The otherwise plain rolling hills south of the central Albanian city of Fier are remarkable for two main reasons. First, the fascinating Greco-Roman ruins of Apollonia and Byllis, the latter spectacularly set above a bend in the river Vjosa and beneath the lowering mountains. Second, the nodding-donkey oil pumps dotted over the grey-green landscape - for this is the heart of the Albanian oil industry.
Over the past half-decade, the Albanian hydrocarbons sector has undergone something of a revival (even though the suggestion that such a thing would exist would prompt guffaws in some less-informed quarters). International firms are involved in exploration, extraction and export; production has almost doubled since 2005; both the expansion of the oil products industry and the development of energy transit routes through Albania are on the cards.
Certainly, this is good news for the Albanian economy, which is poor by European standards and with few sectors of note on a regional, let alone international, level. But let's not get carried away - Albania is hardly a new Abu Dhabi, due largely to its limited resources as well as its well-publicised problems with sclerotic infrastructure and dysfunctional administration.
According to official figures provided to bne by the Albanian Prime Minister's Office and Albpetrol, the state-owned oil company, Albania produced 891,264 tonnes of crude oil in 2011, almost exactly twice the output of 446,990 tonnes in 2005. Albania's oil is heavy and needs special facilities to process, and thus tends to trade at two-thirds to three-quarters of the price of Brent crude. Estimated crude reserves total 437.645m tonnes, while proven oil reserves total around 198m barrels, accounting for a 58% of the total in the Balkans - pretty remarkable given Albania's small size.
As Vlad Popovici, energy editor of Balkanalysis.com, notes, bitumen has been extracted in Albania since Roman times, and modern oil extraction started in the 1930s, relatively early for Europe. By the mid-1970s, production ramped up to a peak of 43,000 barrels per day (b/d) under the supervision of its ally China (having split with the Soviet Union, Albania - never one to hew to the norm - sided with Beijing). The loss of Chinese support in 1978 and the disintegration and collapse of the communist system saw output slide to 9,500 b/d by 1994, at which point the industry "seemed on the brink of extinction," in Popovici's words.
Now, thanks to the 1993 Petroleum Law - since amended twice - foreign investment has returned to the sector, helping to raise production considerably. There are now two foreign companies extracting in Albania, in partnership with Albpetrol, and one more expected to start producing in the next few years. Canada's Bankers Petroleum produced 13,000 b/d in 2011, up from 600 b/d in 2004, and now aims to increase its output by a further 30% this year, according to Popovici. Stream Oil and Gas, another Canadian firm, which has four development and extraction agreements with Albpetrol, was producing 2,000 b/d at end-2011 and has been averaging 2,500-3,000 b/d this year, which it aims to raise to 14,000 b/d in 2015. Albpetrol's output from its own fields is not as certain.
In February this year, Petromanas, a third Canada-based firm, announced that it had formed a 50-50 joint venture with Royal Dutch Shell for the exploration of two onshore blocks near Berat in central Albania.
Including Petromanas/Shell, there are currently seven exploration agreements active in Albania. Popovic reckons that even without Albpetrol's uncertain contribution, Albania's oil output could easily total 40,000 b/d in 2015, just overtaking the 38,400 b/d consumption seen in 2011, and boosting export potential.
Popovici sees four competitive advantages on which the Albanian energy sector can capitalise (and now is capitalising): existing fields in need of investment; unexplored (mainly offshore) fields; a fairly stable environment for hydrocarbon investors, regardless of who is in power; and its proximity to import markets looking for diversification, particularly Greece, Spain and Italy. Government figures also like to trumpet Albania's respectable performance on the World Bank's "Doing Business" surveys and similar studies.
On the flipside is a lack of infrastructure and capacity - roads, pipelines, storage and export terminals and particularly refineries. Albania's two existing refineries, at Fier and Ballsh, have a combined capacity of 30,000 b/d and are greatly in need of modernisation. Currently, much of Albania's crude oil is sent abroad for refining, and Albania is a net importer of refined products. The weak supply chain means that Albania has relatively low value-added in the hydrocarbon sector.
Ariana Cela, economic advisor to the Albanian prime minister, tells bne that "increasing refinery capacities is of interest to the government," but gave no further details. As she points out, more progress has been made in increasing terminal capacity. In June 2009, two new terminals were opened under concessions: one is "Porto Romano" near Durres, on the coast just west of Tirana, and the other "Vlora Bay" just north of the coastal city of Vlora. The former has storage capacity of 120,000 tonnes of oil and 16,000 tonnes of liquefied petroleum gas (LPG), the latter 384,000 barrels of oil and 4,800 cubic metres of LPG.
Between them, they can discharge 17,000 tonnes of oil and 6,500 tonnes of LPG per day. Vlora Bay is expected to expand over the coming years, while the authorities are also looking into Seman, near Fier, as a possible site of another facility, according to Cela. These investments are encouraging, and if matching developments take place in other supply chain infrastructure, will help increase Albania's export potential. Popovici thinks that this can be increased from 10,000 b/d to 20,000 b/d in the medium term. A nice little earner for Albania in an energy-hungry region certainly, though a tiny proportion of consumption even in the Adriatic region, let alone internationally.
But Albania is not putting all its energy eggs in one basket. Cela highlights a number of more concrete upcoming projects in the sector over the next five years, most of which focus on gas transit and storage, leveraging the country's strategic position.
The development of the Western Balkan Gas Network is a priority; this scheme is intended to support regional economic growth and energy cooperation, while increasing European energy security. It includes two main pipelines. The first is the 800-kilometre Trans-Adriatic Pipeline (TAP), which is in the engineering and planning stage and reaches from Komotini near the Greek Aegean coast through Albania and under the Adriatic to Italy. TAP will carry 10bn-20bn cm of gas a year to the Western Balkans, Italy and thence potentially beyond, and will be supplied from Azerbaijan, potentially providing an important alternative to Russian gas in Europe. The second is the Ionian Adriatic Pipeline (IAP), which has only reached the stage of preparation for a feasibility study. The bi-directional IAP would run 520 km or so from Split in Croatia to link with the TAP in Fier.
To complement the IAP and TAP, Albania is investigating the potential for underground gas storage, which would allow it to hold gas for distribution along the pipelines at periods of peak demand. Thus far it has identified two potential sites: a depleted gasfield and a salt dome, with potential capacity of up to 3m cm.
The resuscitation of the Albanian hydrocarbon industry has been one of the country's post-communist success stories. And while the country is no energy giant, oil and now potentially gas could make a useful contribution to the broader region's energy supply and security.