Algeria inks $5.4 billion energy pact with Saudi Midad to raise output

The global oil and gas industry has been through some challenging times in recent years. The international transition away from fossil fuels has led to several countries opting for a more pragmatic approach to the energy sector. Despite the calls for a more diversified energy market, Algeria has announced that its state-owned energy operator has signed a billion-dollar deal with Saudi Midad Energy to boost oil and gas production in the sub-Saharan nation. The deal marks a significant milestone for Algeria as the nation aims to improve its oil and gas infrastructure through strategic partnerships with experienced operators.

Algeria’s oil and gas sectors have been given a billion-dollar boost thanks to the new deal with Midad Energy

The world is awash with nations that are actively searching for outside investment to strengthen and improve aging infrastructure in their energy sectors. Some have opted for the untapped potential of the renewable energy sector, while others, like Algeria, are leaning on strategic partnerships with companies and nations that have extensive experience in the energy sector.

Reports have now emerged that confirm that Algeria’s state-owned energy company, Sonatrach, has signed a $5.4 billion deal with Saudi Midad Energy to boost its aging oil and gas infrastructure. The deal between the two state-owned energy operators features a production-sharing contract that spans three decades, with an option to extend for an additional 10 years and includes a seven-year exploration period.

The evidence would suggest that the Kingdom of Saudi Arabia is aiming to strengthen its footprint in the sub-Saharan region, in particular in the Illizi Basin in Algeria. The funding will be provided by Midad Energy, with $288 million set aside for exploration. The region in question is located 62 miles south of the Algerian town of In Amenas, near the Libyan border.

Algeria relies on the energy sector for a large percentage of its export revenue, as noted by several industry insiders.

“95% of Algeria’s export revenues come from the hydrocarbon sector… This sector accounts for over 50% of the country’s tax revenues and over 35% of GDP.” – Canadian Trade Commissioner Service

Algeria has plans to invest billions in its energy sector over the next few years

The Algerian government has stated its plans to invest at least $60 billion in its energy sector over the next five years. The deal between Midad Energy and Sonatrach marks one of the largest bilateral energy collaborations in North Africa in recent years, and provides Algeria with a vehicle to upgrade its oil and gas sector’s infrastructure.

Among the litany of pragmatic improvements to the Algerian oil and gas sector that the deal provides are:

• New seismic studies: In order to efficiently explore the potential of the region, new seismic studies will have to be conducted at Midad Energy’s expense.
• Drilling campaigns: Several drilling campaigns will need to be initiated to begin operations in the Illizi Basin.
• Infrastructure improvements: By improving Algeria’s aging oil and gas infrastructure, the country can set the stage for long-term commercial production.

Algeria is aiming to become a regional leader in the gas and oil production sectors, much like China, which recently stated that it would continue to approve new coal plants through 2027.

Algeria’s Illizi Basin is viewed as the last frontier in the nation’s vast and substantial energy sector

The region has long been viewed as uncharted territory for the Algerian energy sector. While Europe sees its coal sector collapsing, the downstream oil and gas sector in northern Africa is set to become the cornerstone of the energy sector in the region. For the Kingdom of Saudi Arabia, the deal marks yet another milestone in expanding its reach in the energy sector well beyond what was previously thought possible. For Algeria, the deal marks the next step in becoming a regional leader in the gas and oil export sector.