October 26, 2010 / 12:55 PM / 7 years ago

Algeria says 2011 energy output to fall

4 Min Read

<p>An engineer conducts routine checks on oil tanks at a refinery in Wuhan, Hubei province November 27, 2008.Stringer</p>

ALGIERS (Reuters) - OPEC member Algeria expects its energy production and exports to shrink in 2011, pushing earnings from oil and gas down 4.5 percent on the forecast for this year, the finance ministry said.

Revenues from oil and gas sales abroad are set to decline to $42.2 billion from the $44.2 billion forecast for this year, according to a document drafted by the finance ministry, which was obtained by Reuters.

The forecasts in the document for 2010 and 2011 are both made on the basis of a nominal average price for crude oil of $60 per barrel, excluding the influence of price fluctuations on the forecast revenues.

Asked to explain the forecast drop in earnings for 2011, Finance Minister Karim Djoudi told Reuters: "It's because, regarding quantities, production and exports will decline."

Algeria supplies about a fifth of Europe's energy needs and is also the world's eighth largest crude exporter.

The energy ministry did not respond to telephone calls seeking comment, and finance ministry officials did not offer any explanation for the forecast drop in energy output.

Production Problems?

Energy analysts have said Algeria could cut exports in response to low global demand and prices, especially for natural gas and liquefied natural gas (LNG), preferring to hold onto its reserves until prices recover.

But most predictions are that demand will recover in 2011, so there may be another explanation for Algeria's lower output forecast, said Samuel Ciszuk, Senior Middle East and North Africa energy analyst with IHS Global Insight.

Many observers of Algeria's energy sector have been saying that a shortage of foreign investment in new projects over the past few years could start to have an impact on exports, starting from about 2012.

"There's been stories about midstream crumbling, pipelines being in a very bad state etc., but it's very hard to get the real exact reasons for this," Ciszuk told Reuters.

"Maybe we are starting to see the problems coming to the fore a bit earlier than thought."

An accident this year cut LNG production capacity by as much as 20 percent, in what some analysts saw as a sign of broader problems. Energy Minister Youcef Yousfi has said LNG capacity will be back to normal within a few months ..

The finance ministry document, which was circulated to members of parliament before debates on the 2011 draft budget, forecast that the economic output of Algeria's energy sector would shrink 0.8 percent next year.

That will be the third successive year of negative growth for the energy sector, the document showed. Overall, Algeria's gross domestic product is forecast to grow 4 percent in 2011.

Any reduction in energy revenues is likely to have a significant impact on the economy of Algeria, a country of about 35 million people, as oil and gas accounts for more than 95 percent of its total exports.

In previous years, the finance ministry has revised its energy revenue forecasts after the budget was adopted to take account of higher-than-expected world oil prices.

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