This week, all eyes are on BP (NYSE: BP) in Algeria, and a massive hostage crisis that has sent panic through the markets and led to a rise in oil prices.
The beginning of this week saw Islamic extremists under fire from a French offensive in Mali attack a gas field in the Algerian Sahara desert and take over 600 hostages from 10 different countries.
The Algerian Special Forces launched a two-day operation to free the hostages on Wednesday and Thursday. The militants themselves freed around 600 local workers before the Algerian stormed the scene in a helicopter strafing that also took the lives of around 35 hostages and 15 of the estimated 20 militants.
This is a very remote location and the death count is hard to verify, with the tendency from both sides to skew numbers. A number of workers, however, remain unaccounted for. The militants claimed to be holding 7 Americans, but Washington confirmed only 3.
This gas field is operated by BP, Norway’s Statoil and Algerian state-owned Sonatrach, while Japan’s JGC Corp provides services.
The geopolitics are extremely complicated and somewhat dark here—but highly significant for the entire region (if you want more on this, sign up for our Premium Newsletter – we are offering a 14 day Free Trial)—so we will stick here to the industry.
The market responded immediately to this incident, with oil prices rising $1.25 to close at $95.49 a barrel on the New York Mercantile Exchange.
Some energy players in Algeria—fearing additional threats in other areas of the country —relocated workers.
The BP site is some 1,200 kilometers from the capital, Algiers, but only about 100 kilometers from the Libyan border. Significantly, this gas field was responsible for supplying 12% of Algeria’s output.
While Mali has been bad news for a while, Algeria was under the impression that its oil and gas assets would be spared—as they have been in previous years of conflict. The incident comes at a time when Algeria is taking big steps toward luring investors to its massive shale plays. Those recent legislative overtures may now fall on reluctant ears (along with one of Europe’s hoped-for alternatives to Russian gas).
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What will most upset investors is the level of security at these gas facilities, which have been described as more secure than an army barracks or an “oases in an unsafe country”. That it was so easily breached by only 20 militants (who managed to take hundreds of hostages) shows how vulnerable the most expensive security is—and how vulnerable future investments will be.
While Mali and Algeria are the week’s most obvious industry news, those paying attention to other industry developments in Washington will note the looming departure of Interior Secretary Ken Salazar, in March.
Salazar’s tenure has been contentious at best. The industry didn’t like him, but even environmentalists shunned him for what they saw as his lukewarm policies. The middle of the road, it would seem, wins you no friends from either side. The industry is keen to know who his successor will be. The possibility include former Senator Byron Dorgan (D-N.D.), former Colorado Governor Bill Ritter and Washington Governor Chris Gregoire, as well as the current deputy secretary, David Hayes. We’ll know more in the coming weeks.
Another departure also looks imminent—that of Energy Secretary Steven Chu, whom media say could announce he is stepping down as early as next week. Chu—loved by Democrats and hated by Republicans, took tough fire over the Solyndra debacle in particular.
Also this week, we had a chance to talk to Nairobi-based Taipan Resources Inc. CEO Maxwell Birley, who himself has been instrumental in discovering more than 2 billion barrels of oil equivalent in his 30-year career—much of it in Africa and Asia. We talked about Kenya and why 2013 will be the year this country proves the commercial viability of its massive finds. We also talked about the regulatory environment in Kenya, the security environment, and why this remains a great play for junior oil and gas companies. We also gained some insight into what Taipan is REALLY chasing in Kenya …. Check it out.
In this week’s analysis we have borrowed the Executive Report from our premium service and take a look at Pakistan’s massive reserves of oil and gas and which players are likely to benefit from the development of these resources.
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In this Week’s Premium:
Important Lessons for Commodity Investors Following Rio Tinto's Announcement
Betting on Mediterranean Shale, 3 Plays, 1 Winner
Tapping into Pakistan's Massive Oil and Gas Reserves
Algeria Hostage Crisis – Look to Mali for Answers
Iraq - Kuwait - Turkey: Relations Hit a New Low
Romania and the Shale Question
Algeria - Another Setback for the Galsi Pipeline
Oil Market Forecast & Review 18th January 2013
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