALGIER 02737 01 OF 02 101145Z
DOMESTIC PRODUCT WAS FROM THE HYDROCARBON SECTOR.
HOWEVER, THE JUMP IN THE PRICE OF OIL RAISES THE VALUE
OF THE HYDROCARBON SECTOR TO ABOUT 50 PERCENT OF GDP
AND INCREASES TOTAL GDP ABOUT 45 PERCENT. ALGERIA'S
FOUR YEAR PLAN (1974-1977) REF A FORECASTS SOME 4.8
BILLION DOLLARS OF INVESTMENT IN THE HYDROCARBON
SECTOR. THIS WILL RAISE THE VALUE OF HYDROCARBON
PRODUCTION FROM 5.4 TO 7.5 BILLION DOLLARS WHICH MEANS
HYDROCARBONS WILL STILL ACCOUNT FOR 45 PERCENT OF
GDP BY THE END OF 1977. EVEN MORE STRIKING IN THE DEPENDENCE
OF ALGERIA ON HYDROCARBONS FOR FOREIGN EXCHANGE. IN
1973 (1974 OIL PRICES) ALGERIA HYDROCARBON EXPORTS
SHOULD HAVE EARNED 5.3 BILLION DOLLARS AND ARE FORECAST
TO EARN IN 1977, 7.5 BILLION DOLLARS OR 93 PERCENT OF
TOTAL ALGERIAN EXPORTS IN BOTH THOSE YEARS.
2. THE ACCURACY OF THESE FORECASTS DEPENDS ON THE PRICE
OF OIL BEING DOLS. 14 A BARREL. AT THE PRESENT PRICE
OF DOLS. 12.50, THERE IS ALREADY A SHORTFALL OF ABOUT
700 MILLION DOLLARS A YEAR AT PRESENT PRODUCTION RATES.
3. THE OTHER VARIABLE IN THESE FORECASTS IS THE
QUANTITY OF OIL AND CONDENSATE EXPORTED. IN 1973,
ALGERIA EXPORTED 45.2 MILLION TONS OF CRUDE AND
CONDENSATE. IN 1977 ALGERIA PLANS TO EXPORT 58.8
MILLION TONS OF CRUDE OIL AND CONDENSATE. THIS IS
AN INCREASE OF OVER 30 PERCENT. CONDENSATE PRODUCTION
COMES FROM THE GAS AND IS DIRECTLY DEPENDENT ON THE
VOLUME OF GAS PRODUCED, WHICH IN TURN DEPENDS ON THE EXPORT
OF LNG WHICH IS DISCUSSED LATER.
4. ALGERIA WAS EXPLORED BY THE FRENCH AND THEY FOUND
MOST OF THE PRESENT OIL FIELDS. THESE FIELDS HAVE
HAD STABLE PRODUCTION LEVELS FOR THE LAST THREE YEARS.
SOME WELLS ARE DECLINING IN PRODUCTION, BUT NEW DRILLING
HAS HELD PRODUCTION AT THE SAME LEVEL. HASSI-MESSAOUD
WHICH PRODUCES OVER HALF OF ALGERIAN CRUDE PRODUCED,
ABOUT 27 MILLION TONS IN 1973, WILL BE DOWN TO LESS
THAN 25 IN 1974, AND 22.5 IN 1975 BEFORE REINJECTION WILL
RAISE THE FIELD PRESSURE AGAIN TO A LEVEL TO INCREASE
PRODUCTION IN 1976. EVEN WITH REINJECTION, PEAK
LIMITED OFFICIAL USE
LIMITED OFFICIAL USE
PAGE 03 ALGIER 02737 01 OF 02 101145Z
PRODUCTION WILL MAXIMIZE AT 32 MILLION TONS IN 1980.
THIS DECLINE WILL BE ABOUT MATCHED BY THE NEW STAH FIELD
COMING ON LINE IN JULY 1975 AND THE NEW FRENCH FIELD
OF MEREKSIN.
5. HOWEVER, SONATRACH PREDICTED A PRODUCTION LEVEL
OF ABOUT 60 MILLION TONS IN 1974, AND IN ITS FAMOUS
MESSAGE OF SEPTEMBER 1973 HAD TO CUTBACK ON ITS
DELIVERIES TO BUYERS IN BOTH 1973 AND 1974 DUE TO
PRODUCTION SHORTFALLS.
6. SONATRACH HAS HAD A MAJOR EXPLORATION AND DRILLING
PROGRAM GOING FOR THE LAST FIVE YEARS, AND HAS INVESTED
OVER 100 MILLION DOLLARS A YEAR, BUT THE RESULTS HAVE BEEN
MEAGER TO DATE. ITS FUTURE EXPLORATION PROGRAM
IS EVEN GREATER AND THE COMPANY HAS SIGNED A NUMBER
OF JOINT EXPLORATION VENTURES WITH FOREIGN
OIL COMPANIES WHICH SHOULD ADD ANOTHER 100 MILLION
DOLLARS OF EXPLORATION A YEAR FOR THE NEXT FOUR TO
FIVE YEARS. IN THE FIRST YEAR AN A HALF OF THESE JOINT
VENTURES, HISPANOIL HAS FOUND AN OIL POCKET WHICH THEY
ARE TESTING. CFP HAS FOUND OIL AT MEREKSIN WHICH SEEMS
TO BE EXPLOITABLE. SUN OIL HAS FOUND NOTHING COMMERCIAL
SO FAR.
