Over the past 18 months, Algeria has launched a series of projects to develop new petrochemical plants and to upgrade existing facilities. One of the major planks in its campaign to expand downstream capacity is a series of new projects at the port of Arzew in the country’s west.
According to Businesstodayegypt, oil Minister Chakib Khelil intends to spend $28 billion (LE 154 billion) on petrochemical projects over the next five years, and Egypt’s Orascom Construction Industries (OCI) has taken its place as a leader in the sector.
One such project is a joint venture between Algeria’s state-owned hydrocarbons company, Sonatrach, and OCI. The two have formed a company called Sorfert, which will build a new ammonia/urea fertilizer plant at Arzew, due to be completed in 2010.
The plant is expected to produce one million tons of ammonia/urea fertilizer, along with an additional 700,000 tons of ammonia. Local press reported that as many as 7,000 jobs will be created during the construction phase of the project, more than twice the original estimate.
Ammonia and urea are produced by taking nitrogen from the atmosphere and lining it with hydrogen from hydrocarbons. As using natural gas for this process is the most cost effective and environmentally friendly option, Algeria, with deep reserves, has the wherewithal to become a market leader.
The 33-hectare site of the facility is located close to the port of Arzew, which has been extensively developed for chemical exports from existing facilities in the region and has assured supplies of gas.
According to the Algerian Investment Promotion Agency, Orascom’s diverse holdings in Algeria, which are spread across the telecommunications, cement and water desalination industries, in addition to its involvement in the Arzew project, total an estimated $10 billion (LE 55 billion). Such was OCIs enthusiasm for the project that initial work began before financing was locked in. At the end of June last year, Sorfert signed an agreement with German firm Uhde--part of the ThyssenKrupp group--to design and provide technology for the plant.
Another Step Forward
On January 11, the project took another step forward when British firm Wellman was awarded a contract by Uhde to supply five sets of vacuum condenser packages to Sorfert, part of the essential equipment for the new plant.
A further ammonia plant, also to be located at Arzew, was announced earlier the same month. Suhail Bahwan Group Holding (SBGH) of Oman signed a $2.4 billion (LE 13.2 billion) agreement with Sonatrach, with the plant expected to produce 4,000 tons of ammonia and 7,000 tons of urea per day. Similar to the OCI project, Sonatrach will take a 49 percent stake in the joint venture, which will be financed by banks including Credit Populaire d’Algerie.
High gas costs in Europe and the United States are putting pressure on producers in both regions. However, with vast supplies close at hand, Algeria’s domestic gas costs are around 12 percent of those in Europe or the US.
According to Osama Bishai, OCI’s director of projects, rising gas prices are resulting in the shifting of gas-based industries from the developed world to developing countries. “Lots of plants in Europe are being shut down and their markets are being served by new plants in Algeria, Egypt and the Persian Gulf,“ Bishai said in a media interview last December.
Algeria already has a chemical fertilizer industry. An ammonia production facility sited at Arzew has an annual output of 365,000 tons and an associated urea plant that is able to turn out 146,000 tons per year. However, the original facilities were built in the early 1970s and, while upgraded in the late 1980s, do not have the same capacity or modern technology as the new plant.
Demand Growing
Demand for chemical fertilizers is growing and Sonatrach must be confident its joint ventures will prove lucrative. In addition to the advantage of low production expenses, it will benefit from Algeria’s proximity to European markets, meaning that Sorfert can keep shipping costs down.
Bishai said that OCI was looking at an annual return on its investment of between 16 percent and 18 percent. “There are good margins now and we are very optimistic about the future,“ he said. “Once we are in production, we expect to enjoy relatively good margins, and if shipping costs continue to be high we will have a major advantage.“
With global fertilizer prices at near record highs, prompted by increased demand due to drought conditions experienced in many parts of the world and soaring gas prices, Algeria’s policy of investing in downstream industries could result in a rich harvest.
OCI is not the only foreign firm interested in tapping into the potentially lucrative Algerian petrochemicals sector. On a recent visit to Moscow, Algerian Prime Minister Abdelaziz Bouteflika discussed the potential for cooperation with Russia in energy and industry. Moscow’s industry and energy minister Viktor Khristenko indicated that the Russian company Itera was close to signing an agreement to develop a petrochemicals plant in the North African country, in partnership with firms from Canada and Finland.
