Morocco is currently implementing important changes to its energy mix, which may provide interesting opportunities in the LNG sector. This article presents a brief overview of the origin of the national development plan for LNG launched by Morocco in 2014, the main steps and intended schedule of this plan, as well as the way forward and potential challenges to be faced.
Setting the scene – a brief overview of Morocco's energy sector
Morocco is the only North African country without commercial hydrocarbons reserves, which has made it dependent on imports to fulfill its domestic energy needs.
According to the Office National de l'Electricité et de l'Eau Potable ("ONEE"), the Moroccan State-owned utility company, the annual electricity consumption was around 33.5 TWh in 2014: 46% produced from coal, 18.5% provided by importation (mainly from Spain and Algeria), 16.5% produced from natural gas (from Algeria), 11.2% from renewables, and 7.3% from fuel oil and gas oil.
The Moroccan Ministry of Energy forecasts a 6.1% increase in the national demand between 2014 and 2016 i.e. an annual electricity consumption of 38 TWh by 2016, and a 6.2% increase from 2017 to 2025 i.e. 65 TWh by 2025.
The dependency on imports has made the country vulnerable to price volatility, and has significantly impacted public finances in recent years. In particular, the high oil prices in 2011 and 2012 increased Morocco's budget deficit.
In order to tackle this, Morocco has embarked on an ambitious plan to reduce the dependency on foreign markets and implement important changes to its energy mix, which includes taking advantage of its favorable geography and climate to increase renewable energy (wind, solar, hydropower). Morocco is building the world's largest concentrated solar power plant (named Noor) which, with its intended 580 MW installed capacity expected to be operational by 2018, will nevertheless remain unsufficient to fulfill Morocco's national demand. Morocco has therefore also implemented an LNG national development plan.
The purpose of the Moroccan LNG National Development Plan
Morocco launched a national development plan for LNG in December 2014, aiming at a massive introduction of LNG into its energy mix (planning to increase gas from around 16% in 2014 to 32% by 2025). The plan's objectives are:
to reduce Morocco's energy dependency on imports and combustible fuels though an increase of renewable energy – this is clearly reflected in Morocco's intended nationally determined contribution ("INDC") submitted prior to the 21st annual meeting (COP21) of the United Nations Framework Convention on Climate Change (UNFCCC) in Paris in December 2015 and which resulted in the Paris Agreement. Morocco's INDC includes a reduction of greenhouse gas emissions and a list of objectives at the level of the main sectorial strategies, such as generating 42% of the installed power capacity through renewable sources (14% through solar energy, 14% through wind energy and 14% through hydropower) by 2020. It also intends to feed the main industries in energy through pipelines of imported and re-gasified natural gas, and substantially increase the use of natural gas through infrastructure projects allowing the import of liquefied natural gas;
to satisfy the growing national demand – additional power production capacity is required and estimated as follows: (a) by 2020, a plan for equipment relating to power production taking account of production projects currently under development and those under construction aiming to reach an aggregate global capacity of approximately 15,000 MW; and (b) between 2020 and 2025, developing combined cycle power plants ("CCPPs") to reach 3,900 MW, including transforming the gas turbines of Mohammedia (300 MW) and Kenitra (300 MW) into combined cycles of 450 MW each. Taking into account the volumes of natural gas to be dedicated to the electricity sector during the first phase of the LNG development plan, the additional power production capacity generated from the CCPPs would be approximately 2,700 MW. Given the timeframe to carry out the gas facilities’ construction, the CCPPs will only be commissioned from 2021 onwards;
to bridge intermittencies caused by wind energy in the national energy mix;
to secure supply in gas for existing LNG power plants: both the current gas transit agreement through the Maghreb-Europe Gas Pipeline and the existing gas supply agreement with the Algerian national company, Sonatrach, will expire in 2021 – Morocco introduced natural gas in 2005, with the commissioning of the Tahaddart combined cycle power plant (385 MW) and the Ain Beni Mathar thermo-solar power plant in 2010 (470 MW). Until 2011, these two power plants were supplied exclusively by gas perceived by Morocco as royalty in kind, under the transit agreement relating to the Maghreb-Europe Gas Pipeline ("MEG") - around 750 million m3 per year. In order to secure the supply of the above-mentioned power plants, a commercial agreement for the supply of an annual volume of 640 million m3 of natural gas was entered into with Sonatrach in July 2011 for a ten year term. This will therefore expire in 2021; and
to diversify supply sources – Morocco is currently totally dependent on imports from Algeria of natural gas and has decided to diversify its natural supply sources in an attempt to gain its independence from Algerian gas. Relations between Algeria and Morocco are currently strained, and it is difficult to know whether they will renegotiate the gas agreement in 2021. This dependence vis-à-vis Algerian gas has incited the Moroccans to look for other possible suppliers, including Russia. Although the gas bought from other countries will be more expensive because of the transportation costs involved, it would seem that Morocco is willing to pay the price in order to secure its energy needs given the recurring geopolitical tensions it has with Algeria since 1976.