7. U.S. SEISMIC EXPERTS SAY THERE ARE MANY POTENTIAL
FORMATIONS IN THE ALGERIAN DESERT. THE FACT THAT SUN
AND AMOCO ARE DRILLING AND MOBIL AND SHAHEEN HAVE INITIALED
TO DRILL SPEAKS WELL FOR ALGERIA'S PROSPECTS, BUT EXXON,
GULF AND SHELL ARE ALL HOLDING BACK BECAUSE OF REAL
DOUBTS THAT THERE ARE LARGE UNDISCOVERED OIL RESERVES.
THEY ARE MORE CONFIDENT ABOUT FINDING NEW GAS RESERVES,
BUT THEY WANT OIL.
8. IN SUM, OUR CONSERVATIVE ESTIMATE IS THAT ALGERIAN
CRUDE EXPORTS WILL HOLD STEADY IN 1975-1977 AT ABOUT
45 MILLION TONS A YEAR. SMALL NEW FINDS AND IMPROVED
FIELD RECOVERY WILL AUGMENT PRODUCTION BUT NO MORE THAN
THE DECLINE IN WELL PRODUCTION. AFTER 1977, A MAJOR NEW
FIND COULD CHANGE THIS FORECAST, BUT ALSO MAJOR NEW
REFINERIES WILL BE USING OVER 20 MILLION TONS OF ALGERIA'S
LIMITED OFFICIAL USE
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PAGE 04 ALGIER 02737 01 OF 02 101145Z
LIMITED CRUDE OIL SUPPLY AVAILABLE FOR EXPORT.
LIMITED OFFICIAL USE
NNN
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PAGE 01 ALGIER 02737 02 OF 02 101238Z
46
ACTION EB-07
INFO OCT-01 NEA-06 ISO-00 AEC-05 AID-05 CEA-01 CIAE-00
CIEP-01 COME-00 DODE-00 FEAE-00 FPC-01 H-01 INR-05
INT-05 L-02 NSAE-00 NSC-05 OMB-01 PM-03 RSC-01 SAM-01
OES-03 SP-02 SS-15 STR-01 TRSE-00 FRB-01 /073 W
--------------------- 011254
R 101100Z DEC 74
FM AMEMBASSY ALGIERS
TO SECSTATE WASHDC 1535
LIMITED OFFICIAL USE SECTION 2 OF 2 ALGIERS 2737
9. BY 1977 THIS PREDICTED SHORTFALL IN CRUDE OIL
PRODUCTION TRANSLATES INTO A FOREIGN EXCHANGE LOSS OF
ABOUT 1.3 BILLION DOLLARS.. THIS WILL MEAN SOME BELT
TIGHTENING AND INCREASED BORROWING, BUT IS NOT ENOUGH
TO JEOPARDIZE THE OVERALL DEVELOPMENT PLANS. FURTHER,
THIS BEGINS TO HURT IN 1977 WHEN ALGERIAN GAS EXPORTS
SHOULD BEGIN TO EARN SIZEABLE FOREIGN EXCHANGE SUMS.
10. ALGERIA'S RESERVES OF GAS AS DISTINCT FROM HER
OIL RESERVES ARE AMONG THE LARGEST IN THE WORLD. PRESENT
BEST ESTIMATES PLACE GAS RESERVES AT ABOUT THREE TRILLION
CUBIC METERS. TO EXPLOIT THESE GAS RESERVES ALGERIA HAS
COMMITTED ITSELF TO A HUGE GAS RELIQUIFICATION PROGRAM.
ALGERIA HAS CONTRACTED TO SELL SOME 32.4 BILLION CUBIC
METERS A YEAR AND HAS PENDING ADDITIONAL SALES OF SOME 38
BILLION CUBIC METERS.
11. TO LIQUIFY THIS GAS ALGERIA HAS BUILT OR IS
BUILDING LIQUIFICATION PLANTS AT : (1) CAMEL -
PRODUCTION TWO BILLION CUBIC METERS A YEAR BEGINNING
IN 1964, (2) SKIKDA TRAINS 1 - 3, PRODUCTION 4 BILLION
CUBIC METERS A YEAR BEGINNING IN 1972, (3) SKIKDA TRAIN 4,
PRODUCTION TWO BILLION CUBIC METERS A YEAR IN 1974, (4)
LIMITED OFFICIAL USE
LIMITED OFFICIAL USE
PAGE 02 ALGIER 02737 02 OF 02 101238Z
ARZEW TRAINS 1 - 6, PRODUCTION 10 BILLIION CUBIC METERS
A YEAR IN 1976, (5) SKIKDA TRAINS 5 AND 6, PRODUCTION
5 BILLION CUBIC METERS A YEAR IN 1977, (6) ARZEW
6 - 21, 25 BILLION CUBIC METERS A YEAR IN 1979.
