Albania Oil Industry Enjoys Revival, but Investor-Government Relations Remain a Question

February 5, 2012

 

Balkanalysis.com Editor’s Note: recent tales of tattooed and muscle-bound Western oil workers laboring in coastal oil fields, while expressionless men in dark suits and sunglasses stand watch for trespassers, only piques existing interest in Albania’s revitalized energy sector and goings-on there. In the following Balkanalysis.com special report – which discusses the major players involved, legal issues and technical data  –  readers get an inside view into an important emerging trend with regional implications for economy and possibly political life.

By Vlad Popovici and Chris Deliso 

With additional contribution from Ioannis Michaletos in Athens and Stavros Markos in Tirana

The last few years has seen considerable foreign investment in Albania’s oil sector, a trend that is increasing and that involves not only onshore, but also offshore and refinery investment. Much of what is happening in this lucrative industry remains opaque, however, and issues such as privatization practices have been politicized.
The fossil fuels industry has a long history in Albania, where bitumen was mined in Roman times. Modern oil extraction started in the 1930s and, despite that Albania never became a global oil producer, reached production levels by the 1970s that made the country one of the main Balkan oil producers for a time.
However, plagued by inefficient management and obsolete technologies, Albania’s oil production declined and was on the brink of extinction in the post-independence 1990s transition period. However, in the last seven or eight years, the Albanian oil sector has been revived by foreign oil and gas companies looking to invest. While the major deals are involving onshore oil, other foreign investors have recently entered the game for offshore finds, though decisions are being delayed as the players consider proposed EU regulations which would have an impact on offshore drilling.

Albania is thus now looking at the prospect of becoming once again self-sufficient over the next 3-5 years, by eliminating the need for oil imports. And it could even find a new vocation as a small regional oil exporter, though this is not yet a done deal. Further, international watchdogs and investors are on the lookout for any signs of corruption or problematic dealings with governmental authorities, something that in the Balkans is a chronic issue.

From Boom to Bust
During Roman times, the region near Vlore in southern Albania was the center of significant bitumen extraction activity. Modern oil exploration and extraction started during World War I and, in 1928-1929, significant oil fields were discovered. These were the Kuçova field and part of what is now known as the Patos-Marinza field; today this is one of the largest onshore oilfields in Europe.
Mussolini was tempted by Albania’s oil resources and the refinery in Cerrik, near Elbasan in the south, was built during the Italian occupation in WWII. After the war, the Soviet Union also became interested in Albania’s oil resources, and developed a dominant role in the country’s oil sector.

Following the severance of diplomatic and commercial ties with the Soviet Union by dictator Enver Hoxha, China took the lead in the country’s oil sector and supported Albanian efforts- achieving a peak production of almost 43,000 barrels per day (bpd) or 2.2 million tonnes per year. This production level was enough to cover domestic consumption needs, and freed up some crude volumes for export.
However, in 1978 Albania broke off diplomatic relations with China too, and local oil production entered into a seemingly terminal decline. In the 1980s, the petroleum and bitumen sector was still employing 10% of the Albanian workforce, but its share of the national industrial production declined from 8.1% in 1980 to 5% in 1985, and even less than that at the end of the decade.
Oil sector growth was restricted by factors like obsolete technology that reduced oil field production yields, a lack of exploration to replace produced reserves, a lack of investment in extraction equipment and a very limited and aging transportation and refining infrastructure.

By 1990, oil production was down to 23,500 bpd (or 1.2 million tonnes/year).The breaking down of the Communist regime and its ‘central-planning’ economic system at the beginning of the 1990s worsened the oil sector’s problems. It was being run on autopilot by the national oil company (known as the DPNG until 1992 and Albpetrol after that), and oil production from the existing and aging low-recovery yield wells reached less than 9,500 bpd (or 475,000 tonnes/year) in 1994 [PDF]. No bottom was in sight and the entire Albanian oil sector seemed on the brink of extinction............continues.............

http://www.balkanalysis.com/albania/2012/02/05/albania-oil-industry-enjoys-revival-but-investor-government-relations-remain-a-question/