Europe’s Shale Boom Lies in Sahara as Algeria Woos Exxon

From Bloomberg

By Ladka Bauerova and Tara Patel

Europe’s answer to the U.S. shale boom may lie beneath the Sahara desert.

While environmental regulation and disappointing drilling tests have held back the development of shale gas reserves in Europe, Algeria is using tax breaks to encourage exploration. Pipelines under the Mediterranean to Spain and Italy already link Africa’s largest gas exporter into Europe’s grid.

The North African nation is holding talks with Exxon Mobil Corp. (XOM) over shale, Ali Hached, an adviser to Energy and Mines Minister Youcef Yousfi, said in an interview. Eni SpA (ENI), Royal Dutch Shell Plc (RDSA) and Talisman Energy Inc. (TLM) have already signed shale exploration accords with Algeria, which expects tax breaks for gas exploitation and drilling shale to get parliamentary approval within weeks.

Algeria holds 231 trillion cubic feet of recoverable shale gas, the International Energy Agency estimated, enough to supply the entire European Union for a decade and valued at about $2.6 trillion at current month-ahead U.K. prices. Higher North African production, if possible, offers Europe an alternative to Russian gas from OAO Gazprom, which links gas prices to oil and charges its customers about three times the U.S. price.

Algeria’s oil and gas potential “remains largely underexploited,” said Sohbet Karbuz, hydrocarbons director at Observatoire Mediterranee de l’Energie, or OME, a Paris-based association of Mediterranean region energy companies. “Improving investor confidence and the investment environment is the key.”

Export Earnings

Algerian President Abdelaziz Bouteflika wants to import technology for hydraulic fracturing, or fracking, to tap the potential of shale, allowing his country to maximize export earnings while satisfying growing energy demand at home. African nations with greater reserves are Libya, whose war has slowed development, and South Africa, where fracking has only conditional approval.

Europe’s attempts to develop its own shale reserves have faltered. France’s parliament banned fracking because of concerns the process pollutes drinking water. The U.K. halted exploration, while scientists investigated links between drilling and earth tremors. In Poland, where the government wants shale developed to gain energy independence from Russia, initial well results have disappointed.

In the empty wilderness of Algeria’s desert drilling has fewer risks. Rome-based Eni has already started exploratory fracking, in which sedimentary rock is blasted with a blend of water, sand and chemicals. Talisman and Shell plan to drill exploratory wells soon, Hached said.

Double Production

Shale gas could almost double Algeria’s marketed gas production during the next two decades to 160 billion cubic meters a year, and the country could export 110 billion cubic meters by 2030, Karbuz estimated. As well as pipelines, Algeria uses export terminals to liquefy gas for shipment by tanker.

Using fracking to tease gas out of shale rock has made the U.S. the world’s largest natural gas producer and cut prices more than 70 percent from their 2009 peak.

Algeria is back on big oil companies’ radar because it has offered “very attractive fiscal terms” to partners interested in shale exploration, according to Mark Liebster, general manager of Shell Upstream North Africa. He declined to specify the terms of the tax arrangement.

Eni and Exxon officials declined to comment on their plans for Algerian shale.

Those two companies have performed best in the last 12 months in stock markets among four that have shown interest in Algeria. Exxon and Eni have both risen 17 percent in the period, compared with a 3.1 percent increase by Shell in Amsterdam and a 10 percent decline by Talisman in Canada.

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