North Africa gas: Shale in the Sahara? EIU

Libya and Algeria have the highest gas reserves with 290trn cu ft and 231trn cu ft each, although Algeria’s energy minister, Youcef Yousfi, has put his country’s reserves as high as 1,000trn cu ft reports the Economist Intellegence Unit. Algeria has expressed keen interest in exploiting its shale gas reserves offering investment incentives to international oil and companies(IOCs) for exploration. The In Amenas attack is unlikely to halt this exploration process when it gets underawy,although there may be security complications.

The Algerian government has already signed agreements with Royal Dutch Shell, Italy’s Eni and Canada’s
Talisman and is negotiating with Exxon Mobil. Libya has held talks with Talismanand the Polish Oil and Gas Co  about exploring the Sirte Basin. In Tunisia Shell is discussing with the government an exploration contract for 18 trillion cu. ft of shale gas.

Morocco now has over 30 IOC's signed up for exploration and with 90 per cent of its fuel being imported it has every incentive to develop alternative energy sources. The EIU points out that the the new technologies for Shale
gas exploration and extraction will require the assistance of IOCs and thesecurtiy implications of the In Amenas attack may slow down  investmentand exploration efforts. The resistance of insurance companies over foreign workers engaged  in exploration activities  may proove to be a significant factor. Security in the region over vast areas which are diffcult to control may dampen IOC's appetite for risk and cause them to reassess their regional strategy,  the EIU observes.

There are also environmental concerns over Shale gas extraction including heavy water usage. According to Halliburton over 5 million gallons of water is required for each Shale gas well.There is concern   the North-Western Sahara Aquifer System, straddling Algeria, Libya and Tunisia, will be contaminated.Hydraulic fracturing (“fracking”) for shale gas involves cracking open rock formationswhich the EIU says could contaminate water supplies. Public oppositioncould constarin exploration activities.Logistics and the expansion of  extra services
support for Shale gas exploration could also slow the process.

The biggest hurdle however. the EIU says, is that current production agreements would require far higher rates of return of 75-80 percent  to recoup initial investments for drilling and extracting shale gas which are much higher thanfor conventional hydrocrbons.Although Algeria has granted incentives for Shale gas exploration the companies are said to fel they will not be enough to recover costs. There is also,the EIU concludes a distrust of IOCs having too much control over national resources.