Algeria: gas supplies not seen at major risk

Algeria is the third largest supplier of natural gas to Europe after Russia and Norway, so the attack has sparked some uncertainty over energy supplies. However analysts were not too concerned pointing out that Algeria’s exports have been declining for several years due to lower production and more gas being used within the country itself. The field that was seized by al-Qaeda-linked militants is responsible for just two percent of the gas that Europe uses. Opened in 2006, In Amenas pipes nine billion cubic metres of natural gas to Europe each year. Passing via Algeria’s biggest gas field – Hassi R’Mel, located in the centre of the country – it is imported mainly through Morocco into Spain and through Tunisia into Italy. Gas prices spiked only briefly following the attack. Most of the gas from Algeria is tied to long-term contracts at fixed prices. Algeria’s energy industry is dominated by state owned firm Sonatrach, which has encouraged foreign investment since the late 1990s after the end of Algeria’s civil war. The In Amenas field is at the heart of an oil and gas region that has attracted international firms in recent years partly because of its military-style security. “For this group to have attacked there, in spite of tremendous security, is remarkable. Even as an Algerian, I need a special permit to go there,” said Azzedine Layachi, an Algerian political scientist. Events this week may change perceptions of an oil industry that has attracted billions of dollars in foreign investment. That in turn could mean trouble for a government reliant on oil and gas revenues to finance domestic spending. However, most large fields are located far away from In Amenas and are believed to be still well insulated from attacks. Sam Ciszuk from KBC consultancy said he believed a number of fields near In Amenas would be evacuated. “The more worrying scenario is that the Islamists next pour over the border into Libya. The Libyan government is fractured and the military too weak to be efficient,” he said. He added that although most of Libya’s fields are in the east, Western deposits were producing up to 300,000 bpd. Libya’s production was halt during the 2011 civil war. With France’s military intervention in Mali, risks are on the rise of displacement of jihadists, many of whom will likely look to Libya for refuge. “The worst case would be that the interim Libyan government breaks down and we see a return of large-scale fighting between tribes and factions, with Libyan production dropping off significantly,” said Richard Mallinson from Energy Aspects consultancy.