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While Europe struggles to secure enough natural-gas supply for its factories, businesses and households, a neighboring country is aiming to multiply its own gas production.
As Morocco’s domestic demand for gas grows, the country aims to expand its production while reducing reliance on coal power, offering tax breaks to exploration companies.
Several U.K. firms currently have projects to develop the African nation’s gas riches. Potentially, some of that production may be able to supply the Old Continent through the Gazoduc Maghreb-Europe pipeline, which crosses Morocco and the Mediterranean into Spain.
Today, Morocco is far from being a major player in the gas market. It consumes about 30 billion standard cubic feet of gas a year, compared with Spain’s 1 trillion scf. Moreover, it has to import most of the gas it uses, as current production is tiny.
Around 70% of domestic output is produced by SDX Energy PLC
SDX,
the only international company currently producing gas in the country.
But London-listed peers Sound Energy PLC
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Chariot Ltd. and Predator Oil & Gas Holdings PLC
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have plans to dramatically increase Morocco’s gas production, meeting domestic demand and potentially exporting the surplus to Europe. U.S. oil major ConocoPhillips
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has also recently landed in Morocco to carry out hydrocarbon exploration.
The kingdom is offering very favorable fiscal terms for companies, including a 10-year tax holiday, and its domestic market is expected to grow, spurred by industrial energy consumption. In addition, it aims to replace coal-fired power generation with gas plants in order to reduce carbon emissions.
In the summer of 2021, the government of Morocco unveiled a National Road Map for the development of the country’s gas market, which assumes that domestic demand will triple by 2040.
“Natural gas being a clean fossil energy, is well suited to be used as a lever for Morocco’s energy transition,” the government said. Although it still releases pollutants, natural gas results in fewer carbon emissions than coal.
As part of this roadmap, the government presented new regulation for the downstream gas sector and announced plans to deploy additional gas transport and storage infrastructure.
“Morocco is hungry for energy, hungry for power. Their industrial needs are growing dramatically,” Chariot Chief Executive Officer Adonis Poroulis told Dow Jones Newswires.
Chariot is the owner of the Anchois gas field, which is located off the western coast of Morocco. The deposit was discovered by Repsol SA
REP,
0NQG,
in 2009. Now, with gas prices considerably higher, Chariot is working to turn Anchois into the country’s first offshore gas development.
On Monday, the company announced that an appraisal well at Anchois had confirmed the presence of “significant gas accumulations,” including new discoveries, prompting the company’s shares to jump 44%.
Chariot has said that it plans to develop Anchois to produce more than 25 billion scf of gas a year from the end of 2024. The project would require capital expenditure of around $300 million, and the company has already agreed on a 20-year sales contract for 15 billion scf a year.
“We can sell the product locally, either for power or for industry. And any excess gas we can attach to the GME pipeline and send it under the Mediterranean into Spain,” Mr. Poroulis says.
The Gazoduc Maghreb-Europe pipeline can transport more than 400 billion scf of gas a year. It has been used by Spain to import gas from Algeria since 1996. In 2020, 139 billion scf of gas reached the Spanish grid through it, accounting for 38% of the country’s total Algerian imports and enough to meet 11% of Spanish consumption.
However, in the autumn of 2021, Algeria decided to stop sending gas to Spain through the GME pipeline after it broke diplomatic relations with Morocco. The pipeline has sat unused since Nov. 1, but that could change in the future if Morocco develops enough gas fields.
“The fact that Anchois sits very close to Spain and to Europe, and that you have an existing pipeline already that goes under the Mediterranean into Spain, is very advantageous for us,” Mr. Poroulis says.
Sound Energy also intends to capitalize on that existing infrastructure to bring gas from its Tendrara project in the east of the country, where population is sparse, to customers in the northwest.
First, Sound plans to develop a small liquefied-natural-gas project to truck the fuel by road, unlocking cash generation. The company has already signed a sales deal for up to 3.5 billion scf of LNG a year with Afriquia Gaz SA.
The second phase of the Tendrara development is bigger and involves building a gas pipeline with capacity for 24 billion scf a year to connect the wells with the GME pipeline, which runs 120 kilometers to the north. This phase of the project is estimated to have a cost of around $250 million.
Back in November, Sound shares rose after it announced a 10-year sales contract with Morocco’s national power company for up to 12 billion scf of gas a year.
“What we are looking at in Tendrara is to be at the mainstay of the energy transition that Morocco is promoting at the moment,” Sound Chairman Graham Lyon told Dow Jones Newswires.
The company is now focused on reaching a final investment decision for the micro LNG project as soon as possible. “I would expect to see gas being produced at the end of 2023,” Mr. Lyon said.
Sound is also working to complete a financing package for the second phase of the project this year. This could allow production to begin toward the end of 2024, with flows being channeled through the GME pipeline.
“We’re very excited about working in Morocco. There is big demand and there is a big need for energy generation,” Mr. Lyon said.
Write to Jaime Llinares Taboada at jaime.llinares@wsj.com
