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article imageOp-Ed: Increasingly Uncertain Future for Algeria's Oil & Gas Production

By Eric Deville     Feb 13, 2013 in Business
Investment in Algeria's oil and gas production is threatened by new security fears that add on to longer term issues scaring away foreign firms.
The terrorist attack on the In Anemas gas facility in Algeria in January has caused Western oil companies to reconsider future investment in oil and gas projects in the country. Companies like BP and Statoil had to evacuate workers after the attack and reinforce the security measures at their facilities, raising the cost of maintaining their activities there. There are fears that the French intervention in Mali could provoke even more attacks against the many gas and oil installations across the country. But in addition to these recent security concerns, Algeria’s oil and gas industries are facing some longer term issues that has caused its output to fall significantly in the last five years.
One of the problems is the decreasing market for its oil supply. America has always been a big consumer of Algerian crude, but the development of shale oil in North America, especially at the huge Bakken formation in North Dakota, has reduced demand for foreign oil in the world’s largest consumer. Algeria’s government could face a crisis if the continuing development of shale oil fields lowers the price of Brent oil too far below $120 a barrel, the price at which the heavily oil-dependent national budget breaks even.
Perhaps the greatest threat to Algerian oil and gas production is the government itself. Despite promises of reform last year, the government has not announced any significant new measures to lessen the burden of administrative red tape that has caused the World Bank to rank Algeria 152nd on its global ease of doing business index. That is in addition to a 2010 corruption scandal at the state oil company Sonatrach that has left it ineffective. Foreign firms have thus shown little interest in investing in oil and gas facilities: in the most recent auction, only two of ten fields found buyers, one being Sonatrach itself. The government is hoping to attract new investment in its large and untapped shale gas reserves, with a promise to spend $60 billion on exploration last October. But it makes little sense to focus on unconventional reserves that will take years to develop when the conventional industry is in such a sorry state. It is, after all, revenues from such sources that will be needed to finance the next generation of energy investment in the country.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of DigitalJournal.com
More about Algeria, Oil, Gas, Foreign investment, Shale
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