12. THE SIZE AND CAPITAL INVESTMENT FROM THE FILED
TO CONSUMER OF THESE PROJECTS IS STAGGERING AND
INFLATION HAS HIT THEM HARD, FOR EXAMPLE, GAS FIELD
PREPARATION UNIT COSTS ABOUT 160 MILLION FOR A 20
BILLION CUBIC METER PLANT, PIPELINE AND PUMPING
STATIONS ABOUT 150 MILLION, A 1 BILLION CUBIC METER
LIQUIFICATION PLANT ABOUT 350 MILLION IN EARLY 1973,
AND ESTIMATED AT NEAR 600 MILLION IN LATE 1974, A
NEW PORT FOR 250 MILLION, AND EACH TANKER ABOUT 80
MILLION ORDERED IN EARLY 1973, 100 MILLION IN 1974 AND
ABOUT 120 MILLION NOW. A ROUGH TOTAL CAPITAL INVESTMENT
PER 1 BILLION CUBIC METERS OF GAS A YEAR DELIVERED
TO THE UNITED STATES IS BETWEEN 1.8 AND 2 BILLION
DOLLARS.
13. CAMEL AND BRUNEI PROVE THE LNG SYSTEMS CAN WORK,
BUT THE HISTORY OF TROUBLES IN ALGERIA IN THE EARLY YEARS
OF CAMEL AND SKIKDA ARE SUCH THAT ONE HAS TO ALLOW
FOR SOME YEARS OF TROUBLES AFTER THE START-UP DATES CITED
BEFORE. FURTHER THE ALGERIAN PROJECTS ARE SO LARGE THAT
THEY WILL DEMAND HIGH CALIBRE MANAGEMENT ON THE PART OF
THE ALGERIANS. UNFORTURNATELY, THIS IS A NEW AREA FOR
THEM AND RAISES ANEW THE QUESTION OF WHETHER THE ALGERIANS
CAN MANAGE THEIR COMPLEX ECONOMY.
14. TWO OTHER RELATED UNKNOWNS FURTHER CLOUD THE ALGERIAN
LNG PICTURE. ONE ALREADY ALLUDED TO IS INFLATION AND
HIGH INTEREST RATES. THE COSTS OF THE EUROGAS I LNG
PROJECT HAVE GOTTEN SO LARGE THAT CONCESSIONARY INTEREST
RATES ARE NECESSARY. EVEN WITH THE PRESENT LOW
ALGERIAN GAS PRICE, THE COSTS OF THE PROJECT MAKE THIS
EXPENSIVE GAS. AT THE MOMENT EUROGAS I SALE IS COLLAPSING
DUE TO THE INABILITY OF THE EUROPEAN PURCHASERS TO
SUPPLY SO MUCH CAPITAL AT SUCH LOW INTEREST RATES.
THE EUROPEANS ASKED FOR GAS PRICE GUARANTEES TO
SUPPORT THE CONCESSIONARY LOANS, BUT THE ALGERIANS
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LIMITED OFFICIAL USE
PAGE 03 ALGIER 02737 02 OF 02 101238Z
HAVE TURNED DOWN THIS PROPOSAL. THE ALGERIANS
ARE SELLING GAS UNDER THE EARLY CONTRACTS AT PRICES
FROM 30 - 45 CENTS A MILLION BTU. HOWEVER, OTHER
COUNTRIES ARE SELLING GAS AT ABOUT DOLS. 1.00 A MILLION BTU
AND THE EQUIVALENT BTU PRICE OF OIL IS ABOUT DOLS.
1.62 A MILLION BTU. THIS BRINGS ATTENTION TO THE OTHER
UNKNOWN. THE ALGERIANS WOULD LIKE TO RAISE THEIR PRICE
FOR GAS AND ARE TALKING TO THE OTHER LARGE GAS
EXPORTING COUNTRIES -- IRAN AND LIBYA.
15. A FINAL TECHNICAL PROBLEM IS THE PRESENCE OF
MERCURY IN THE HASSI-R'MEL GAS OF ALGERIA. THE
MERCURY AT SKIKDA CLOSED DOWN TRAIN I FOR ONE YEAR
DUE TO CORROSION. PRITCHARD, THE BUILDER OF TRAIN 4
AT SKIDA DOES NOT BELIEVE ITS PLANT SHOULD BE RUN
WITH MERCURY IN THE GAS. CHEMICO DOES NOT SEEM
NEARLY SO WORRIED.
