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Is the West Turning Away from Middle East Energy?

By Daniel J. Graeber | Wed, 17 July 2013 21:59 | 0

Russian energy company Gazprom said this week it was considering sending a delegation to Algeria to review the prospects for more energy work.  The Russian energy giant said it was interested in exploiting the estimated 160 trillion cubic feet of natural gas there. A report published in May warned that Algerian natural gas production was in decline, however, because aging fields were no longer giving up resources. A lack of foreign investments is hurting the situation even further.  Though Gazprom is reviewing its options, a warning from the U.N. Security Council suggests it may be awhile before the region's state of affairs are in order enough to support any major foreign interest.

Viktor Zubkov, chairman of the Gazprom board of directors, welcomed Algerian Ambassador to Russia Smail Chergui to his office in Moscow to discuss bilateral cooperation in the energy sector. Gazprom in 2006 signed a preliminary agreement with Algerian state energy company Sonatrach and in 2010 produced 2.1 million cubic feet of gas from the desert Rhourde Sayah-2 well, its first ever discovery in North Africa.

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"The parties agreed to prepare and hold a business trip of Viktor Zubkov to Algeria before the end of the current year," Gazprom said.

A May report from the U.S. Energy Department's analytical arm reported Algeria in 2011 produced 2.1 trillion cubic feet of natural gas. Production has been in decline since 2005, however, because its natural gas fields are depleting. The Algerian government in 2012 started revising national laws to bring in more foreign investments. The May report, however, stated several planned projects have faced setbacks or were repeatedly delayed despite those efforts.

In January, militants with ties to al-Qaida in the Islamic Maghreb attacked the In Amenas natural gas facility in Algeria, leaving employees from BP and Norwegian energy company among the dead. The attack had the logistical support of Islamic fighters who traveled across the western border from Libya.  Austrian energy company OMV said this week it was restarting some of its work in Libya following disruptions "due to the political situation." Dana Gas, meanwhile, said it remained committed to Egyptian natural gas production, though that's seemingly a rare show of full-fledged support. Oil prices in general have escalated in part because of the Egyptian coup and, according to OPEC, many of the major producers in the region are struggling to survive.

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Workers from BP and Statoil have yet to return to Algeria since the January attack on In Amenas. That leaves Algeria without some of its major foreign sponsors to help support a budget that relies on oil and natural gas production for 60 percent of its revenue. But the situation extends beyond just Algeria. The Security Council said it was "gravely concerned" about the presence of al-Qaida in the region. BP and Statoil have been sidelined so far and it remains to be seen what Gazprom can, or will, do to fill the void. Two years after the Arab Spring, it seems few foreign investors from the West have the stomach to handle the region's post-revolutionary climate.

By. Daniel J. Graeber of Oilprice.com

About the author

Contributor
Daniel J. Graeber
Company: Oilprice.com
Position: Senior Analyst

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