Algeria strives for oil security

Dec 18, 2006 01:00 AM

Despite a recent attack on foreign oil workers in Algiers, and a government that is struggling after a civil war in the 1990s, world demand for oil and natural gas will likely drive foreign companies to endure risks and remain in energy-rich Algeria.
On Dec. 10, militants attacked a van carrying oil workers for Brown and Root-Condor, a joint venture of the Algerian national oil company, Sonatrach, and a subsidiary of the US international engineering and construction giant Kellogg, Brown and Root, a company that has experience in combat zones from Kosovo to Iraq to Afghanistan.

The Salafist Group for Teaching and Combat, know by its French initials, GSPC, claimed responsibility for the attack, which killed one Algerian and injured nine foreign workers. The attack comes less than two weeks after two car bombs exploded outside police stations on the outskirts of Algiers.
Although the attack targeted energy workers, analysts conclude the security situation will not deeply affect the work of foreign oil and gas companies in the country, or the long-term outlook for oil and natural gas production.

“Over the longer term, O&G firms have shown an incredibly high tolerance for risky environments. They may demand more favourable terms in exchange for assuming a higher level of risk, but ultimately, Algeria will likely continue to be a key hydrocarbon supplier. Given likely increased European gas demand, this is more true for Algeria’s gas sector than oil, but oil will nonetheless still be significant,” said Geoff Porter, a Middle East and Africa analyst for the Eurasia Group, a global risk consulting firm.
“I don’t think that one attack alone will significantly alter foreign firm’s activities in Algeria.” Although, if attacks continue, some companies may “look for alternative investment opportunities,” he said.

Jean-Robert Leguey-Feilleux, a professor at Saint Louis University in St Louis and an expert on international terrorism and the Middle East, sees oil companies using Algeria’s natural geography to insulate their operations from attacks.
“The oil facilities are distant from the population centres where the revolutionaries operate,” he said. “In the war of independence and in the civil war this gave oil installations a degree of protection.” While the distance allows greater government protection for foreign oil workers, it is still dangerous to work in Algeria, Leguey-Feilleux said. But considering how many private contractors work in Iraq, it is clear that people will work anywhere, though the price of production then rises, Leguey-Feilleux said.

Algeria is a significant oil-producing country. It holds more than 12,000 mm barrels of oil in proven reserves, according to the Organization of Petroleum Exporting Countries, which makes it the third-largest in Africa, behind Libya and Nigeria, and 14th-largest in the world.
Its oil exports jumped by 23 % in 2003 and 21 % in 2004, but increases have slowed since. Production has also increased, to about 1.3 mm bpd in 2005, according to OPEC. National oil company Sonatrach accounts for 93 % of the production.

Algerian oil exports are crucial to its economy, oil income continues to provide more than half of government revenues, and the choice of targets in the attack may reflect the government’s reliance on the export revenue.
“I think that the overwhelming rationale is... to strike at Algeria’s economic lifeline.”

Leguey-Feilleux said he agrees.
“Undoubtedly, undermining the economy is one of the objectives. A stable economy is an essential element if Algeria is to recover from the mayhem of the revolution and heal its wounds. But there is more. Radical political Islamism is still a potent force. The movement is still dreaming of establishing an Islamist Algeria. They have not given up even though their violence has cost them the bulk of their popular support,” he said.

A bloody civil war, which killed more than 150,000 people, ravaged Algeria for almost a decade after the government refused to abide by the results of a 1992general election that would have brought Islamist parties to power. The country has become more stable following an amnesty for militants in 1999 and the election of President Abdelaziz Bouteflika in 2004, though the government still faces opposition from militants.
“Many of them see the government’s amnesty program as a way to protect those who committed atrocities for the government while fighting the Islamists. In a sense, the revolutionary struggle is continuing on a smaller scale. In fact people have continued to be assassinated on a regular basis.”

The security situation may depend on government forces on the ground, many of whom are less experienced than the ones who fought during the civil war, according to Porter.
“Overall, the security forces are in very competent hands and are closely managed. The Director of National Security, Ali Tounsi, has strong ties with security forces in the US and Europe and is well versed in counter-insurgency strategies and tactics. The current situation may have come about through the promotion of experienced security personnel to where they are no longer on the frontlines and in day-to-day contact with militant groups. There is a less experience, but likely better trained, contingent operating in their stead,” Porter said.

Whether foreign energy investment continues to flow into Algeria depends not only on security, but basic government as well, according to Leguey-Feilleux.
“Over the next few decades, a lot will depend upon how proficient the political leadership remains. Can the bureaucracy be made effective? Can corruption be seriously reduced? Can unemployment be reduced despite the high rate of population growth? Can the leadership work with the EU? Can the Berbers be given enough attention so that they do not constitute another cause of instability?”

“In other words, Algeria still has a lot of problems, and it is only slowly getting itself out of the hole. Political integrity and a degree of effectiveness remain essential,” Leguey-Feilleux said.But the oil business is accustomed to risk, Leguey-Feilleux said.
“Given the returns in the oil industry, investors will remain prepared to take risks. It is a matter of balance. If the country seems to be moving in the right direction, even with setbacks, it will be tempting to invest,” Leguey-Feilleux said.

Source: United Press International
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