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Terror attack casts long shadow over Algeria’s troubled upstream

BP fears the worst as the outcomes of the terror attack on Tigantourine wet-gas complex remain unknown

At least 38 workers at the Tigantourine wet-gas complex, near In Amenas, Algeria, were killed in a horrific hostage taking in January that ended with the storming of the plant by Algerian army security forces. As Petroleum Economist went to press, several more workers remained unaccounted for. A week after the 16 January attack, when 40 terrorists entered the compound and took more than 800 workers captive, many details are still unclear.

BP, which operates the project alongside Algeria’s state company Sonatrach and Norway’s Statoil, said on 23 January that the fate of four of its employees — 18 worked at the plant — remained unknown. Chief executive Bob Dudley said the company “feared the worst”. Statoil said five of its 17 workers were still missing. Seven Japanese and six Philippine workers were killed, as were workers from the UK, US, Romania, Algeria, Colombia, France and Malaysia.

Amid conflicting reports, it is unclear how many hostages died while under siege and how many were killed when Algerian special forces staged their rescue. The terrorists, who breached the plant’s security on 16 January, were reportedly intent on killing their hostages, triggering the Algerian assault. Three of the terrorists were captured alive.

France’s intervention against Islamists in Mali, said Mokhtar Belmokhtar, a notorious jihadist and veteran of Algeria’s 1990s civil war who claimed responsibility for the siege, was the motivation for the act of terror. Security analysts discounted that, saying meticulous planning had gone into the attack, suggesting it was put in motion months before the French intervention.

That is more worrying, implying the threat has been building with little attention for some time. Operators in North Africa and the Middle East are now reviewing their security. Algeria does not allow companies to use private security forces to protect their assets, although some security firms act as liaison between investors and the Algerian military.

Algeria’s punitive response sent a brutal signal to terrorists targeting its infrastructure, even if it dismayed some Western governments, which were not forewarned of the special forces’ operation. Within the country, the assault has been seen as a success.

The attack bore similarities with that in 2004 in Khobar, Saudi Arabia, where non-Muslim foreign workers were also targeted. Saudi Arabia cracked down on internal dissidents after that terrorist attack. Algeria will likely do the same, though the government was swift to cite the involvement of foreign terrorists — including at least one Westerner, possibly Canadian — in the Tigantourine siege.

Although Algeria’s army has the capacity to tighten security, a bigger problem lies next door. Libya’s post-Qadhafi landscape is still riddled with risk. Its government was unable even to close the border between Libya and Algeria after the siege near In Amenas. Its southern oil installations are also exposed. Hillary Clinton, the US secretary of state, last month warned of the “Pandora’s box” of weapons that had been opened by the 2011 civil war in Libya. In Mali, another neighbour, French intervention has yet to quell Islamists who now control much of the north of the country.

Crushing the terrorists may also be a Pyrrhic victory for Algeria. BP, which has evacuated all its expats from the country, says it remains “committed” to its “high-class” assets in Algeria. (The Tigantourine facility remains offline, although BP’s In Salah project is still operating.) But other potential investors will be more reluctant.

Algeria’s energy industry is in bad need of rejuvenation and the attack will profoundly damage its hopes. Oil production in 2011 was just over 1.7 million barrels a day (b/d), compared with more than 2m b/d in 2007. Gas output has fallen from more than 88 billion cubic metres a year (cm/y) in 2005 to 78bn cm/y in 2011, hindering an export industry that is already under pressure from high depletion rates and soft demand in Europe, Algeria’s main market. An active rig count of 36 is well beneath highs of more than double that number seen in the 1980s.

Previously planned amendments to the hydrocarbons law, passed by parliament after the attack at Tigantourine, were intended to perk up foreign investors’ enthusiasm for the sector, with the government hoping companies would target offshore prospects and Algeria’s vast unconventional oil and gas potential. Some improvements to the law were made: taxes will be based on profits, not revenue; and the much-criticised exceptional-profits tax — a windfall levy that was deeply unpopular with investors — will not apply to new contracts.

But even excluding the impact of the terror attack, other aspects of the hydrocarbons law will continue to deter investors. Sonatrach’s mandatory 51% holding in upstream projects has been expanded to the downstream. The company keeps its monopoly on energy transportation. The subsidised domestic market has been made a priority. International prices will apply to production sold locally, but the mechanisms for setting the price, especially for gas, are unclear.

Algeria’s best prospects are increasingly to be found in its deep south, too. Given the instability in Mali and Libya, which both share porous southern borders with Algeria, the country will struggle to persuade investors that it can provide sufficient protection at remote installations.

Meanwhile, France’s war on Islamists in Mali is fraught with risk for Algeria, which has allowed French fighter jets to use its airspace. From Algeria’s perspective, Western intervention in Libya was hardly a success. The terrorists who attacked Tigantourine reportedly had help from Islamists in Libya, and some of them may have crossed into Algeria from its eastern neighbour. After fighting a brutal civil war to crush its own Islamists, Algeria will view dimly the growing terrorist threat next door and the possibility of more chaos in Mali.

Nor will Algeria welcome the words of UK prime minister David Cameron, who said last month that the West was now engaged in a conflict with North African terrorists that could last “decades”.

Such language will scare investors. The chief executive of Statoil, Helge Lund, said last month that the oil industry was at a “crossroad” in North Africa. “We have a responsibility to run our business and support our daily operations,” he said, “we cannot and will not let a terrorist attack interfere in our determination.”

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