Algeria expects oil production to remain steady in 2011, while liquefied natural gas (LNG) supply contracts will be met despite reduced capacity, the head of state-owned energy giant Sonatrach said on Tuesday.

"We will stick to oil production which will be practically the same as in 2009 and 2010," Sonatrach chief executive Nourredine Cherouati told a news conference.

The North African OPEC member supplies about 20 percent of Europe's natural gas and is the world's eighth-biggest exporter of crude oil, pumping 1.25-1.27 million barrels per day in November and December, according to a Reuters poll.

Despite an "incident" at one LNG plant which cut capacity in late 2010, Algeria still produced 31 billion cubic metres of super-cooled gas last year, Sonatrach said, and has enough capacity to meet its all its supply contracts.

"We have the capacity to meet the demand on the market," Cherouati told reporters when asked about the incident last year. ,

"We have sufficient capacity in relation to our contractual obligations so we have taken the decision to stop the first liquefaction plant that we have," Cherouati said.

CAMEL CLOSE DOWN

The plant in the port of Arzew, officially called GL4Z but commonly known as Camel, is the oldest LNG export facility in the world and is too inefficient to be profitable in the current market, he said. Sontrach has three LNG plants at Arzew and one at Skikda.

Cherouati said he expected the much-delayed Medgaz gas pipeline to Spain to be operational by mid-February.

Algeria has been sending a lot of its LNG to Europe over the last few years after buyers in the United States lost interest in imported gas because of booming North American shale gas production.

Although rising demand in China, the Middle East and South America has helped support LNG sales, gas prices in most markets, particularly the United States, are still well below levels seen before the global financial crisis slashed industrial energy demand in early 2008.

Increased capacity in Qatar, the world's largest LNG exporter, and plentiful alternative gas production in North America has added piled further pressure on gas prices.

But prices are widely expected to rise over the next decade as higher demand, especially in Asia, slowly absorbs the glut.

Cherouati said Sonatrach had not decided whether to buy assets in Algeria which Britain's BP has put up for sale to help pay for the Gulf of Mexico oil spill in early 2010.

"We have not decided yes or no whether we will exercise our right of pre-emption," Nourredine said.

Russian oil company TNK-BP has said it is interested in BP's Algerian assets, which include stakes in two major gas-producing fields, but Sonatrach has the right of first refusal.

Sonatrach, which some analysts say has under-invested in new oil and gas projects, has set a target of doubling the number of exploration wells, Cherouati said. He did not say how the increase would be achieved or give a timetable.

Asked if there were any plans to speed up exploration by making the terms on offer for foreign investors more attractive, he said: "That is a question that you have to ask the state... The state is my employer."

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