**[Speech for Karen Harbert]{.smallcaps}**

**[US-Algerian Energy Forum]{.smallcaps}**

**[May 16, 2006, 10:30 -- 11:15 a.m.]{.smallcaps}**

**[Panel: Algeria in the International Oil and Gas Market]{.smallcaps}**

**INTRODUCTION**

-   Thank you, Ms. Stuart (Elisabeth Stuart, Operations Director for the
    USABC) for that warm introduction. I am pleased to have this
    opportunity to share the stage with Mr. Ed Morse of Hess Energy, who
    has been an important voice on energy policy for almost three
    decades, and to address an audience so committed to fostering
    US-Algerian relations. I'd also like to acknowledge Algeria's Energy
    Minister Chakib Khelil, an important ally and friend of the
    Department of Energy and the U.S. government. And of course, my
    thanks go to the U.S.-Algerian Business Council as well, and its
    co-sponsors, for organizing and hosting this very important event.

-   Today I am going to talk a bit about the importance of bilateral
    cooperation between the U.S. and Algeria, and in particular, how my
    Department has moved forward on advancing this cooperative
    relationship to benefit both our countries. I'll also touch on what
    we see as Algeria's current and future importance to the energy
    market.

**ALGERIAN DEVELOPMENTS AND REFORMS**

-   After a troubling decade in the 1990s, Algeria is to be commended
    for having emerged as one of the few democratic governments in the
    region. Its political and economic stability, coupled with its
    abundant oil and natural gas resources and welcome investment
    climate, make Algeria an important ally to the United States.

-   Although Algeria has opened its doors to foreign investors for more
    than a decade now, in recent years Algeria has made a real effort to
    attract international investment. American companies appreciate
    this.

-   Among the more important measures taken was a recently passed
    hydrocarbon law in mid-2005 that opened the country's upstream
    energy sector to private investment independent of Sonatrach,
    Algeria's state-owned oil company. Passage of the hydrocarbons
    reform law is seen as an important step towards Algeria\'s goal of
    increasing crude oil production.

-   In part due to the new law, foreign oil operators have steadily
    increased their share of Algeria\'s oil production over the past
    year.

-   We encourage Algeria to continue its reforms in the area of
    lessening the bureaucratic burden of investment, as well as in the
    area of banking, to further stimulate your economy and make Algeria
    a more attractive site for international investment.

**DOE/MEM BILATERAL RELATIONSHIP**

-   The U.S. values our close relationship with Algeria and we
    continually strive to strengthen it. Notably, the Department of
    Energy and Algeria's Ministry of Energy and Mines have, over the
    past four years, developed and strengthened our bilateral energy
    relationship in the areas of both renewable energy and liquefied
    natural gas.

-   On June 5, 2002, Algerian Energy and Mines Minister Chakib Khelil
    apprised then-Secretary of Energy Spencer Abraham of Algeria\'s
    intention to create New Energy Algeria (NEAL), a company established
    in 2002 by the Algerian government to encourage domestic production,
    use, and export of renewable energy. The Minister and the Secretary
    also agreed to collaborate in the area of renewable energy.

-   My office, the Office of Policy and International Affairs, was
    assigned to work with NEAL in this regard. The Department's Office
    of Energy Efficiency and Renewable Energy, as well as our Oak Ridge
    National Laboratory, worked also with NEAL very closely.

-   The Department commends Algeria for its efforts to advance renewable
    energy goals. Under NEAL's direction, it has drafted Algeria's
    renewable energy decree that structures the market for renewable
    energy and sets price levels for electricity produced from renewable
    sources. The Algerian Parliament also enacted a renewable energy law
    to authorize renewable energy price premiums which will attract
    investment in Algerian renewable energy projects and enable Algeria
    to eventually sell renewable energy to European Union (EU) markets.