16. THE CAPITAL SUMS INVOLVED ARE SO LARGE AND
THE CAPITAL COSTS AND REVENUE SO IMPORTANT TO THE
ALGERIAN FOREIGN EXCHANGE PICTURE THAT THE EMBASSY
BELIEVES A NEW TECHNICAL AND FINANCIAL STUDY
SHOULD BE MADE OF ALGERIAN LNG EXPORT PROJECTS.
17. FOR ALGERIA'S DEVELOPMENT PLAN UP THROUGH 1977,
GAS IS NOT TOO IMPORTANT AND THE PROJECTS ARE WELL
UNDERWAY. THE PLAN ONLY FORECASTS 14 BILLION CUBIC
METERS OF GAS EXPORTED IN 1977 OR ABOUT 500 MILLION
DOLLARS AT PRESENT PRICES. CONSERVATIVELY, CAMEL
AND SKIKDA 1 - 4 SHOULD BE OPERATING AND HAVE ALL
THE NECESSARY FACILITIES COMPLETED SO THAT 7 - 8 BILLION
CUBIC METERS OF LNG EXPORTS FROM ALGERIA CAN BE EXPECTED
IN 1977. THE REQUESTED REVIEW WOULD BE IN ORDER TO
PREPARE A CONCISE U.S.G. POSITION ON THE PENDING GAS
CONTRACTS BETWEEN U.S. COMPANIES AND ALGERIA. IT WOULD
ALSO CLARIFY THE LONGER TERM FOREIGN EXCHANGE POSITION
OF ALGERIA WHICH WITH THE SHORTFALLS CITED ABOVE AND
POSSIBLE LARGE BORROWINGS FOR HUGE PROJECTS MAKES THE
5 - 10 YEAR FORECAST MORE QUESTIONABLE.BARR
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NNN
| ALGERIAN ECONOMIC DEVELOPMENT | |
1974 December 10, 11:00 (Tuesday) |
1974ALGIER02737_b |
LIMITED OFFICIAL USE |
UNCLASSIFIED |
|
-- N/A or Blank -- |
11134 |
-- N/A or Blank -- |
TEXT ON MICROFILM,TEXT ONLINE |
-- N/A or Blank -- |
TE - Telegram (cable) |
|
-- N/A or Blank -- ACTION EB - Bureau of Economic and Business Affairs |
Electronic Telegrams |
Declassified/Released US Department of State EO Systematic Review 30 JUN 2005 |
|
Content
Raw content
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PAGE 01 ALGIER 02737 01 OF 02 101145Z
12
ACTION EB-07
INFO OCT-01 NEA-06 ISO-00 AEC-05 AID-05 CEA-01 CIAE-00
CIEP-01 COME-00 DODE-00 FEAE-00 FPC-01 H-01 INR-05
INT-05 L-02 NSAE-00 NSC-05 OMB-01 PM-03 RSC-01 SAM-01
OES-03 SP-02 SS-15 STR-01 TRSE-00 FRB-01 /073 W
--------------------- 010657
R 101100Z DEC 74
FM AMEMBASSY ALGIERS
TO SECSTATE WASHDC 1534
LIMITED OFFICIAL USE SECTION 1 OF 2 ALGIERS 2737
E.O. 11652: N/A
TAGS: ECON, AG
SUBJ: ALGERIAN ECONOMIC DEVELOPMENT
REF: (A) ALGIERS A-051 (B) ALGIERS 2454
SUMMARY: ALGERIAN ECONOMIC DEVELOPMENT IS DEPENDENT
ON THREE FACTORS--REVENUE FROM HYDROCARBONS, EDUCATION
AND TRAINING OF WORKERS, AND SMOOTH AND IMPROVED OPERATION
OF THE ECONOMY BY THE GOVERNMENT. THIS CABLE FOLLOWS
REF A ON THE OVERALL SITUATION IN ALGERIA AND FOCUSES
ON ALGERIAN HYDROCARBON REVENUES. SPECIFICALLY, THE
OIL REVENUES FORESEEN BY THE FOUR-YEAR DEVELOPMENT PLAN
ARE TOO OPTIMISTIC UNLESS SUBSTANTIAL NEW PRODUCTION
IS FOUND, BUT STILL LARGE ENOUGH TO MEET ALGERIA'S
PRIORITY NEEDS. TOWARD THE END OF THE PERIOD ADDITIONAL
REVENUE FROM ALGERIAN LNG IS FORECAST, BUT THE TECHNICAL
PROBLEMS IN OPERATING THESE HUGE FACILITIES AND RISING
CAPITAL COSTS CAST SOME DOUBT ON ALGERIAN BASE LOAD LNG
PROJECTS. WE SUGGEST A FINANCIAL AND TECHNICAL
REEXAMINATION. END SUMMARY.
