Will Oil Majors Pull out of Algeria after its Security Reputation is Shattered?

The hostage situation in Algeria's In Amenas oil field could spell doom for the country's oil and natural gas industry.

Since the end of the civil war in the late 1990's Algeria has grown into an important supplier of gasoline-rich crude oil to the global market, attracting billions of dollars of investment, partly because of its tight, military style security.

Feeling safe, oil majors began to operate in remote and challenging areas of the country, such as along the borders of Mali and Libya; In Amenas is one such location.

Relevant Article: Algeria Hostage Crisis - Look to Mali for Answers

John Hamilton, an Africa specialist at CBI Research, explained that, "the military was providing its own security to oil companies in the desert and people were fairly comfortable about flying down to the desert."

This recent attack against In Amenas is the first on Algerian assets, and could change the perceptions of oil companies as to the safety of working in the country. BP (NYSE: BP), Statoil, and Cepsa have all started to evacuate their workers, even though some work in fields hundreds of miles away from In Amenas. If this starts to affect oil production then the government, heavily reliant on revenues from its oil and gas exports, could suffer.

Some oil experts have stated that the biggest risks will be at the fields near to In Amenas, in the province of Illizi, and along the Mali border. Fortunately most of the large fields are located far from this area and are believed to still be well protected from further attacks.

By. Charles Kennedy of Oilprice.com