The Price of Politics and Violence ; North Africa's Prospects as Energy Goliath Fade despite Rising Demand

By Reed, Stanley | International Herald Tribune, February 23, 2013 | Go to article overview

The Price of Politics and Violence ; North Africa's Prospects as Energy Goliath Fade despite Rising Demand


Reed, Stanley, International Herald Tribune


North Africa once seem destined to play a major role in meeting Europe's natural gas needs, but turmoil and unfavorable government policies have put that in doubt.

A deadly attack by militants on an Algerian natural gas plant last month has dealt a major setback to a group of North African countries whose prospects as oil and gas producers were already cloudy.

A few years ago, Algeria, Libya and Egypt looked as if they would provide much of the solution to Europe's declining natural gas production and its uneasy reliance on Russia for supplies of a fuel widely used in industry, power generation and home heating.

But well before the early morning assault by dozens of raiders on the In Amenas gas facility, deep in the Sahara, the difficult political realities of the region were creating doubts about how big a role North Africa could play in the world energy equation.

Both oil and natural gas production have been in decline in Algeria, the region's biggest gas producer, since the mid-2000s. In Libya, the rebellion that ousted Col. Muammar el-Qaddafi, with its chaotic aftermath, has disrupted oil and gas exploration. In Egypt, rising domestic consumption, encouraged by government policies, has cut into exports.

"For the rest of this decade there has to be a big question of how far Europe can rely on North African gas," said Jonathan P. Stern, chairman of the gas program at the Oxford Institute for Energy Studies, a research concern. "It certainly can't rely on an expansion of North African gas supplies. Most likely there will be a contraction."

During the militants' attack on In Amenas and the Algerian military's action to retake the facility, 40 workers and 29 insurgents were killed. The plant -- jointly owned by BP, Statoil of Norway, and Sonatrach, the Algerian national energy company -- has yet to reopen. Its gas field and processing center accounted for about 10 percent of Algerian production, but so far the shutdown has had little effect on exports.

"Algeria still has the ability to swing production for short periods," said Femi Oso, an analyst at Wood Mackenzie, an energy consulting firm in Edinburgh.

Algeria reinjects a substantial portion of its gas back into its oil and gas fields to maintain pressure. Mr. Oso said that Sonatrach was now diverting some of this gas into exports, but this is only a short-term fix.

Sonatrach is pressing to repair and reopen the plant, which suffered blast damage.

But if much of the plant remains closed for long, or if there is another attack on Algeria's energy production infrastructure, exports will suffer, analysts say, possibly forcing up prices in Europe. Most of the Algerian and Libyan gas exported to Europe flows under the Mediterranean through a handful of giant pipelines. While the undersea portion of these arteries seems secure, the pipelines cover long stretches of desert before they reach the sea. Some pass through troubled countries like Tunisia, where they could be hit.

"What we find in troubled geopolitical hotspots is that gas infrastructure and pipelines are the most vulnerable targets," said Rob West, an analyst at Bernstein Research in London. "Pipelines are very hard to protect."

He noted that in Yemen, Iraq and other countries, anti- government forces had succeeded in cutting pipelines on numerous occasions, disrupting oil and gas supplies.

The worry for Algeria and other North African countries is that the attack on In Amenas, coming after two years of political instability, will further discourage the foreign investment the countries need to maintain their positions as oil and gas exporters.

Western energy companies were already turning up their noses at Algeria's tough contract terms, which give the government more than 90 percent of the proceeds from oil and natural gas production and require that Sonatrach get a majority stake in all projects. The country also has high costs and lengthy regulatory procedures. …

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