1. ALGERIA'S ECONOMIC DEVELOPMENT IS DEPENDENT ON
HYDROCARBONS. IN 1973, ABOUT 21 PERCENT OF THE GROSS
LIMITED OFFICIAL USE
LIMITED OFFICIAL USE
PAGE 02 ALGIER 02737 01 OF 02 101145Z
DOMESTIC PRODUCT WAS FROM THE HYDROCARBON SECTOR.
HOWEVER, THE JUMP IN THE PRICE OF OIL RAISES THE VALUE
OF THE HYDROCARBON SECTOR TO ABOUT 50 PERCENT OF GDP
AND INCREASES TOTAL GDP ABOUT 45 PERCENT. ALGERIA'S
FOUR YEAR PLAN (1974-1977) REF A FORECASTS SOME 4.8
BILLION DOLLARS OF INVESTMENT IN THE HYDROCARBON
SECTOR. THIS WILL RAISE THE VALUE OF HYDROCARBON
PRODUCTION FROM 5.4 TO 7.5 BILLION DOLLARS WHICH MEANS
HYDROCARBONS WILL STILL ACCOUNT FOR 45 PERCENT OF
GDP BY THE END OF 1977. EVEN MORE STRIKING IN THE DEPENDENCE
OF ALGERIA ON HYDROCARBONS FOR FOREIGN EXCHANGE. IN
1973 (1974 OIL PRICES) ALGERIA HYDROCARBON EXPORTS
SHOULD HAVE EARNED 5.3 BILLION DOLLARS AND ARE FORECAST
TO EARN IN 1977, 7.5 BILLION DOLLARS OR 93 PERCENT OF
TOTAL ALGERIAN EXPORTS IN BOTH THOSE YEARS.
2. THE ACCURACY OF THESE FORECASTS DEPENDS ON THE PRICE
OF OIL BEING DOLS. 14 A BARREL. AT THE PRESENT PRICE
OF DOLS. 12.50, THERE IS ALREADY A SHORTFALL OF ABOUT
700 MILLION DOLLARS A YEAR AT PRESENT PRODUCTION RATES.
3. THE OTHER VARIABLE IN THESE FORECASTS IS THE
QUANTITY OF OIL AND CONDENSATE EXPORTED. IN 1973,
ALGERIA EXPORTED 45.2 MILLION TONS OF CRUDE AND
CONDENSATE. IN 1977 ALGERIA PLANS TO EXPORT 58.8
MILLION TONS OF CRUDE OIL AND CONDENSATE. THIS IS
AN INCREASE OF OVER 30 PERCENT. CONDENSATE PRODUCTION
COMES FROM THE GAS AND IS DIRECTLY DEPENDENT ON THE
VOLUME OF GAS PRODUCED, WHICH IN TURN DEPENDS ON THE EXPORT
OF LNG WHICH IS DISCUSSED LATER.
4. ALGERIA WAS EXPLORED BY THE FRENCH AND THEY FOUND
MOST OF THE PRESENT OIL FIELDS. THESE FIELDS HAVE
HAD STABLE PRODUCTION LEVELS FOR THE LAST THREE YEARS.
SOME WELLS ARE DECLINING IN PRODUCTION, BUT NEW DRILLING
HAS HELD PRODUCTION AT THE SAME LEVEL. HASSI-MESSAOUD
WHICH PRODUCES OVER HALF OF ALGERIAN CRUDE PRODUCED,
ABOUT 27 MILLION TONS IN 1973, WILL BE DOWN TO LESS
THAN 25 IN 1974, AND 22.5 IN 1975 BEFORE REINJECTION WILL
RAISE THE FIELD PRESSURE AGAIN TO A LEVEL TO INCREASE
PRODUCTION IN 1976. EVEN WITH REINJECTION, PEAK
LIMITED OFFICIAL USE
LIMITED OFFICIAL USE
PAGE 03 ALGIER 02737 01 OF 02 101145Z
PRODUCTION WILL MAXIMIZE AT 32 MILLION TONS IN 1980.
THIS DECLINE WILL BE ABOUT MATCHED BY THE NEW STAH FIELD
COMING ON LINE IN JULY 1975 AND THE NEW FRENCH FIELD
OF MEREKSIN.
5. HOWEVER, SONATRACH PREDICTED A PRODUCTION LEVEL
OF ABOUT 60 MILLION TONS IN 1974, AND IN ITS FAMOUS
MESSAGE OF SEPTEMBER 1973 HAD TO CUTBACK ON ITS
DELIVERIES TO BUYERS IN BOTH 1973 AND 1974 DUE TO
PRODUCTION SHORTFALLS.
