Algerian energy sector in decline amid security concerns

July 19, 2013 at 12:13 PM
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ALGIERS, Algeria, July 19 (UPI) -- Algeria's oil industry, its economic mainstay, is in decline amid dramatic changes across the Arab world that could yet bring political upheaval to the pivotal North African state, a major gas supplier to Europe.

"There's little indication that the oil and gas sector is going to come out of its slump any time soon," warned analyst Richard Nield. "For a country that has emerged relatively unscathed from the worst effects of the global financial crisis, and which has continued to use its oil revenues to accumulate vast reserves of foreign exchange, Algeria's economy remains weak on a worryingly large number of fronts."

The ruling elite's belief it had insulated itself from the tumultuous pro-democracy convulsions of the so-called Arab Spring, largely by using its petrodollars to muffle dissent, was rudely shattered in January when jihadists seized the sprawling In Amenas gas complex in the southeastern Sahara.

Algerian Special Forces ended a four-day siege with a take-no-prisoners assault in which most of the 40 attackers were killed, along with 37 expatriate technicians.

Six months later, Britain's BP and Norway's Statoil, who operate the plant with Algeria's state oil company Sonatrach, still balk at sending back foreign staff amid squabbles with the government over security.

The Algerian military has In Amenas and other energy facilities under heavy guard these days. But the security crisis has added to Algeria's concerns about the slump in its energy sector, which accounts for 60 percent of budget revenues.

On top of this, there is growing political uncertainty after President Abdelaziz Bouteflika, 76, suffered a stroke April 27 and was whisked off to a military hospital outside Paris.

The government insisted the stroke was minor but Bouteflika remained in Paris for nearly three months, raising doubts about his ability to function as head of state and whether he'll run in presidential elections scheduled for April 2014. There were even rumors he was dead.

His return to Algiers Tuesday did little to dispel political concerns. His plane landed at a military airfield outside Algiers rather than the capital's international airport.

After a discreet welcome, a frail-looking Bouteflika was shown on television in a wheelchair at a gathering of senior officials.

It seems unlikely, at this stage, that he'll run in 2014 for a fourth term, or even be able to see out his current term. No clear-cut successor is in sight.

That raises the prospect of Algeria's shadowy cabal of generals, led by the powerful intelligence chief, Gen. Mohamed "Tewfik" Mediene, Bouteflika's longtime nemesis, taking control.

Mediene has seriously weakened Bouteflika by taking down his political allies. One of the general's main targets has been Sonatrach, the state energy monopoly and a longtime Bouteflika bastion.

Turmoil at Sonatrach seriously harmed the energy sector, particularly its efforts to open up new exploration to top up shrinking reserves of oil and gas. Until that's remedied, Algeria's energy sector will keep dwindling.

"Algeria's global position as a hydrocarbons exporter is declining by almost every measure," Nield reported in the Middle East Economic Digest. "If this decline continues, the country will face an increasing squeeze on its balance of payments and its fiscal balance. But for now, the government seems inclined to do little about it."

"The whole country's in policy paralysis," declared Jonathan Stern of the Oxford Institute for Energy Studies in Britain.

At the start of 2013, Algeria had proven oil reserves of 12.2 billion barrels, the fourth-largest in the Middle East and North Africa after Libya, Nigeria and Angola.

It's oil production is the third-largest in Africa, but has fallen by just over 16 percent from 2 million barrels per day in 2005 to 1.7 million bpd in 2012 despite Energy Minister Chakib Khelil's loudly proclaimed drive to boost output.

Gas production slipped by 7.6 percent over the same period, from 88.2 billion cubic meters to 81.5 bcm, according to Organization of Petroleum Exporting Countries figures.

Exports of liquefied natural gas have tumbled from 25.75 bcm in 2005 to 15.3 bcm. That's a big fall of 40.6 percent.

As production fell, domestic energy consumption rose. Between 2005 and 2012, natural gas use went up by one third from 23.2 bcm to 30.9 bcm.

Oil consumption climbed by almost 50 percent from 250,000 bpd to 367,000 bpd in the same period.

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