Can Algerian Energy Buck Downward Trend With EU Help?

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By Christopher Coats, Contributor

Even before North Africa’s recent political earthquake, Algeria’s vital energy sector was on the rocks. Despite substantial hydrocarbon reserves, the country’s production had steadily declined in recent years due to dwindling interest from foreign firms. A mix of industry instability, unfavorable revenue agreements and institutional corruption had made it difficult to justify the risks of operating in the country. Making matters worse, European demand for natural gas was declining with the financial crisis and U.S. purchases were wavering amid the North American shale boom. By the time political movements ousted long-standing leaders in neighboring Libya and Tunisia, putting pressure on the country’s leadership, Algeria was already fighting a dangerous narrative of industry decline. For a country so completely dependent on energy revenue and exports for every level of government spending, this wasn’t just bad news – it was destabilizing. While Algeria largely avoided the kind of violence and instability that forced leadership changes in Tripoli, Tunis and Cairo, their post-Arab Spring experience has not been without challenges. In addition to domestic pressure for labor and political reforms, mostly in the form of targeted protests, the country’s energy industry has faced pressure from outside its own borders. In January, militants from Mali crossed the border and targeted a BP and Statoil gas facility near the Libyan border. Touted as a response to Algeria’s support for European action against a Mali-based separatist movement in the north of the county, the raid and ensuing government response left scores dead, including dozens of foreign workers. Coupled with concerns about the country’s energy industry, including wide-spread corruption allegations at state firm Sonatrach, the raid chipped away at the confidence in Algeria’s already beleaguered energy sector. So, it would seem that recent news of a fresh agreement with the EU that, “establishes a framework for co-operation, which covers… oil and gas, renewable energy, energy efficiency, legal and regulatory reform, progressive energy markets, infrastructure development and technology transfer”, could not come at a better time. For Algeria, the new agreement means a vote of confidence from one of its largest customers, despite declining gas demand that is not expected to return for another two to three years. For Europe, it means a further step towards stabilizing a resource line from North Africa and meeting long-term goals of reducing dependence on less favorable resources, most notably Russia. Further, by casting Algerian reserves as “a priority area” for Europe’s strategic energy interests and security, it helps pave the way for EU infrastructure funding that has become increasingly elusive in recent months. Five years in the making, the new agreement is welcome news for both sides of the Mediterranean. Still, details of the new partnership remain vague and it is unclear whether EU support will mean more enthusiasm from European firms that have expressed concern about operating in Algerian in recent years. Six months on from the gas facility attack, both BP and Statoil have resisted sending foreign workers back to the project site. Earlier calls for policy reforms and …read more

Source: FULL ARTICLE at Forbes Latest

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