-   Cooperative efforts between our two agencies on this project
    consisted of informal technical and economic collaboration on NEAL's
    solar, gas-thermal power plant, which we'll hear more of later in
    the program from NEAL's Director, Mr. Hasni. Among other things, we
    reviewed the structure and price levels of the Renewable Energy
    Decree, to ensure that it will foster international investment in
    renewable energy projects and establish an international market for
    the electricity generated by such projects. We also encouraged
    companies to invest in Algeria's renewable energy market through a
    promotional renewable energy expo in late 2003.

-   Let me say that the collaboration is considered a great success at
    the Department, and we look forward to emulating it in other areas
    with the Algerian Ministry of Energy.

-   There has also been strong cooperation in the area of LNG as well,
    including ministerial summits in November 2002 and August 2003. In
    March 2004, a technical team from DOE and the Federal Energy
    Regulatory Commission (FERC) visited Algeria's Skikda LNG Plant,
    which experienced an explosion in January 2004, and issued a report
    on the visit that examined the causes of the explosion. My office
    and the Department's office of Fossil Energy worked closely with the
    Algerian Embassy in Washington, and issued a report that closely
    mirrored Sonatrach's own findings on the incident. The report was
    used to support our efforts to reassure the public on the inherent
    safety of LNG.

-   Currently, we are exploring other opportunities for cooperation
    under the U.S.-Algeria Science and Technology (S&T) Agreement signed
    in January. This agreement demonstrates our bilateral commitment to
    peaceful technical engagement.

-   A possible bilateral program under the S&T agreement may be DOE's
    Sister Laboratory Program, which provides nuclear research
    laboratories in developing countries opportunities to collaborate
    with U.S. national laboratories in activities. In March,
    representatives from DOE's Office of Defense Nuclear
    Nonproliferation (DNN) traveled to Algiers to meet with the
    representatives from the Ministry of Energy and Mines and its
    Commission on Nuclear Energy on the Sister Lab Program. DOE is
    strongly committed to technical engagement in the peaceful
    application of nuclear energy and we hope an agreement can be
    achieved on this issue.

**GLOBAL OIL/NATURAL GAS DEMAND**

-   The world has seen an extraordinary increase in world energy demand
    in the past year. Between 1991 and 2002, global oil demand growth
    averaged less than 1 million barrels per day. In 2003 global demand
    grew by 1.5 million barrels per day and in 2004 demand rose an
    astounding 2.6 million barrels per day. Last year demand growth
    exceeded 1 million barrels per day, is expected to average 1.6
    million barrels per day this year, and similar growth is expected
    next year.

-   The surge in demand has seriously cut into the surplus oil
    production capacity held by producers. From a level as high as 5.6
    million barrels per day in 2002, surplus capacity has fallen to a
    level of around 1 million barrels per day currently. Limited surplus
    capacity has severely limited the market's ability to respond to
    supply problems, which has heightened the impact that geopolitical
    and weather-related risks can have on prices.

-   While high oil prices have not yet seriously impacted global
    economic growth, there is strong concern among both producers and
    consumers that such high prices will eventually inflict economic
    damage.

-   As for natural gas, it is the fastest growing primary energy source,
    according to the EIA. Consumption of natural gas worldwide is
    projected to increase by nearly 70 percent between 2002 and 2025,
    with the most robust growth in demand expected among the emerging
    economies.** **In the U.S. alone, consumption of natural gas is
    projected to increase over 13 percent between 2002 and 2010 and by
    37 percent from 2002 to 2025.

-   The current situation is an invitation for producers and consumers
    alike to seek ways to enhance our supply while at the same time
    pursuing avenues to a more efficient energy future.

**ALGERIA'S CONTRIBUTION TO OIL/NG MARKETS**

-   In particular, Algeria is an important and secure international
    supplier of oil and natural gas. It is also a moderating factor
    within the Organization of Petroleum Exporting Countries (OPEC) and
    a strong ally of the U.S.

-   Algeria contains an estimated 11.8 billion barrels of proven oil
    reserves, and many analysts believe it is under-explored. We applaud
    Algeria's efforts to expand oil production, which we understand has
    a goal of achieving 2 million barrels a day by 2010. I suspect they
    will achieve that, as current production for 2005 (excluding lease
    condensate) stands at around 1.35 million barrels per day, according
    to our Energy Information Administration. For the two months on
    record of 2006, Algeria's production increased to 1.38 million
    barrels a day.

