BP clinches pounds 2.3bn Algerian deal

BP is close to announcing agreement on a $3.5bn (pounds 2.3bn) joint venture in Algeria that could eventually produce as much gas as the company now delivers annually from the whole of the North Sea.

The deal has been negotiated with Sonatrach, the Algerian oil and gas company, and the gas produced will be exported to Spain and Portugal through a pipeline nearing completion across the Straits of Gibraltar.

Although the BP-Sonatrach gas is not intended for the Northern European market and will not arrive in Spain until 2002 at the earliest, the project underlines the scale of the continuing surge of new gas supplies into Europe as a whole, which has caused prices to fall.

This general market weakness has brought big difficulties for companies such as British Gas that are locked into high-price supply contracts.

The initial phase of exploration and appraisal will cost $100m and be entirely funded by BP, which is confident that it will be able to exploit the large reserves already known to exist in the area.

The company will fund two-thirds of the eventual $3.5bn bill for exploiting the gas, including a 520km pipeline costing $1bn across the desert to join the new line to Spain.

It is understood to have agreed to take about 30 per cent of the net profits of the development after payment of royalties and taxes, assuming the deal goes ahead.

BP is believed to have investigated the potential security threat from the Islamic fundamentalist unrest in Algeria but this has not deterred the company from backing the project.

Oil specialists point out that 98 per cent of violent incidents have been in the far north of the country and the remote location of the gasfields, on flat rocky terrain with 20 miles visibility, should make a high level of security feasible.

BP is thought to have drawn on the experience of oil exploration security regimes in Colombia and Vietnam, where the company also has big operations. It has prepared plans for safeguarding its employees, who will number about half the 50-strong team in the exploration and appraisal phase.

The gas fields are in a region about the size of England called In Salah, after the one small populated area it contains. The BP-Sonatrach licence area of 25,000 square kilometres covers about 20 per cent of In Salah, which is in the depths of the Sahara, one of the hottest places on earth, where temperatures regularly reach 45 degrees.

The area has been known to contain large amounts of gas since the 1950s, with seven gas fields already located. But it is remote and the geology is tricky, so Algeria concentrated on exploiting a huge gas field further north at Hassi R'Mel, one of the biggest in the world, which was discovered in the 1970s. Gas from that area is exported by pipeline to Italy.

The growth of markets for Algerian gas in Spain, Portugal and Italy led Sonatrach to look to In Salah for new supplies. Algeria has the world's eighth-largest gas reserves and 90 per cent of its exports are oil and gas. Oil specialists believe BP's new technology for producing three-dimensional seismic images of underground rock formations is particularly attractive to Sonatrach because it will allow the developers to overcome some of the technical difficulties of tapping the In Salah fields.

BP's agreement is expected to allow withdrawal if there is not sufficient gas to merit exploitation. First gas would not be delivered until 2002 or 2003, and will be sold in Europe by a joint marketing company in which BP and Sonatrach will have 50 per cent each.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

Day In a Page

Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones
Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

Why are we addicted to theme parks?

Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
Tourism in Iran: The country will soon be opening up again after years of isolation

Iran is opening up again to tourists

After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
10 best PS4 games

10 best PS4 games

Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
Transfer window: Ten things we learnt

Ten things we learnt from the transfer window

Record-breaking spending shows FFP restraint no longer applies
Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

‘Can we really just turn away?’

Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

Nine of Syria and Iraq's 10 world heritage sites are in danger...

... and not just because of Isis vandalism
Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

Girl on a Plane

An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
Why Frederick Forsyth's spying days could spell disaster for today's journalists

Why Frederick Forsyth's spying days could spell disaster for today's journalists

The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent