Algeria is suffering from heightened terrorist activity. April 11, three car bombs were exploded by suicide drivers, killing at least 33 and injuring more than 200. One car bomb was detonated outside the prime minister’s office when he was away. The two others were exploded near police stations. Responsibility was claimed by al Qaeda North Africa, which is believed to be made up of former Algerian revolutionaries.
The bombing occurred as the EU and Algeria have been trying to hammer out a trade deal for more natural gas. At the 2nd Association Council Tuesday (April 24th) in Luxembourg EU officials two weeks later agreed to provide 220 million euros between 2007 and 2010 to drive economic diversification, social programs and academic training in Algeria.
Participants also discussed energy co-operation, including proposals to build new gas pipelines between Algeria and Spain and Algeria and Italy. Algeria has been eager to benefit more from its gas projects. In September 2006, the government announced that state-owned oil company Sonatrach was to hold a minimum 51% in all oil and gas ventures in the country, up from 20% and 30% previously. New alliances with Russia and active participation in an emerging consortium of gas exporters have raised fears among European importers, especially Italy, that Algeria would try to control energy prices. The Gassi Touil LNG project has slipped schedule as Repsol and Gas Natural have tried to renegotiate terms.
Some $32 billion is to be invested in the two new pipelines (Medgaz into Spain and Galsi into Italy via Sardinia), expansions of existing lines, new LNG facilities to replace the ones destroyed at Skikda in January 2004 and the Gassi Touil integrated upstream and liquefaction project at Arzew. The country elected April 9, 2007, to scrap plans for a 36000-barrel-per-day GTL plant in Tinrhert due to high costs. Energy Minister Chakib Khelil said all three construction bids were too high.
Algeria’s economy has been enjoying the bounty of high oil and gas prices. According to a 2005 report in the Financial Times, the Algerian government had budgeted on $19-per-barrel oil prices but has earned more than three times that. As a result, the nation has accumulated a war chest of foreign reserves.
Algeria ranks among the Bahamas, Israel, Morocco and Russia in the Organization for Economic Cooperation and Development’s (OECD) third-risk group. The OECD ranks nations into four categories of risk – the lower the ranking, the lower the insurance rates for foreign and sovereign investments.
“Algeria’s rising fortunes in the oil and gas industry have provided a rare opportunity for the government to modernize the economy while cushioning the social impact of reform,” reported Financial Times analyst, William Wallis, late in 2005. “With the remaining embers from civil war in the 1990s showing signs of burning out and record oil and gas production, the country is now chasing Egypt’s position as the African continent’s second largest economy.”
And, now with the September 2006 law, which requires Sonatrach to own majority stakes in all Algerian oil and gas ventures, Algeria intends to grow even faster. The nation currently exports more than 6.5 billion cubic feet per day (65 billion cubic meters per year) of natural gas. Three-fifths of which flows via two existing pipelines to Spain and Italy.
Khelil wants this to expand to 10.5 bcfd (105 bcmy) by the end of 2010 (see Table 1). At $6/MMBtu, this would represent a revenue stream of $23 billion annually. But, unilateral moves to win Sonatrach, the Algerian state oil monopoly, majority stakes in all hydrocarbon projects have international oil companies rethinking their positions.
Repsol-YPF, which holds exploration and production contracts in several blocks in Algeria and has a 48% stake in the planned $2.1-billion Gassi Touil integrated LNG project, has announced that it is trying to renegotiate its deal.
Spain has limited its imports of natural gas from Algeria, building six new LNG terminals to diversify its natural gas supplies. Italy also has cause to worry, as nearly three quarters of its natural gas comes from either Russia or Algeria. Russia and Algeria have become new friends, working enthusiastically on several energy joint ventures.
On January 21, Russia’s energy minister, Viktor Khristenko, said Gazprom and Sonatrach had agreed to an exchange of natural gas assets. Algeria will take four deposits of natural gas in Russia. Russian and Algerian specialists will also work on nuclear energy cooperation between the two countries.
This caused European Union Energy Commissioner Andris Piebalgs on Jan. 25 to express concern that a close cooperation between Gazprom and Sonatrach could lead to a Russian-Algerian gas cartel. Both countries are members of the Gas Exporting Countries Forum, what some analysts view as the possible beginning of an OPEC-like cartel. |