According to the Minister of Energy, Morocco's needs in natural gas are estimated to reach around 5 billion m3 by 2025 allocated as follows:
approximately 3.5 billion m3 for production of power through CCPPs;
approximately 1 billion m3 for refineries; and
between 0.5 and 1 billion m3 for the industries around Jorf Lasfar-Mohammedia-Kenitra and the phosphate industry.
Existing gas facilities in Morocco
Existing gas facilities in Morocco include:
the Tahaddart CCPP commissioned in 2005 (385 MW) with an annual production of 3,100 GWh, and an annual consumption of 520 million m3 of gas;
the Ain Beni Mathar thermo-solar combined cycle plant with a capacity of 470 MW and which can generate 3,538 GWh annually;
two gas turbines of 300 MW each in Mohammedia and Kenitra; and
the MEG which connects the Hassi R'Mel field in Algeria to Cordoba in Spain passing through Morocco. It is 1620 km long with an initial capacity of 8.6 billion m3 of gas per year which has been extended to 12 billion m3.
Intended investments under the Moroccan LNG National Development Plan
The national LNG plan includes investment programs in facilities and means of production. The following construction projects are planned in the next five years:
an onshore LNG terminal in Jorf Lasfar, near the western city of El Jadida, which would allow importations up to 7 billion m3 of gas by 2025;
gas infrastructures which include a maritime jetty at the Jorf Lasfar port, the regasification terminal and high pressure transportation gas pipeline;
a 400km gas pipeline connecting the LNG terminal of Jorf Lasfar to the MEG, going through Mohammedia, Kenitra and Dhar Doum, in addition to the connections of this gas pipeline to the CCPPs;
four new combined cycle units of 600 MW each;
the upgrade of two existing units of 150 MW each;
further development of new gas plants up to 6,300 MW; and
several distribution networks, depending on the industrial/residential demand.
The global investment required, a big part of which will be mobilized by private investors and national and international institutional investors in the framework of power purchase agreements, is around USD4.6 billion.
The construction of the gas facilities will require an investment of around USD2.4 billion, including: USD0.6 billion for jetty facilities, 0.8 for the construction of the LNG terminal, 0.6 for the construction of the transportation gas pipeline, and 0.4 for the storage.
The investment necessary for carrying out the first phase of the electric facilities of the 2,700 MW CCPPs is around USD2.2 billion.
Steps of the Moroccan LNG National Development Plan
The LNG national development plan launched in December 2014 by the Ministry of Energy, Mines, Water and Environment in coordination with ONEE is scheduled in two phases: (i) a "gas to power" phase aiming to fulfill the additional power production capacity requirements, whose implementation is entrusted to ONEE in partnership with national and foreign operators, and (ii) a "gas to industry" phase which aims to develop the use of natural gas in the industry.
1st phase: gas to power
The Ministry of Energy's road map includes the following steps and schedule:
securing supply in natural gas by entering into natural gas supply agreements – there have been discussions with the United States, Qatar and Russia. This step was initially scheduled to be finalized between January 2015 and April 2015, but the process seems to have been delayed since no announcement of a binding supply agreement has been made so far. The only tangible development announced is a memorandum of understanding which was signed between Morocco and Russia on energy cooperation in March 2016, but its content has not yet been disclosed, and according to press reports, it does not seem to contain a binding commitment of gas supply;
selection of national partners through a call for tenders for Moroccan operators – this was initially scheduled to be carried out from January 2015 to July 2015 and seems to have been delayed (but would not had have a significant impact on the general gas to power project calendar since the involvement of national operators in fact relates to the second phase of the project which is the "gas to industry" phase);
putting in place a three-part agreement between the State, ONEE and Moroccan partners selected, in order to determine the major components of the project and its provisional operational schedule – this process was initially scheduled between September 2015 to November 2015, but also seems to have been delayed since it depends on the selection of national partners referred to above;
selection of international partners for carrying out the gas to power project, scheduled to be finalized between December 2015 to March 2017 – a call for expression of interest was launched in 28 December 2015 and 93 companies have responded including 7 Moroccan companies (two of which in partnership with foreign entities) and 86 foreign companies (16 Spanish, 11 Korean, 9 Chinese, 8 Italian, 7 Japanese, 6 French, 5 Turkish, 4 from the Netherlands, 4 from the UK, 3 Emirati, 3 from the US, 2 German, 2 Belgium, 2 Greek, 2 Russian, 1 Saudi and 1 Brazilian), including major international companies. ONEE is currently processing the pre-qualification, which should be finalized by the end of 2016 and will result in a short list of potential bidders. The detailed call for tenders should be issued in 2017, with financial closing in 2018 and production beginning in 2021;
negotiation of power purchase agreements, scheduled between April 2017 to September 2017;
construction of gas and power facilities, scheduled between October 2017 to December 2020; and
commissioning tests for gas and power facilities, scheduled between January 2021 to June 2021.
