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Exxon Shale Deal With Algeria Falls Victim To Protests

Exxon’s negotiations with Algeria for the development of local shale gas resources are being delayed because of the widespread anti-government protests in the North American country, Reuters reported this week, citing industry sources.

The news is no surprise as it comes on the heels of other media reports that energy companies are getting nervous about their Algerian plans as the protests show no sign of subsiding despite the fact long-term president Abdelaziz Bouteflika dropped his plan to run for a fifth term in office this year. They even intensified after Bouteflika pulled out of the race—a fact that does not bode well for the near-term future of the Algerian energy industry.

Oil and gas companies, like any other business, like stability. They like to do business in places where the risk of field blockades and pipeline bombings is manageable. Nigeria is an obvious exception, but its oil wealth seems to have tipped the scales in favor of the industry staying there and swallowing whatever militants throw their way.

Yet the Algeria case is different. While Big Oil has been in Nigeria for decades and cannot simply up and leave because people are bombing pipelines, Algeria is a new frontier, especially in natural gas.

The North African country is home to the world’s third-largest shale gas reserves, estimated at some 2,000 trillion cu ft, according to the Algerian government. Algeria is already an important gas supplier to Europe and is looking to increase its market share there. But there is a problem.

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The country’s shale gas fields are concentrated in the south, where the population is against gas exploration. Development plans for the area were already stopped once by local protests last year, but Sonatrach, the state energy company, pledged to continue seeking ways to convince the local community leaders that the plans will benefit them. This hasn’t happened so far, and with the protests gaining traction, the situation looks even worse than it did last year.

For now, the suspension of the talks is only temporary, so not all hope is lost. Yet it will certainly delay Sonatrach’s modernization plans as part of which it bought an Exxon refinery in Italy last year, forging closer ties with the supermajor. These ties are part of efforts on the part of the Algerian company to attract desperately needed foreign investment as it lacks the resources and expertise to develop its oil and gas reserves as successfully. Now, the protests have thrown a wrench in these plans.

And there’s more. The protests aim to remove Bouteflika from power along with everyone from the ruling elite and replace it with new people. Sonatrach’s chief, Ould Kadour, who has led efforts to attract new foreign investment into Algerian oil and gas, is a member of Bouteflika’s circle.

“The minute Bouteflika would leave power, Ould Kaddour would be sacked,” Reuters quoted an Algerian source as saying. This adds another vector of uncertainty for Exxon and other companies with plans for Algeria. It means they will likely stop what they’re doing there and wait to see what happens next, which is anyone’s guess at this point. The peaceful nature of the protests so far and the security forces’ restraint is a good sign, however, suggesting that the situation may not deteriorate further, which would be good news all around.

By Irina Slav for Oilprice.com

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