Algeria's Sontrach signs oil processing deal with Vitol

The arrangement, to ship crude to Italy and have processed oil returned, will enable Algeria to stop buying refined fuels in three years

Abdelmoumen Ould Kaddour, the chief executive of Sonatrach. The Algerian oil major will ship crude for refining. Ryad Kramdi/AFP

Algeria’s state-run energy producer Sonatrach has signed an agreement with the oil-trading Vitol Group to ship crude to Italy to be processed and sent back as refined products, in the first deal of its kind to trim the country’s US$2 billion annual bill for imported fuel.

The arrangement will enable Algeria to stop buying refined fuels in three years - when the agreement expires and a new refinery in the North African nation is set for completion, Ahmed Fettouhi, Sonatrach's vice president for downstream operations, said on Wednesday in Algiers. The planned Hassi Messaoud refinery will have an annual processing capacity of 5 million tonnes of oil, he said, or the equivalent of about 100,000 barrels per day.

Algeria depends heavily on oil and gas sales and is seeking to strengthen an economy squeezed by falling crude revenue. The Opec nation's oil production dropped to 1.03 million bpd by the end of last year from 1.27 million bpd in January 2012, according to data compiled by Bloomberg. Algeria is the ninth-biggest producer among the 14-member Opec.

Sonatrach selected Vitol, the world’s largest independent oil trader, from among five companies that participated in a tender to ship its crude outside the country and have it sent back as refined fuel, the chief executive Abdelmoumen Ould Kaddour said on Tuesday. Officials signed the agreement on Monday, he said.

A Vitol media official in London declined to comment.

The North African nation will start by shipping a 1 million-barrel cargo through Vitol to a refinery in Italy in February, according to a person familiar with the situation, who asked not to be identified. The amount of future shipments will vary according to Algeria’s needs, the person said.

“We don’t want to continue to import $2bn of fuel per year,” Mr Ould Kaddour said. Separately, the North African country is also looking to buy a stake in a refinery overseas, he said, without giving more details.

Algeria’s gas exports were unchanged last year at 55 billion cubic metres, Mr Ould Kaddour said. The country will focus on boosting gas output as Opec countries pursue a strategy, along with other global suppliers, to limit crude production to counter a global glut, he said in September.