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Algeria army-backed oil security suffers biggest blow

Algeria's In Amenas field, where Islamist fighters seized dozens of foreign workers this week, is at the heart of an oil and gas region that has attracted international firms in recent years partly because of its military-style security.

"For this group to have attacked there, in spite of tremendous security, is remarkable. Even as an Algerian, I need a special permit to go there," said Azzedine Layachi, an Algerian political scientist.

Events this week may change perceptions of an oil industry that has attracted billions of dollars in foreign investment since Algeria's government crushed an Islamist revolt during the 1990s. That in turn could store up trouble for a government reliant on oil and gas revenues to finance domestic spending.

Algeria is also an important supplier of gasoline rich crude oil to world markets.

The In Amenas gas facility operated by BP, Norway's Statoil and OPEC member Algeria's state firm was attacked by militants on Wednesday.

They kidnapped dozens of foreigners in the raid in retaliation for France's intervention in Mali and many were believed to have been killed in a military raid on Thursday.

"Over the last decade security had become less and less of a concern. For the first time in a decade the security situation has plummeted, causing consternation amongst international oil firms," said Geoff Porter, director of North Africa Risk Consulting.

In Amenas became the first major attack on Algerian energy assets, prompting BP, Statoil and Spain's Cepsa to start evacuating staff even though some of their projects are located hundreds of kilometers away from the site.

The Algerian oil and gas industry is dominated by state oil firm Sonatrach, which employs over 100,000 people. It operates the biggest oil and gas fields including the country's No.1 oil deposit Hassi Messaoud, located in the centre of the country.

Sonatrach has encouraged foreign investment since the late 1990s after the end of a civil war, which cost an estimated 200,000 lives.

As a result, oil majors ventured into remote and challenging areas on the border with Mali and Libya, including In Amenas.

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

Risks for Libya

In the past years, Spain's Cepsa has become a significant foreign player in Algeria and says it is responsible for 17 percent of the country's output, producing 220,000 barrels per day from a group of fields near the Libya-Tunisia border.

The fields, including the country's No.2 oilfield Ourhoud, are located some 300 kilometers north of In Amenas.

U.S. Anadarko operates fields in the same area with Cepsa with its own share of output being 60,000 bpd.

Other large foreign investors include Italy's Eni, responsible for producing 70,000 bpd, as well as BP, Statoil, Total and Maersk, each producing in the area of 20,000-30,000 bpd.

Industry sources said every oil company was employing dozens of expatriates all of whom were usually flown in for short rotations taking several weeks. BP, Statoil and Cepsa all said they had begun to evacuate personnel from Algeria.

Large oil service companies such as Halliburton also employ international staff.

Most large fields are located far away from In Amenas and are believed to be still well insulated from attacks.

Several oil experts said the biggest risks were for the fields near In Amenas in the southern Illizi province where Eni, BP and Statoil operate. They include deposits such as Eni's Zarzaitine or Total's Tin Fouye further West.

Repsol lists Illiza province as one of its most important areas of exploration globally.

Sam Ciszuk from KBC consultancy said he believed a number of fields near In Amenas would be evacuated.

"The more worrying scenario is that the Islamists next pour over the border into Libya. The Libyan government is fractured and the military too weak to be efficient," he said.

He added that although most of Libya's fields are in the east, Western deposits were producing up to 300,000 bpd. The biggest field include Eni's Elephant and Conoco's Waha. Libya's production was halt during the 2011 civil war.

With France's military intervention in Mali, risks are on the rise of displacement of jihadists, many of whom will likely look to Libya for refuge.

"The worst case would be that the interim Libyan government breaks down and we see a return of large-scale fighting between tribes and factions, with Libyan production dropping off significantly," said Richard Mallinson from Energy Aspects consultancy.

[Source: By Alex Lawler and Julia Payne, Reuters, London, 17Jan13]

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