6. SONATRACH HAS HAD A MAJOR EXPLORATION AND DRILLING
PROGRAM GOING FOR THE LAST FIVE YEARS, AND HAS INVESTED
OVER 100 MILLION DOLLARS A YEAR, BUT THE RESULTS HAVE BEEN
MEAGER TO DATE. ITS FUTURE EXPLORATION PROGRAM
IS EVEN GREATER AND THE COMPANY HAS SIGNED A NUMBER
OF JOINT EXPLORATION VENTURES WITH FOREIGN
OIL COMPANIES WHICH SHOULD ADD ANOTHER 100 MILLION
DOLLARS OF EXPLORATION A YEAR FOR THE NEXT FOUR TO
FIVE YEARS. IN THE FIRST YEAR AN A HALF OF THESE JOINT
VENTURES, HISPANOIL HAS FOUND AN OIL POCKET WHICH THEY
ARE TESTING. CFP HAS FOUND OIL AT MEREKSIN WHICH SEEMS
TO BE EXPLOITABLE. SUN OIL HAS FOUND NOTHING COMMERCIAL
SO FAR.
7. U.S. SEISMIC EXPERTS SAY THERE ARE MANY POTENTIAL
FORMATIONS IN THE ALGERIAN DESERT. THE FACT THAT SUN
AND AMOCO ARE DRILLING AND MOBIL AND SHAHEEN HAVE INITIALED
TO DRILL SPEAKS WELL FOR ALGERIA'S PROSPECTS, BUT EXXON,
GULF AND SHELL ARE ALL HOLDING BACK BECAUSE OF REAL
DOUBTS THAT THERE ARE LARGE UNDISCOVERED OIL RESERVES.
THEY ARE MORE CONFIDENT ABOUT FINDING NEW GAS RESERVES,
BUT THEY WANT OIL.
8. IN SUM, OUR CONSERVATIVE ESTIMATE IS THAT ALGERIAN
CRUDE EXPORTS WILL HOLD STEADY IN 1975-1977 AT ABOUT
45 MILLION TONS A YEAR. SMALL NEW FINDS AND IMPROVED
FIELD RECOVERY WILL AUGMENT PRODUCTION BUT NO MORE THAN
THE DECLINE IN WELL PRODUCTION. AFTER 1977, A MAJOR NEW
FIND COULD CHANGE THIS FORECAST, BUT ALSO MAJOR NEW
REFINERIES WILL BE USING OVER 20 MILLION TONS OF ALGERIA'S
LIMITED OFFICIAL USE
LIMITED OFFICIAL USE
PAGE 04 ALGIER 02737 01 OF 02 101145Z
LIMITED CRUDE OIL SUPPLY AVAILABLE FOR EXPORT.
LIMITED OFFICIAL USE
NNN
LIMITED OFFICIAL USE
PAGE 01 ALGIER 02737 02 OF 02 101238Z
46
ACTION EB-07
INFO OCT-01 NEA-06 ISO-00 AEC-05 AID-05 CEA-01 CIAE-00
CIEP-01 COME-00 DODE-00 FEAE-00 FPC-01 H-01 INR-05
INT-05 L-02 NSAE-00 NSC-05 OMB-01 PM-03 RSC-01 SAM-01
OES-03 SP-02 SS-15 STR-01 TRSE-00 FRB-01 /073 W
--------------------- 011254
R 101100Z DEC 74
FM AMEMBASSY ALGIERS
TO SECSTATE WASHDC 1535
LIMITED OFFICIAL USE SECTION 2 OF 2 ALGIERS 2737
9. BY 1977 THIS PREDICTED SHORTFALL IN CRUDE OIL
PRODUCTION TRANSLATES INTO A FOREIGN EXCHANGE LOSS OF
ABOUT 1.3 BILLION DOLLARS.. THIS WILL MEAN SOME BELT
TIGHTENING AND INCREASED BORROWING, BUT IS NOT ENOUGH
TO JEOPARDIZE THE OVERALL DEVELOPMENT PLANS. FURTHER,
THIS BEGINS TO HURT IN 1977 WHEN ALGERIAN GAS EXPORTS
SHOULD BEGIN TO EARN SIZEABLE FOREIGN EXCHANGE SUMS.
10. ALGERIA'S RESERVES OF GAS AS DISTINCT FROM HER
OIL RESERVES ARE AMONG THE LARGEST IN THE WORLD. PRESENT
BEST ESTIMATES PLACE GAS RESERVES AT ABOUT THREE TRILLION
CUBIC METERS. TO EXPLOIT THESE GAS RESERVES ALGERIA HAS
COMMITTED ITSELF TO A HUGE GAS RELIQUIFICATION PROGRAM.
ALGERIA HAS CONTRACTED TO SELL SOME 32.4 BILLION CUBIC
METERS A YEAR AND HAS PENDING ADDITIONAL SALES OF SOME 38
BILLION CUBIC METERS.
