By Neil Ford

02-06-03 Tunisia's modest oil production has, until recently, been just about sufficient for its domestic needs. But, with demand for energy increasing, it is looking for alternatives such as gas. While many commentators have rightly praised the success of the Tunisian economy over the past decade and have highlighted growth in the textile and agricultural sectors, very little attention has been paid to the country's oil and gas sector.
Surrounded by the big hydrocarbon producing nations of Algeria and Libya, it is perhaps understandable that Tunisia's own oil and gas resources have been overlooked. Yet the country's ability to provide its own hydrocarbon requirements has until recently prevented the country from running up an expensive oil import bill and has allowed the government to put its foreign reserves to more constructive uses.

Two fields account for most Tunisian oil production. The ENI-Agip operated El Borma field, located close to the Algerian border, and the Ashtart complex both contain over 100 mm barrels of proven reserves and almost 75 % of output is produced on these two fields.
The Sidi El Kilani and relatively new Al Manzah fields account for most of the rest. Foreign companies are well represented in the modest oil sector: Italian company Agip-ENI operates the El Borma field and Canadian firm Centurion holds the licence for Al Manzah, while Anadarko, Anschutz, Eurogas, Kufpec, Lasmo and Petro Canada are all active in the country.

Tunisian crude oil output peaked in 1992 at 114,000 bpd -- more than enough at that stage to provide domestic requirements. However, production has fallen over the past decade to 78,000 bpd and meant that Tunisia became a net oil importer in 2000 for the first time since the 1970s. The main cause of declining production is the ageing nature of the two biggest fields, particularly El Borma, which has been in production for around 35 years.
In tandem with falling output, Tunisia has experienced sharply rising demand for oil. The country's high levels of economic growth and the steady process of industrialisation have pushed up demand for refined petroleum products. While GDP growth has slowed over the past couple of years to 2-4.5 %, car ownership is spreading at a higher rate, while demand for power is also increasing.

The country retains a modest 300 mm barrels in reserves and should be able to at least provide part of its own needs for the next decade. But if production is to continue on any meaningful scale thereafter, or if the country is once again to be able to supply its own oil needs, substantial new finds are required. Al Manzah is the only field to come on stream in recent years and even here production is a modest 4,000 bpd.
A state owned oil company exists in the form of Enterprises Tunisienne d'Activites Petrolieres (ETAP) but the government is keen for foreign firms to increase their investment in the country both to fund exploration work and to develop many of the smaller fields, which ETAP previously believed to be uneconomic. In order to achieve this it reduced the tax rate for foreign companies investing in the sector from 75 % to 50 % and introduced new oil and gas legislation in 2000.

The government hopes that foreign companies or consortia will be attracted with royalty levels of 10 % for crude oil production and 8 % for natural gas, although ETAP is expected to be allocated 20 % of consortium equity. The acreage on offer lies both offshore in the Gulf of Hammamet and off the north coast, and onshore in the north-west of the country. At the end of 2002, a licensing round was launched for a total of 20 blocks but the results of the round are not yet known.
ETAP is working with National Oil Company of Libya to explore offshore acreage and also with Algerian state oil company Sonatrach to evaluate prospective areas in their common maritime borderlands. However, as a result of the lack of activity within the country, the government has encouraged ETAP to invest in overseas ventures, partly in order to increase the level of the nation's oil security. In partnership with German firm Preussag, the company is exploring blocks in Syria. It has also signed agreements for Iraqi oil fields but it is not yet known whether such agreements will be recognised and legally valid in post-Saddam Iraq.

Even if oil production continues to fall, there are steps that the government can take to make the most of its hydrocarbon reserves, to increase fuel security and to minimise the fuel import bill. Domestic refining capacity is currently very low and so the country is forced to import refined petroleum products. The construction of its own major refinery would enable the import of crude from whichever producer offers the best deal.
Apart from making the most of its oil wealth, Tunisia is at last paying more attention to its gas reserves, which are largely located offshore in non-associated fields. The country possesses 2.8 tcf of proven reserves but produced only 66 bn cf in 2000.

However, the government is gradually coming around to the view that the country's gas reserves may eventually prove to be more valuable than its oil fields in the long term. The main field actually in production is Miskar on the Amilcar offshore block, which is operated by UK company BG and which contains an estimated one trillion cf. The other four fields in production -- Baguel, El Borma, El Franning and Zinnia -- all hold smaller reserves.
Gas production on Miskar field in the Gulf and Gabes and elsewhere is set to rise thanks to a deal BG has struck with Societe Tunisienne de l'Electricite et du Gaz (STEG) to supply 205 mm cfpd of natural gas for power production. A total of $ 120 mm is being invested in Miskar over a five year period, with the intention of increasing production and ensuring supplies for years to come.

The nearby Hasdrubal field is also to be developed over the next decade by the British company at a cost of $ 330 mm. Previously believed to be a non-associated field, BG exploration work has uncovered both oil and gas condensate over the past year.
The gas is to be consumed by two power projects, the Sfax and Rades plants, which should boost generating capacity from 2,480 MW to 3,540 MW by 2006. The 470 MW Rades plant will be Tunisia's first independent power producer (IPP) when it begins supplying STEG later this year. It is being developed by Marubeni of Japan and US company PSEG on a 20 year build own operate transfer (BOOT) contract with equity split 40:60. In order to ensure that the plant can be utilised even if Tunisia's gas reserves do run out and the import of Libyan or Algerian gas is perceived to be too expensive, diesel can also be used as a feedstock.

BG is developing Tunisia's second IPP, the 500 MW Sfax plant, which should come on stream in 2006 as the result of investment commitments of $ 200 mm. Elsewhere, in order to cut flaring of associated gas on the El Biban field, a modest 27 MW plant is planned at Zarsis. These two new plants will ensure a reliable long term market for offshore gas projects.
However, the Tunisian government has taken an executive decision not to take gas from Hasdrubal until Miskar has achieved peak output in around 2007. Production on Miskar is likely to begin falling after 2009 and the government wants to ensure that the country has sufficient gas reserves to feed the power sector for at least the next 15 years in order to justify the cost of constructing the new plants. The Jugutha field is another option for development but no decision has yet been reached on whether domestic or export markets should be targeted.

Although BG is investigating the potential for using processed natural gas as a vehicle fuel, it is likely that only the power sector can enable further development of the gas industry. Moreover, only increased demand for power will enable the construction of further gas fired generating capacity, as 95 % of power is already produced using gas. However, power demand is growing at around 7 % a year on the back of increased residential demand per house, the connection of more homes to the national grid and growing industrial demand.
Oil exports are unlikely ever to fuel the Tunisian economy but the government has rightly tried to make the most of the fields it possesses. Now that oil revenues have dwindled, it is vital that this logic is taken one step further and that the country makes the most of its gas reserves. By building further gas fired plants, Tunisia can restrict both the import of oil for use as a feedstock and rule out the need for large scale power imports. Such a strategy also helps to maintain the broad base of the economy, as the country seeks to sustain relatively high levels of growth.