Arab Today, arab today bp delays 2 major algeria gas projects
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BP delays 2 major Algeria gas projects

Arab Today, arab today

Arab Today, arab today BP delays 2 major Algeria gas projects

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BP is delaying two major Algerian gas projects as foreign energy firms seek security guarantees after a deadly Islamist attack, and press the government to soften its investment terms. BP’s decision to review plans for the gas fields — including In Amenas where more than 70 people died in January’s siege — complicates Algerian efforts to reverse a decline in energy output, which accounts for 60 percent of its budget revenue. Despite the deaths of four BP employees, the company said after the militants’ attack that it remained committed to Algeria. Africa’s third biggest oil producer also supplies a fifth of Europe’s gas imports and is the United States’ chief ally in countering Islamist militancy in north Africa. However, Chief Executive Robert Dudley made clear recently that the four-day siege deep in the Sahara desert had affected BP’s plans. “Good progress is also being made on our planned 2014 project start-ups although the timing of work on our In Amenas and In Salah projects in Algeria is being reassessed following the tragic incident at In Amenas in January,” he told analysts. An industry source familiar with the plans said BP does not expect significant new production from the fields in 2014, contrary to its initial ideas. “It is the security situation that is affecting existing projects. The Algerians still haven’t done enough on the security side to reassure BP,” the source told Reuters. Since the siege, which ended when Algerian forces stormed the plant, security costs have soared for international oil companies (IOCs) operating in the country. This issue has reinforced their demands that the Algiers government should offer foreign energy investors a better deal, especially as other countries will soon step up gas production sharply. “Most IOCs are reviewing their security postures, which will be costly, so they need reassurance that further investment is worthwhile — it requires a shift in Algerian thinking,” a source at a European oil infrastructure company said. No one was available for comment at the Algerian oil ministry or the state energy firm Sonatrach. Terms vary from project to project but Algeria stipulates that Sonatrach should hold a controlling stake and take more than half an oil or gas field’s output, a requirement of state involvement that is common in resource-rich nations. Foreign oil firms also complain that official red tape and graft are exacerbating what they regard as already tough contract terms. A corruption investigation at Sonatrach resulted in the dismissal of its senior management team in 2010. On top of that, the government slapped a windfall tax on foreign oil producers in 2006 for whenever the oil price exceeds $30 per barrel — far below the current market level for Algeria’s benchmark Saharan Blend crude of around $100. US oil firm Anadarko took Algeria to court over the tax, winning the $ 1.8 billion case. However, the levy was replaced by new taxes which oil firms believe are also harsh. Foreign investors have been lukewarm on Algeria for several years. In March 2011, the government awarded only two out of 10 oil and gas permits on offer in the third licensing round in a row to attract lacklustre interest. BP and Norway’s Statoil operate the In Amenas gas plant together with Sonatrach. The three firms had planned to invest over $1 billion in the In Salah project alone. Expatriate BP staff have yet to return after being pulled out following the attack and this is slowing the projects, which are central to maintaining Algerian gas production. Industry sources say security bills in the country may have tripled to 15 percent of operating expenses following the attack. Discussions between energy companies and Algeria have been stepped up since the attack and are now held at a high level, sources at several oil firms said. “The intelligence picture is very difficult,” one source said. “There is much more dialogue going up to very senior guys.” One source said talks had been taking place among chief executives at several oil majors. Even before the attacks, oil firms believed that Algerian production terms had become unattractive at a time of rising global competition. Australia, the United States, East Africa and other Mediterranean countries such as Cyprus and Israel are all expected to raise gas output sharply as new projects start up in the next few years. “I understand that oil companies recognize that there are enough opportunities apart from Algeria that they can force Algeria to ease its terms,” said a source at an international consultancy firm in Algeria. An industry source told Reuters last month that Hess Corp. of the US will sell one of its two Algerian oil stakes to Spain’s Cepsa due to expected poor returns. Britain’s BG Group is also leaving, sources said, as its licence for the Hassi Ba Hamou block expired in September and negotiations have stalled. One major US company, which had studied Algeria, has decided to focus on projects elsewhere, a source familiar with the matter said. Such departures follow years of complaints about Algeria’s production sharing terms, which led to a decline in its oil and gas output in the last few years. Several sources at oil firms still active in Algeria said they had hoped a visit by oil minister Youcef Yousfi to Britain in April would address some of the worries. “Sadly, it was a missed opportunity,” one of the sources said, following a meeting hosted by the UK foreign office between the Algerian delegation and oil firms such as BP, Shell, ExxonMobil, Hess, OMV and Petroceltic. Sources at the companies said they were keen to hear how Algeria would address the concerns about security and production terms, whereas the Algerians focused on promoting unconventional development of reserves such as of shale oil and gas. Algeria amended its law in January to encourage exploitation of oil and gas with new technologies such as hydraulic fracturing — known as “fracking” — while leaving terms for conventional resources unchanged. The next test will come later this year when the government relaunches a licensing round for 20 oil and gas blocks. However, the government’s attention is likely to be elsewhere due to concerns about the health of veteran President Abdelaziz Bouteflika, who was flown to a Paris hospital last weekend, and presidential elections next year. “I am not expecting any change of the law in 2013, the focus will be on ... the presidential campaign,” one source at Sonatrach said. Source: ArabNews

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