A guide to LNG markets

Morocco
November 18, 2015

This briefing explores the foreign investment opportunities to be found in Morocco’s nascent natural gas sector.

Morocco’s energy sector: an overview

Morocco is highly dependent on imported energy and remains one of the largest net importers of hydrocarbons in North Africa. Over 90% of its energy comes from abroad, with coal and oil arriving from world markets, gas from Algeria and imported electricity from Spain and other African countries.

Despite the heavy import bill, Morocco remains an attractive destination for new foreign investment and is embarking on an ambitious energy plan to support economic growth. The sector is being progressively liberalized with the privatization of the distribution sector in 1995 and the permission of duty free imports since 2002.

In 1995 plans were laid for an electricity interconnection with Spain which began to operate at full capacity in 2005. As of 2014, Morocco’s electricity grid covers 164,000 kilometres and 98% of households (compared to 18% two decades ago).

Morocco’s topography and climate favour wind, solar and hydropower. The country has already established institutions to provide support for renewable energy programmes, including the Agency for the Development of Renewable Energy and Energy Efficiency and the Moroccan Agency for Solar Energy. By 2020 Morocco aims to derive more than 40% of its electrical capacity from these renewable sources, strengthening both energy security and sustainability.

Morocco’s energy regulators

Morocco’s energy policy is set independently by two agencies of the government; the Office National de l’Electricité (ONE) which sets policy with regard to electricity and the Office National des Hydrocarbures et des Mines (“ONHYM”) which sets the domestic oil and gas policy. ONHYM was created to regulate the importation of gas and provide a platform for foreign investment in the areas of research, exploration, supply and distribution of gas. The production of natural gas in Morocco is undertaken mainly by two private companies in collaboration with ONHYM.

Natural gas imports: Morocco’s arrangement with Algeria

Gas remains a small part of Morocco’s energy import bill. It is calculated that in 2013 Morocco roughly spent US$8 billion on oil imports, US$440 million on coal and just US$350 million on gas.

Morocco is currently completely dependent on Algeria for its natural gas imports. The country’s first natural gas-fired power plant was commissioned in 2005 using gas from the Maghreb-Europe gas pipeline, which supplies Morocco with natural gas from the Hassi R’mel field in Algeria.  In 2011, Morocco signed a ten-year contract with Algerian state-owned company Sonatrach for the supply of 640 million cubic metres of gas per year through the Maghreb-Europe gas pipeline.

However Algeria could prove to be an inconsistent supplier, due to the unattractive investment environment in Algeria, the dominance of Sonatrach in the market and the fact that Algeria’s export capability is forecast to fall over the next ten years.

In addition, Morocco and Algeria have a number of geopolitical differences, mainly over Western Sahara, a former Spanish colony. Most of this area was annexed by Morocco in 1975. Algeria supports and hosts the Western Saharan independence movement, the Polisario Front. Therefore it is unclear whether Morocco and Algeria will renegotiate the gas deal in 2021.

The proposed LNG regasification plant and import terminal at Jorf Lasfar

In December 2014 Morocco launched a national plan to construct a new LNG terminal within five years at Jorf Lasfar port, near the western city of El Jadida. It will allow up to 7 billion cubic metres of gas to be imported by 2025, helping to substantially diversify energy imports. The terminal, along with the construction of a jetty and necessary pipeline infrastructure, is estimated to cost US$4.6 billion. The Moroccan government also launched an international tender seeking foreign investments for the LNG terminal, which attracted bids from Royal Dutch Shell as well as French, Spanish and American companies.

The LNG terminal includes a regasification unit in Jorf Lasfar and a pipeline infrastructure focusing on the key industrial hubs of Tangier and Casablanca. Tangier’s work force and proximity to European markets is seeing it grow as a major construction hub with energy intensive automotive manufacturers among those moving into the region. As a result the Moroccan state utility, Office National de l’Electricité et de l’Eau Potable, has plans to build as many as four 600MW combined-cycle gas turbine power plants in the north of Morocco to support the industries in and around the city of Tangier. The wider Casablanca region includes the city of El Jadida, which is home to two major phosphate plants (another highly energy intensive industry) operated by state-run company OCP and Abu Dhabi power and water company TAQA.  

The development of an LNG terminal therefore remains a central part of Morocco’s long-term energy plans. Without it, Morocco will have to rely more heavily on costly liquid fuel imports.