Europe Faces Fallout From Algeria Attack

A map of the North and West African region of the continent. The gas field at In Amenas has been the focus of a seizure by armed gunmen who have held personnel from several nations., a photo by Pan-African News Wire File Photos on Flickr.

January 17, 2013 3:10 pm

Europe faces fallout from Algeria attack

By Guy Chazan
Financial Times

It did not take long for the militant attack on BP’s gas plant in Algeria to have an impact in Europe, a key export market for Algerian oil and gas.

Snam Rete, operator of the Italian gas grid, said volumes of gas pumped into Italy from Algeria through a key trans-Mediterranean pipeline had fallen by about 10 million cubic metres a day to 60-65mcm/d – a troubling drop in the middle of winter.

The company declined to comment on the reason for the dip. But traders blamed the fall on the crisis in In Amenas, where production was halted following Wednesday’s militant attack.

The incident is a big blow to Algeria’s carefully nurtured reputation as a safe place to invest, a place where foreign oil companies could go about their business without fear of attack.

Algerian officials long boasted that even during the bad old days of the 1990s civil war, when thousands died in an Islamist insurgency, western energy groups’ installations were never targeted.

Yet there are more immediate consequences for Algeria. A huge field, In Amenas produces 9bn cubic metres of gas a year – about 12 per cent of Algeria’s total output and 18 per cent of its gas exports, according to Société Générale. It also pumps 60,000 barrels a day of condensate, a valuable liquid fuel that is a byproduct of gas extraction. The country earns roughly $3.9bn a year in export revenues from In Amenas’ gas, says SocGen. A protracted crisis at the complex could put a serious dent in the country’s balance of payments.

It could also have implications for European energy security. The continent has long been dependent on Algeria for energy imports. The country is the third-largest supplier of gas into the EU, after Russia and Norway, and In Amenas’ production alone accounts for 2 per cent of European demand.

Yet even with the swings that Italy’s Snam Rete identified, the field’s shutdown is unlikely to lead to a gas shortage in Europe, where demand is in any case at record lows thanks to recession and the boom in renewables. Thierry Bros of SocGen says Russia’s Gazprom will step in to make up any shortfall, much as it did last year when the war in Libya brought that country’s gas exports to a screeching halt.

Still, the Algeria attack will concentrate European minds and refocus attention on the continent’s heavy reliance on imports from north Africa, a region that has become increasingly unstable in the wake of the Arab spring.

What some observers fear is that the violence could now spread to other vulnerable, remote areas where foreign oil workers operate.

“There is a risk that the same militant groups that were responsible for the In Amenas attack could hit production facilities in southwest Libya,” says Samuel Ciszuk, an analyst at KBC Energy Economics. That could be a disaster. “The Libyan state does not have the same kind of security capability as Algeria to deter this kind of attack,” he says.