Algerian government seeks to salvage energy trade after attack

In Amenas siege may have far-reaching repercussions for a gas-reliant economy

Until a few days ago, workers at the In Amenas gas plant in the Algerian Sahara lived a simple, if confined life. Working 12-hour shifts and seven-day weeks offered little opportunity for leisure.

But when there was down time, they had at their disposal state-of-the art training and sports facilities, including a football pitch, swimming pool and fitness rooms.

“There’s a lot of friendly rivalry there,” says Gerry Peereboom, head of BP operations in Algeria from 2005-09. “The Brits play the Norwegians at soccer, and the expats play the Algerians.”

Until the plant came under attack last week, there was little reason to believe that the safety of workers at In Amenas was at serious risk. Algerian authorities said at least 37 hostages were killed in the siege. Last night, Norwegian energy company Statoil ASA confirmed that two Norwegian employees missing since the attack are dead.

In the 55-year history of Algeria’s oil and gas industry there had never been a major attack on an oil or gas facility, despite a decade-long civil war in the 1990s that claimed an estimated 200,000 lives.

Security at the plant is extremely tight. Whenever workers leave the compound to travel to the nearby airport or to work on the gas fields, they are escorted by Algerian security forces. The compound is protected by a perimeter fence, a second inner fence and armed patrols.

The site itself offers natural protection from outside intrusion. Two sides of the facility are protected by a cliff drop that it would be difficult to scale unobserved. On the other two sides there is a clear view all the way to the horizon.

How such comprehensive security could be breached remains a mystery. But the fact that it was breached is a huge blow for a government that derives much of its legitimacy from its success in combating Islamic terrorism, and takes great pride in the experience of its security services.

The shutdown of the In Amenas plant has economic repercussions too. The facility accounts for about 10 per cent of Algeria’s gas output and more than 15 per cent of its exports. The gas produced from the field is worth between $5m and $10m (£3m and £6m) a day. Algeria’s Energy Minister, Youcef Yousfi, said on Sunday that the plant could resume production “in the next few days”, but BP and Statoil are more cautious. “The site is still part of the crime scene – it will take a while,” said Sheila Williams, a spokeswoman for BP in London.

The Government has insisted that the loss of output from In Amenas can be covered, while Spain and Italy have reported that gas deliveries from Algeria are above average for the month to date.

But the reputational impact on Algeria of the security breach at In Amenas could be much more damaging. Algeria’s hydrocarbons sector accounts for about two-thirds of the country’s economy and 97 per cent of its export income. A lack of exploration and rapid growth in local energy demand in recent years has put the government under huge pressure to accelerate its exploration and development programme.

Statoil and BP both say that they intend to maintain their business in Algeria. But both have underlined the need for new security guarantees. A statement released by BP on 22  January insisted that the company “remains committed to operating in Algeria”. But the company has evacuated all of its staff from the country, including those based in Algiers. “When they return will be decided at a later date,” said Ms Williams. “They have been through an extremely hard time.”

Whether the appetite of other companies to invest in Algeria, or to continue existing operations there, will be affected remains to be seen. On Monday, Algeria’s parliament passed a series of amendments to the country’s oil and gas licensing regime for foreign companies operating in the country. The terms are appealing, say analysts. At the moment, though, security concerns will come first.