11. TO LIQUIFY THIS GAS ALGERIA HAS BUILT OR IS
BUILDING LIQUIFICATION PLANTS AT : (1) CAMEL -
PRODUCTION TWO BILLION CUBIC METERS A YEAR BEGINNING
IN 1964, (2) SKIKDA TRAINS 1 - 3, PRODUCTION 4 BILLION
CUBIC METERS A YEAR BEGINNING IN 1972, (3) SKIKDA TRAIN 4,
PRODUCTION TWO BILLION CUBIC METERS A YEAR IN 1974, (4)
LIMITED OFFICIAL USE
LIMITED OFFICIAL USE
PAGE 02 ALGIER 02737 02 OF 02 101238Z
ARZEW TRAINS 1 - 6, PRODUCTION 10 BILLIION CUBIC METERS
A YEAR IN 1976, (5) SKIKDA TRAINS 5 AND 6, PRODUCTION
5 BILLION CUBIC METERS A YEAR IN 1977, (6) ARZEW
6 - 21, 25 BILLION CUBIC METERS A YEAR IN 1979.
12. THE SIZE AND CAPITAL INVESTMENT FROM THE FILED
TO CONSUMER OF THESE PROJECTS IS STAGGERING AND
INFLATION HAS HIT THEM HARD, FOR EXAMPLE, GAS FIELD
PREPARATION UNIT COSTS ABOUT 160 MILLION FOR A 20
BILLION CUBIC METER PLANT, PIPELINE AND PUMPING
STATIONS ABOUT 150 MILLION, A 1 BILLION CUBIC METER
LIQUIFICATION PLANT ABOUT 350 MILLION IN EARLY 1973,
AND ESTIMATED AT NEAR 600 MILLION IN LATE 1974, A
NEW PORT FOR 250 MILLION, AND EACH TANKER ABOUT 80
MILLION ORDERED IN EARLY 1973, 100 MILLION IN 1974 AND
ABOUT 120 MILLION NOW. A ROUGH TOTAL CAPITAL INVESTMENT
PER 1 BILLION CUBIC METERS OF GAS A YEAR DELIVERED
TO THE UNITED STATES IS BETWEEN 1.8 AND 2 BILLION
DOLLARS.
13. CAMEL AND BRUNEI PROVE THE LNG SYSTEMS CAN WORK,
BUT THE HISTORY OF TROUBLES IN ALGERIA IN THE EARLY YEARS
OF CAMEL AND SKIKDA ARE SUCH THAT ONE HAS TO ALLOW
FOR SOME YEARS OF TROUBLES AFTER THE START-UP DATES CITED
BEFORE. FURTHER THE ALGERIAN PROJECTS ARE SO LARGE THAT
THEY WILL DEMAND HIGH CALIBRE MANAGEMENT ON THE PART OF
THE ALGERIANS. UNFORTURNATELY, THIS IS A NEW AREA FOR
THEM AND RAISES ANEW THE QUESTION OF WHETHER THE ALGERIANS
CAN MANAGE THEIR COMPLEX ECONOMY.
14. TWO OTHER RELATED UNKNOWNS FURTHER CLOUD THE ALGERIAN
LNG PICTURE. ONE ALREADY ALLUDED TO IS INFLATION AND
HIGH INTEREST RATES. THE COSTS OF THE EUROGAS I LNG
PROJECT HAVE GOTTEN SO LARGE THAT CONCESSIONARY INTEREST
RATES ARE NECESSARY. EVEN WITH THE PRESENT LOW
ALGERIAN GAS PRICE, THE COSTS OF THE PROJECT MAKE THIS
EXPENSIVE GAS. AT THE MOMENT EUROGAS I SALE IS COLLAPSING
DUE TO THE INABILITY OF THE EUROPEAN PURCHASERS TO
SUPPLY SO MUCH CAPITAL AT SUCH LOW INTEREST RATES.
THE EUROPEANS ASKED FOR GAS PRICE GUARANTEES TO
SUPPORT THE CONCESSIONARY LOANS, BUT THE ALGERIANS
LIMITED OFFICIAL USE
LIMITED OFFICIAL USE
PAGE 03 ALGIER 02737 02 OF 02 101238Z
HAVE TURNED DOWN THIS PROPOSAL. THE ALGERIANS
ARE SELLING GAS UNDER THE EARLY CONTRACTS AT PRICES
FROM 30 - 45 CENTS A MILLION BTU. HOWEVER, OTHER
COUNTRIES ARE SELLING GAS AT ABOUT DOLS. 1.00 A MILLION BTU
AND THE EQUIVALENT BTU PRICE OF OIL IS ABOUT DOLS.
1.62 A MILLION BTU. THIS BRINGS ATTENTION TO THE OTHER
UNKNOWN. THE ALGERIANS WOULD LIKE TO RAISE THEIR PRICE
FOR GAS AND ARE TALKING TO THE OTHER LARGE GAS
EXPORTING COUNTRIES -- IRAN AND LIBYA.
15. A FINAL TECHNICAL PROBLEM IS THE PRESENCE OF
MERCURY IN THE HASSI-R'MEL GAS OF ALGERIA. THE
MERCURY AT SKIKDA CLOSED DOWN TRAIN I FOR ONE YEAR
DUE TO CORROSION. PRITCHARD, THE BUILDER OF TRAIN 4
AT SKIDA DOES NOT BELIEVE ITS PLANT SHOULD BE RUN
WITH MERCURY IN THE GAS. CHEMICO DOES NOT SEEM
NEARLY SO WORRIED.
