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Junior energy firms to continue to lead hydrocarbons exploration in Morocco
Al-Monitor Pro Members
Francisco Serrano
Journalist and analyst specialized in North Africa
Feb. 17, 2023
As a result of the war in Ukraine and higher oil and gas prices, Morocco spent an additional Dh 77.7 billion ($7.5 billion) on energy imports in 2022 compared to 2021. The absence of sizable domestic hydrocarbons discoveries and competition from resource-rich neighbors Algeria and Libya, have kept oil majors at bay, leaving most exploration efforts to junior firms. However, recent gas finds are set to give domestic production a boost and help mitigate the costly dependence on energy imports. But authorities also hope that higher prices and favorable legislation will attract new investors.
- Morocco has long been dependent on imported hydrocarbons, but energy imports more than doubled to Dh 153.5 billion ($14.9 billion) in 2022, according to figures by Morocco’s Office des Changes, which handles the country’s trade statistics.
- The heavier import bill was essentially driven by increases in the order of Dh 40.3 billion ($3.9 billion) for refined petroleum products imports, Dh 13.6 billion ($1.3 billion) for coal and other solid hydrocarbons, and Dh 8.8 billion ($857 million) for natural gas and other hydrocarbons.
- Morocco’s hydrocarbons potential remains under-explored, with less than 350 drilled wells as of 2021. As a matter of comparison, in the period spanning 2010 to 2021, Libya had over 1,300 drilled wells. Sector authorities have long been attempting to attract prospecting firms: the Office National des Hydrocarbures et des Mines (ONHYM), the national entity overseeing hydrocarbons activities, limits its participation on most exploration and production projects to a 25% stake. Additionally, it offers exemptions on customs duties and value-added tax for equipment and services for exploration and development activities. Oil and gas firms also enjoy a 10-year corporate tax exemption from the start of commercial production.
- Morocco produces small quantities of natural gas and oil out of its Essaouira Gharb Basins. Natural gas output has increased over the years, moving from 60 million cubic meters in 2007, to 110 million cubic meters in 2021, according to figures from the Ministry of Energy and Mines.
- Output remains well below Morocco’s annual gas consumption, which has risen from 540 million cubic meters in 2007 to 772.7 million cubic meters in 2021.
- Morocco’s access to hydrocarbons has been impacted by regional competition. In October 2021, Algeria announced it would not renew the contract for the Maghreb-Europe Gas Pipeline (MEGP). Inaugurated in the 1990s, the MEGP transported Algerian Gas to Spain through the north of Morocco. The kingdom received transit fees of 7% of transported volumes, paid in natural gas from Algeria, and could easily buy additional quantities.
- Import of gas through the MEGP amounted to roughly 600 million cubic meters, covering 65% of Morocco’s yearly consumption. Algerian gas was used to power a gas plant in Beni Mathar, in eastern Morocco, and another one in Tahhadart, in the north. Combined, these plants produced about 17% of Morocco’s electricity.
- In response to Algeria’s decision, Morocco adapted quickly and the impact of the supply cut was short-lived. By July 2022, it had brought the two gas-fired power plants back online, using the section of the MEGP that runs through its territory to import liquified natural gas (LNG) through Spain.
- Currently, Morocco is estimated to have at least 19.8 billion cubic meters of natural gas reserves under development. The onshore area of Tendrara, in eastern Morocco, is estimated to hold 10.6 billion cubic meters of recoverable resources according to its operator, UK-based firm Sound Energy, which owns 75% of the concession. Tendrara is expected to come into commercial production in 2023, and Morocco’s ONHYM controls the remaining 25% stake.
- In Morocco’s Atlantic waters, another UK firm, Chariot Oil announced in 2019 it had discovered a potential 22 billion cubic meters of gas in its Lixus concession, near Larache in Northern Morocco. According to ONYM, production could begin as soon as 2024.
- In anticipation of the rise in gas production, ONHYM signed pipeline tie-in agreement in 2022 with both Sound Energy and Chariot Oil that will enable them to move their gas output via the MEGP to the domestic market.
- Not far from the Tendrara onshore license, Jersey-based Predator Oil & Gas announced in 2022 a potential 11 billion cubic meters of natural gas reserves at its Guercif license. However, in early 2023 drilling operations were interrupted due to an unexpected geological formation. But the firm remains optimistic about the reserve’s potential.
- Other firms with licenses to engage in hydrocarbons exploration in Morocco include UK-based Europa Oil & Gas which was awarded a 75% stake in September 2019 in a 11,228 sq-kilometer exploration permit on the Agadir Basin. The remaining 25% are owned by ONHYM.
- Israeli energy firm, Ratio Petroleum, was awarded an 129,000 sq-kilometre exploration license in the Dakhla Atlantic Bloc, in the Western Sahara, in October 2021.
- In February 2022 Chariot Oil received its second Moroccan license, the 8,489 square-kilometre Rissana concession the Atlantic coast. The firm owns a 75% stake in the plot, with ONHYM holding the remaining 25% stake.
- In December 2022, Israeli firm New Med Energy and Adarco Energy announced they had signed an 8-year exploration deal for the Boujdour Atlantique bloc, off the coast of the disputed Western Sahara territory. Each of the companies will hold a 37.5% share in the concession, with the outstanding 25% held by ONHYM.
- Annual domestic gas consumption in Morocco is expected to rise from 900 million cubic meters in 2021, to more than 3 billion cubic meters by 2040. Imports will likely continue to make up an important share of Moroccan gas consumption, but bolstering domestic production will reduce costs.
Scenario 1: Stable but high oil prices over the coming five years lead to a sharp rise in exploration efforts in Morocco.
The country’s political and economic stability continue to attract mostly junior energy firms and some oil and gas majors looking to reduce their portfolio risk and balance out assets in more challenging jurisdictions. Investment into exploration rises faster if sizeable finds are confirmed. Morocco’s natural gas production increases significantly towards the end of the decade. This helps the country increase gas-powered electricity generation and reduce hydrocarbons imports. The added gas output also accelerates industrial development and energy-intensive manufacturing.
Scenario 2: Oil prices fall significantly in 2023 and plans to boost local production fall short.
The Tendrara and Lixus projects perform below expectations, dampening prospects for new exploration. Although Morocco makes new commercially-viable discoveries, they are not sufficiently relevant to mobilize new investment. As financing for new hydrocarbons exploration gradually dries up, gas production eventually stagnates, and energy imports continue to weigh heavily on the budget.
Oil and gas prices begin to subside over 2025-2026. But even if price conditions become less appealing for hydrocarbons investors, the success of the Tendrara and Lixus projects reinforce Morocco’s regulatory framework and encourage junior firms to continue exploration efforts. Morocco secures enough gas to maintain gas-powered plants, and supply some energy-intensive industries with easily accessible natural gas. Small and medium-size discoveries continue to be developed over the coming decade, and take advantage of distribution infrastructure to supply domestic customers. Although reserves are not sufficiently large to transform Morocco into a significant oil and gas exporter, they reduce the energy import bill, especially for natural gas.
Reducing the use of coal in electricity generation will help clean up its energy mix and reduce pollution.
Francisco Serrano is a writer and analyst who focuses mainly on North Africa. He has been published in several outlets, including Foreign Policy, World Politics Review and the Middle East Institute. His second book, "As Ruínas da Década," about the past decade in the Middle East, was published in March 2022.
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