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Irina Slav

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After Libya And Venezuela, Is This The Next OPEC Wildcard?

Anti-government protests in Algeria were probably supposed to end after long-term president Abdelaziz Bouteflika dropped his plan to run for a fifth term in office this year. They didn’t. In fact, protests in the North African oil and gas producer intensified after Bouteflika pulled out of the race. Now, some warn the country could become another Libya: another wild card in the OPEC deck.

Bloomberg commentator Julian Lee last week sounded an alarm drawing a sketchy, hypothetical parallel between the situation in Algeria and the one in neighbor to the East, where inter-factional violence continues to cast a long shadow over the security of its oil production.

For now, however, Algeria’s oil industry has not been disrupted, and Lee notes that the possibility of future disruptions is just that, a possibility. Yet oil majors with plans for growth in Algeria are becoming reluctant to move forward with these plans.

The Wall Street Journal reported this week that Exxon, BP, and Equinor have all put the brakes on their investment plans for the North African country amid escalating protests. Exxon was about to sign a preliminary deal for a trading joint venture with Algeria’s Sonatrach in the next few months. BP has a long presence in the country, and so does Norway’s Equinor, and both had new investment intentions that will not be put on hold.

Algeria produces around 1.1 million bpd of crude oil, which makes its output comparable to Libya’s. Oil reserves are estimated at 12 billion barrels. Yet it is also a major natural gas producer and home to the third-largest shale gas reserves in the world, at 20 trillion cu ft, according to U.S. government data. Production was around 94.78 billion cubic meters for 2017, of which 53.89 billion cubic meters was exported. Oil exports account for roughly half of Algeria’s output. Related: Oil Slips As Alberta Relaxes Oil Production Cuts

The country, in other words, is an important player in both oil and gas, and production outages will certainly affect both markets, the oil one especially. For now, the protests, though massive, are peaceful. Security forces, according to the BBC, are also careful and violence has not reared its head yet. However, the protests have reached the energy industry.

Reuters reported on Sunday that workers at the country’s largest natural gas field had staged a protest in response to the newly appointed Prime Minister’s perceived plans to extend Bouteflika’s fourth term instead of calling new elections. The PM, Noureddine, announced he will form a new government of ministers without any political affiliations, but this is not enough for the protesters.

Their demands are for new elections now and the promised reforms that never materialized, according to them. Bouteflika has postponed the elections, initially scheduled for April, until a new constitution is adopted, effectively extending his fourth term in office.

According to all media covering the situation in Algeria, the country is ripe for a drastic change in government, a change in the ruling elite, which has so far been comprised of independence war veterans and military and intelligence officials. However, there are also Islamist formations in the local political spectrum and as history has shown more than once, these formations are adept at using peaceful unrest for their own ends.

OPEC does not need another wild card. The cartel needs consistently higher prices, not panic-driven spikes followed by drops. Oil markets do not need another swing producer with prices already volatile enough. Yet if the situation in Algeria escalates enough, another swing producer is exactly what OPEC and the market will get. For now, the possibility of that happening is remote.

By Irina Slav for Oilprice.com

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