16. THE CAPITAL SUMS INVOLVED ARE SO LARGE AND
THE CAPITAL COSTS AND REVENUE SO IMPORTANT TO THE
ALGERIAN FOREIGN EXCHANGE PICTURE THAT THE EMBASSY
BELIEVES A NEW TECHNICAL AND FINANCIAL STUDY
SHOULD BE MADE OF ALGERIAN LNG EXPORT PROJECTS.
17. FOR ALGERIA'S DEVELOPMENT PLAN UP THROUGH 1977,
GAS IS NOT TOO IMPORTANT AND THE PROJECTS ARE WELL
UNDERWAY. THE PLAN ONLY FORECASTS 14 BILLION CUBIC
METERS OF GAS EXPORTED IN 1977 OR ABOUT 500 MILLION
DOLLARS AT PRESENT PRICES. CONSERVATIVELY, CAMEL
AND SKIKDA 1 - 4 SHOULD BE OPERATING AND HAVE ALL
THE NECESSARY FACILITIES COMPLETED SO THAT 7 - 8 BILLION
CUBIC METERS OF LNG EXPORTS FROM ALGERIA CAN BE EXPECTED
IN 1977. THE REQUESTED REVIEW WOULD BE IN ORDER TO
PREPARE A CONCISE U.S.G. POSITION ON THE PENDING GAS
CONTRACTS BETWEEN U.S. COMPANIES AND ALGERIA. IT WOULD
ALSO CLARIFY THE LONGER TERM FOREIGN EXCHANGE POSITION
OF ALGERIA WHICH WITH THE SHORTFALLS CITED ABOVE AND
POSSIBLE LARGE BORROWINGS FOR HUGE PROJECTS MAKES THE
5 - 10 YEAR FORECAST MORE QUESTIONABLE.BARR
LIMITED OFFICIAL USE
NNN
Metadata
---
Capture Date: 01 JAN 1994
Channel Indicators: n/a
Current Classification: UNCLASSIFIED
Concepts: INDUSTRIAL DEVELOPMENT, FOREIGN INVESTMENT, FOREIGN TRADE
Control Number: n/a
Copy: SINGLE
Draft Date: 10 DEC 1974
Decaption Date: 01 JAN 1960
Decaption Note: n/a
Disposition Action: RELEASED
Disposition Approved on Date: n/a
Disposition Authority: boyleja
Disposition Case Number: n/a
Disposition Comment: 25 YEAR REVIEW
Disposition Date: 28 MAY 2004
Disposition Event: n/a
Disposition History: n/a
Disposition Reason: n/a
Disposition Remarks: n/a
Document Number: 1974ALGIER02737
Document Source: CORE
Document Unique ID: '00'
Drafter: n/a
Enclosure: n/a
Executive Order: N/A
Errors: N/A
Film Number: D740358-0101
From: ALGIERS
Handling Restrictions: n/a
Image Path: n/a
ISecure: '1'
Legacy Key: link1974/newtext/t19741248/aaaabpec.tel
Line Count: '300'
Locator: TEXT ON-LINE, ON MICROFILM
Office: ACTION EB
Original Classification: LIMITED OFFICIAL USE
Original Handling Restrictions: n/a
Original Previous Classification: n/a
Original Previous Handling Restrictions: n/a
Page Count: '6'
Previous Channel Indicators: n/a
Previous Classification: LIMITED OFFICIAL USE
Previous Handling Restrictions: n/a
Reference: (A) ALGIERS A-051 (B) ALGIERS 2454
Review Action: RELEASED, APPROVED
Review Authority: boyleja
Review Comment: n/a
Review Content Flags: n/a
Review Date: 14 AUG 2002
Review Event: n/a
Review Exemptions: n/a
Review History: RELEASED <14-Aug-2002 by elyme>; APPROVED <18 MAR 2003 by boyleja>
Review Markings: ! 'n/a
US Department of State
EO Systematic Review
30 JUN 2005
'
Review Media Identifier: n/a
Review Referrals: n/a
Review Release Date: n/a
Review Release Event: n/a
Review Transfer Date: n/a
Review Withdrawn Fields: n/a
Secure: OPEN
Status: NATIVE
Subject: ALGERIAN ECONOMIC DEVELOPMENT
TAGS: ECON, AG
To: STATE
Type: TE
Markings: Declassified/Released US Department of State EO Systematic Review 30 JUN
2005
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| References to this document in other cables | References in this document to other cables |
|---|---|
| 1975ALGIER A-12 | 1976ALGIER00051 1973ALGIER02454 1974ALGIER02454 |
If the reference is ambiguous all possibilities are listed.
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