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The development of Algerian oil and gas is an illustration of the general trend of the 1960s, when newly independent nations sought to exercise their sovereignty over their natural resources. Each in its own way tried to penetrate and master the difficult and closed business of international oil and gas. Algeria started its drive for the recovery of its downstream segment in the mid-1960s, then moved upstream, to control within a decade the whole hydrocarbon chain on its soil. Once this goal was achieved, through nationalization and joint-venture agreements, the country abolished its concession system in 1971, barring international oil companies (IOCs) from exploring and developing oil. Its own exploration efforts during the following decade, however, resulted in finding barely enough oil to replace depleted resources.

In the light of obvious disinterest by industry for its upstream, coupled with the dramatic oil price decline of the mid-1980s, Algeria revised its hydrocarbon laws in 1986 and further improved its fiscal terms in 1991, to allow IOCs to operate upstream again. This move introduced production sharing agreements (PSAs), which radically transformed the institutional and legal framework of the country’s hydrocarbon business scene. Results from these changes were twofold: first, a dramatic increase in exploration activity and in drilling, propelling Algeria in 1994 and 1995 to the forefront of world oil and gas discoveries; and second, it benefited the Algerian government by attracting foreign direct investments (FDIs), management expertise, and some access to high technology. The new fiscal terms offered to oil companies made new hydrocarbon development more attractive. The PSAs allowed the recovery of production costs from output and the sharing of development costs between the national oil company Sonatrach and its 40 or so foreign partners. In return, IOCs could diversify their supply west of Suez and increase their share of quality oil and gas at the doorstep of the European Union, one of the world’s largest energy markets. Natural gas, which was hitherto considered the property of the state, became “quasi-oil” and could now be explored, developed, and exported on its own merit. As a result oil, gas, and NGL production and export capacity will dramatically increase early in the twenty-first century, giving Algeria an industry ranking commensurate with its resource endowment. The 1990s, despite the high risks associated with doing business in Algeria, will go on record as one of the most successful decades of its upstream oil and gas history. Recent industry restructuring may force Algeria to review its strategy again and to better equip itself to face the challenges ahead in the new millenium.

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