-   I understand that Algeria has just made its 10^th^ new oil find this
    year alone. This is an auspicious start to the year following nine
    discoveries in all of 2005.

-   Most of Algeria's oil goes to Western Europe (90 percent), but
    Algeria sent the U.S. an average of 483 thousand barrels of oil a
    day in 2005 and in 2006, we are seeing an increased average of about
    576 thousand barrels a day.

-   Algeria is also our second largest supplier of liquefied natural gas
    (LNG), responsible for about 15% of our total LNG imports. In 2005,
    Algeria sent us about 97 billion cubic feet of LNG, out of our total
    LNG exports worldwide of around 631 BCF.

**ALGERIA'S INTERNATIONAL STRATEGY OF DIVERSIFICATION/EXPANSION**

-   We are pleased Algeria has committed itself to a broad international
    strategy of energy investment and exports in both the oil and
    natural gas sectors. These investments will be an important
    component to expanding global energy capacity in the face of rising
    demand.

-   We also applaud Algeria's efforts to add new natural gas capacity.
    BP in particular is very active in Algeria's natural gas sector and
    is involved in a number of projects to expand production at In Salah
    and In Amenas. The new 500 million cubic foot LNG facility and
    complex at Gassi Touil, due to come online in 2009, will add
    much-needed natural gas resources to a tight global market.

-   Algeria is also investing in Peru's natural gas sector to produce
    LNG for export to Mexico and perhaps to the U.S. The project, I
    understand, will be completed in 2007. As North America's demand for
    natural gas is increasing, we believe projects such as this will
    only increase Algeria's status as a secure and diversified energy
    provider.

-   According to the EIA (EIA's *Annual Energy Outlook 2005*), the share
    of total U.S. natural gas consumption met by net imports of LNG is
    expected to grow from about 1 percent in 2002 to 15 percent (4.3
    trillion cubic feet) in 2015 and 21 percent (6.4 trillion cubic
    feet) in 2025.

-   It should be noted that the Federal Energy Regulatory Commission
    (FERC) is moving ahead quickly to approve a number of LNG
    regasification facilities in the US. As of April 2006, FERC has
    approved five new terminals and has 23 applications for new
    facilities in the US, both offshore and onshore. Mexico has approved
    three and has three new proposed facilities. Canada has approved two
    and has two more in the pipeline. These facilities will go a long
    way to providing the U.S., and North America, with much needed
    natural gas supplies in the coming years.

-   We also commend Algeria for its commitment to end natural gas
    flaring by 2010. This will have positive implications for Algeria's
    natural gas exports as well as environmental considerations.

-   In addition to LNG, gas-to-liquids (GTL) is becoming an increasingly
    important source of clean energy. The process involves the
    conversion of natural gas into synthetic crude oil and other
    hydrocarbon products. GTL has one major advantage over LNG as an
    option for countries such as Algeria seeking to develop and
    distribute their natural gas resources worldwide -- GTL can be
    shipped in traditional tankers. GTL also produces extremely
    clean-burning fuel, yielding products that are free of sulfur,
    nitrogen, aromatics and other impurities.

-   In 2005, Algeria put out a bid for the 34,000 barrel per day
    Tinrhert Integrated GTL project at Arzew (large LNG facility on west
    coast of the country). We are pleased to see Algeria enter this
    lucrative market.

**CONCLUSION**

-   We see Algeria as a strategic ally and a key player in the global
    energy market. Algeria can also be a major play in assuring regional
    energy security for Europe in particular. The U.S. will continue to
    work with Algeria and encourage sustained momentum as they move
    forward in their development as a secure, reliable, transparent and
    market-oriented investment market, as well as an important key
    supplier of oil and natural gas to global customers. The U.S.
    Department of Energy looks forward to continuing to work with
    Algeria bilaterally and well as multilaterally to overcome the
    energy challenges that face us all.