News Analysis: Gas Field Attack Is a Blow to Algeria’s Faltering Energy Sector

LONDON — It is telling and a significantly deep blow to the Algerian economy that the militant attack and hostage-taking in that country has occurred at a foreign-run natural gas field.

Algeria’s economy, though far from vibrant, is heavily dependent on its oil and gas industry. And the country has been desperately trying to attract foreign investment — something that the hostilities at the joint venture owned by BP, Statoil and the Algerian state company, Sonatrach, is unlikely to help.

“I wouldn’t be surprised if those investors Algeria might be courting are even more wary now than they were before,” said Rachel Ziemba, a Middle East analyst at Roubini Global Economics in London.

The Algerian economy remains among the most state-dominated among the Arab countries, with few private businesses of any size and little foreign investment. Energy extraction accounts for about 60 percent of government budget revenue and 97 percent of Algeria’s exports, according to the C.I.A. World Fact Book. But oil and gas are not big employers, making them of little help in producing jobs in a country of about 38 million people and 10 percent unemployment.

With a per capita gross domestic product that works out to about $7,300 a year, Algeria is somewhat wealthier within the Arab world than Egypt, at $6,500, but far behind true oil-wealth emblems like Qatar, where per capita G.D.P. is nearly $100,000.

And even the energy exports have stagnated over the past five years. Moreover, the government would need an oil price of $121 a barrel to balance its books, the International Monetary Fund estimated in November. With oil prices currently in the $110 range, relief is not in the immediate offing.

A slow pace of investment has caused Algerian natural gas production to decline more than 10 percent from 2005 to 2011. And its share of natural gas imported by Europe has also fallen, to 14 percent in 2010 from 21 percent in 2002, according to the European statistical agency Eurostat.

Until recently, the government was unwilling to spend its oil and gas earnings, building up reserves of around $180 billion. After the Arab Spring revolutionary movements began in neighboring Tunisia and Libya in 2011, and food riots in Algeria later that year, the government opened up the taps, spending more on subsidized staples — and imported military equipment.

Last September, amid worries that Algeria could be buffeted by the same forces that have toppled other governments across North Africa, the government, which has been headed by president Abdel Aziz Bouteflika, brought in a technocratic prime minister, Abdelmalek Sellal, with some leeway to court private investment.

While the Sellal government is putting through a hydrocarbons law designed to drum up investment, it may not be “the outsized gesture” needed to put Algeria back on the international oil companies’ radar, said Geoff D. Porter, principal at North Africa Risk Consulting.

The most high-profile foreign investment deal has been an agreement by the French automaker Renault to assemble cars in Oran, in the west of the country. The first cars are scheduled to roll out of the factory next year — the first Renaults from Algeria since the government nationalized one of the company’s car plants after the country won its independence from France in 1962.

Ms. Ziemba said Algeria was among the weakest countries in the Middle East and Africa in terms of medium-term growth prospects. Annual economic growth, estimated by the International Monetary Fund at 2.5 percent for 2012, is not enough to reduce unemployment.

Until recently, Algeria has done little to attract foreign investment. There are a handful of high-profile foreign ventures in telecommunications and other industries, but the government sent a chill through the investment community when it used an attempt by an Egyptian entrepreneur, Naguib Sawiris, to sell his global mobile telecom interests as an opportunity try to nationalize his lucrative Algerian operation, Djezzy.

Mr. Sawiris finally sold to an Amsterdam-based company, Vimpelcom in 2010. But government in is still trying to take over the Algerian unit and has refused to let its owners invest in new equipment, a Vimpelcom spokesman said.

Even investment in the oil and gas industry has stagnated, with oil companies balking at difficult terms. Decision-making in the industry has also been frozen by corruption scandals at the national oil company Sonatrach, which led to the ouster of most of the national company’s top executives in 2010.

Analysts say the new management has seemed unwilling to take the risk of making decisions.

“Algeria’s upstream sector has been hampered by a double challenge: development delays, partly due to fiscal terms, and institutional difficulties,” said Leila Benali, an analyst at the consultants IHS CERA in Paris.

Article source: http://www.nytimes.com/2013/01/18/business/global/gas-field-attack-is-a-blow-to-algerias-faltering-energy-sector.html?partner=rss&emc=rss