2nd phase : Gas to industry
The objective of the second phase of the LNG national plan is to develop the gas industry (independently from power) and ensure the supply to industrial consumers. The execution of this phase shall be entrusted exclusively to national operators and will consist in the creation of distribution facilities dedicated to connecting the national industry grid.
Moroccan authorities indicated that this phase will require the adoption of a Gas Code, governing the regasification, transportation, distribution, storage, import/export and marketing of natural gas in Morocco.
Potential challenges to be faced – legal framework
Alongside Morocco’s investment in gas facilities, the government is also working to establish a Gas Code to regulate the market. A project was announced in 2010 and then abandoned further to changes in the government. The press reported early June 2016 that a draft, which had been in preparation for several months, was to be submitted shortly to the general secretariat of the Government and then submitted to the parliament for adoption. The draft bill is not publicly available but according to press reports, this document should contain provisions relating to the powers of the Ministry of Energy for prescribing regulatory measures on the conception, performance, installation, maintenance, running, security and control of gas facilities, granting of gas operator status, approval of gas sales agreements, conditions to carry out the public service of transportation, distribution and storage of natural gas or LNG.
This Gas Code is announced to cover the "gas to industry" phase of the Moroccan national LNG development plan. National operators have been consulted prior to the preparation of this draft (the national operators being those involved in the second phase of the Moroccan LNG plan). However, it is hoped that a larger consultation of national and international industry operators will be carried out before the adoption of the final text, which would take into account the views and opinions of a wide selection of experienced LNG professionals and make the text suitably efficient and attractive. In the same vein, it would be beneficial that the final text includes specific provisions to deal with the "gas to power" phase, such as incentives for LNG investments, provisions that soften exchange control regulations (an LNG project will be very capital intensive, involving expenses in foreign currencies and generating profits in dirhams from sales in Morocco), instruments to ensure efficient transfers of funds abroad or allow offshore accounts and accommodate any practical drawbacks which could arise due to the level of Moroccan exchange reserves, for example.
LNG operators would also be reassured by a secure legal framework and provisions ensuring a certain stabilization of their forecasted economics. Moreover, ensuring the liquidity of investment and putting in place a mechanism setting a fair balance between the Moroccan State's legitimate interest in controlling which operators enter the market and the guarantee for foreign operators that they would be able to sell, restructure or otherwise transfer their investments (this could be done through a mechanism of preemption rights, for instance) would be a positive improvement.
On a longer term basis, the success of Moroccan LNG projects would also be achieved through the creation of a liquid market of gas, without monopoly and where competition can exist freely.
 Cf. Feuille de route du plan national de développement du gaz naturel liquéfié (16 December 2014).
 According to the figures set out in Morocco's higher planning commission report of 2013, the high oil prices in 2011 and 2012 took Morocco's 2012 budget deficit to 7.1%.
 The Moroccan Ministry of Energy recently announced that an additional capacity of 10,000 MW in renewables will be needed between 2016 and 2030 (cf. http://www.mem.gov.ma/SitePages/Activites2016/Ac21Janv16.aspx).
 Cf. http://www.agenceecofin.com/gestion-publique/0106-38524-maroc-bouclage-du-projet-de-code-gazier.
 For example, pursuant to the Moroccan upstream oil & gas regime, all expenses and investment costs need to be imported in Morocco, even if spent outside Morocco to count as cost oil. There is clearly no incentive in this measure which will hopefully not be implemented in relation to this LNG project.