Algeria has announced plans to drill four shale gas wells by the end of 2014 as it begins assessing the commercial viability of a resource base estimated to be the third-largest in the world.
There are considerable doubts as to whether Algeria can successfully develop a shale gas sector, but it could be critical to maintaining the country's standing as an international gas exporter. Four shale gas wells will be drilled in the Illizi basin in the southeast and the Ahnet basin in the southwest in the next six months, according to a government statement in early July.
The announcement follows a Cabinet decision in May to drill 11 shale gas wells in the next 7 to 13 years.
Foreign Minister Ramtane Lamamra has touted the move as a "strategic decision destined to commercialise Algeria's considerable unconventional resources".
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According to a study by the US government's Energy Information Administration, Algeria has 20 trillion cubic metres of recoverable shale gas reserves; only China and Argentina have a larger known resource base.
But only a small proportion of this is likely to be commercially viable. Industry experts estimate that the amount of marketable gas is likely to be in the range of two to four trillion cubic metres, although this would depend on a range of factors, including the extraction cost and the gas market price at the time of sale.
|Algeria has the third largest shale gas reserve in the world, with 20 trillion cubic metres of recoverable gas [Reuters]
The government has already attracted interest from a range of companies, including ExxonMobil in the US, Italy's Eni and France's Total and GDF Suez. A pilot well was drilled in the Ahnet basin in 2012, and the energy ministry has included 17 shale gas prospects in its latest upstream licensing round, for which bids are due in October.
But the challenges presented by the exploitation of shale gas resources are great. According to industry experts, dozens of wells are needed to establish the extent of shale gas resources, and hundreds more to exploit the gas. In order to successfully develop its shale resources, Algeria would need to develop its logistics to provide the necessary industry supply chain.
There are also environmental risks associated with the shale gas extraction process, which uses more than 500 chemicals. Critics have raised concerns that the use of water from underground aquifers in Algeria would divert resources away from agriculture and risk contamination, although Water Resources Minister Hocine Necib has said Algeria's proposed technique would reduce the number of chemicals to "just a dozen, compared to the 700 used in the past".
Shale gas exploitation is also costly in comparison to more conventional resources.
"The resources are quite remote," said a North Africa energy analyst who spoke on condition of anonymity because he was not authorised to talk to the media. "It might prove to be too expensive for them. But it seems like they've made up their mind and they're being quite gung ho about it at the moment."
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Perhaps the key challenge for Algeria will be to overcome its own systemic weaknesses. There is considerable scepticism about the country's ability to deliver on its shale gas plans, given a poor track record on other infrastructure projects.
"The whole idea of shale gas in Algeria has raised a lot of doubts in the country's ability to meet its ambitious objectives," Nordine Ait-Laoussine, a former Algerian energy minister and president of the Geneva-based energy consultancy Nalcosa, told Al Jazeera. "They've had big ambitions in the past and they've come to nothing."
Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies in the UK, agreed. "What they say they'll deliver and what they actually deliver are two different things," he told Al Jazeera.
If you can't do conventional gas, you've got no chance with shale.
All of the country's major conventional gas development projects are running significantly behind schedule. The Touat, Timimoun, Reggane North and Adrar fields in the southwest, which will produce an estimated 10 billion cubic metres (bcm) a year between them, were all due to be on stream by now, or at least nearing completion - but none is expected to start production until 2017-2018.
Plans to develop the Ahnet tight gas field with France's Total have also been delayed by several years due to ongoing negotiations on the terms of business for the development.
"Why not concentrate on those, which it already has, and which would be much more rewarding?" Stern said. "If you can't do conventional gas, you've got no chance with shale."
The Algerian government did not respond to Al Jazeera's request for comment on the matter.
The government will also have to attract international expertise to develop its shale gas resources. This is something it has failed to do for its conventional reserves in recent years: just 25 percent of concessions on offer in the past three licensing rounds received bids.
In January, parliament approved amendments to the country's hydrocarbons law designed to spur investment in unconventional gas, but whether the terms will be sufficiently attractive remains to be seen.
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Algeria will also have to hope that if and when it can bring its shale gas into production, there will be a market for the gas. In recent years, there has been a significant drop in the demand for gas in Europe, Algeria's largest client, leading it to divert some of its gas deliveries to Asia.
By the time Algeria brings shale gas into production, European gas demand may have recovered, but there may also be downside pressure on the market from new suppliers. Not only does the US have plans to export gas, but Australia is also developing LNG export infrastructure, and there are plans to do the same in Mozambique. Expensive shale gas from Algeria may not be able to compete.
Algeria's gas output has fallen considerably in recent years, from 88.2bcm in 2005 to 78.6bcm in 2013, according to the statistical review of world energy published in June by BP. Much of the new gas export infrastructure developed in recent years is underutilised, and domestic demand is growing rapidly. Local consumption has increased by almost 50 percent in the past decade, from 20.4bcm in 2003 to 31bcm in 2013.
"They realise they need to catch up with their gas projects," the North Africa energy specialist told Al Jazeera. "They have built a lot of downstream facilities and now they can't fill them, which is embarrassing."
Although some 20bcm of new gas is due to come on stream in the next five years, this will do little more than cover the expected increases in domestic consumption and increased demand for gas re-injection into the country's ageing oilfields. In the longer term, Algeria needs another strategy.
"If you look at it from a simple arithmetic point of view, taking into account reserves, production and consumption, the only thing the government can do is either develop shale gas or start getting ready to stop exporting gas, because this will take time to manage," Ait-Laoussine said.
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Source: Al Jazeera