A recent terrorist attack on a natural gas plant in Algeria is raising security fears for oil and gas infrastructure across North Africa. The grenade blast last week highlights the growing challenge for energy companies to secure remote installations and protect employees in the region, analysts said.
Last Friday, Islamic terrorists launched a rocket-propelled grenade at the In Salah natural gas field and processing plant in Krechba, in the Sahara desert. British oil giant BP and Norway’s Statoil jointly operate the installation with the Algerian national oil company Sonatrach.
The attack did not result in any damage or casualties, the companies said. But BP and Statoil said Monday they were withdrawing their employees from In Salah and another Algerian gas field, with Algerian personnel continuing the operations. A top Sonatrach source told Reuters Sunday that production was unaffected by the rocket blasts.
“Even a country like Algeria, where the military is still pretty effective, is still vulnerable to these types of attacks,” said Riccardo Fabiani, a senior North Africa analyst with the Eurasia Group in London. “This is part of the consequence of the broader regional deterioration in security since the Arab Spring [which started in 2011].”
The March 18 incident preceded unrelated terror attacks in Brussels Tuesday. More than 30 people were killed and hundreds were wounded following early-morning explosions at the Brussels airport and the city’s metro. The blasts arrived as local authorities were cracking down on terror cells in the Belgian capital.
Fabiani said the latest assault on Algerian energy infrastructure signaled an escalation of risk in the region.
Algeria, a key gas supplier to Europe, had largely managed to contain the threat of terrorist groups, even amid the growing chaos near its borders. During Algeria’s brutal civil war in the 1990s, security forces still staved off attacks on local oil and gas infrastructure. By contrast, in neighboring Libya — where two governments are battling for power and the Islamic State group is gaining ground — terrorist groups have launched roughly a dozen attacks on oil and gas infrastructure in recent years.
But now Algeria’s military is straining to clamp down on the growing weapons trade and the expanding reach of armed militants in North Africa.
“The various terrorist groups are exploiting these gaps in the security apparatus of Algeria,” Fabiani said. “Even though the Algerian army makes a significant effort to secure the area, there’s only so much they can do.”
Al Qaeda’s North Africa affiliate, called al Qaeda in the Islamic Maghreb, claimed responsibility for the Algerian attack. The group reportedly said the assault on In Salah, the country’s third-largest gas field, was part of its “war on the interests of the crusaders,” and the group also suggested it wants to discourage shale gas exploration.
The incident recalled a deadly hostage-taking at a separate gas plant in 2013. Forty people were killed during a four-day siege at the Tiguentourine gas plant in In Amenas, near the Libyan border. BP, Statoil and Sonatrach also operate that facility, which was so heavily damaged that one processing plant is still out of commission three years later.
Al Qaeda’s North Africa arm also claimed the earlier attack and drew a direct link between the two episodes, Reuters reported. Algeria’s army reportedly killed four militants tied to the Krechba gas facility attack.
So far European energy partners in Algeria haven’t indicated any plans to retreat from the country. But the broader security threats in the region have dampened foreign investors’ interest in exploring new fields or building large energy infrastructure in the country. Algeria’s Sonatrach recently announced plans to offer foreign firms the chance to buy stakes in 20 oil and gas fields to help boost production and raise revenue, Reuters reported.
“Unfortunately, oil and gas production facilities are easy targets for terrorists,” said Fadel Gheit, a senior energy analyst at Oppenheimer & Co. in New York. “Unless the host governments significantly improve security around oil and gas facilities, Western companies are unlikely to risk the lives of their workers.”
Despite rising security threats in Algeria, Libya and beyond, some energy analysts have said a major supply disruption isn’t likely in the near term, given the large global glut of crude oil. The oversupply has helped push crude prices down from above $100 a barrel two years ago to around $40 a barrel this month.
But other experts said the risk of a supply disruption from terrorist attacks is rising. In oil-dependent nations in the Middle East and North Africa, falling oil prices are eroding government revenue and shrinking their budgets for security.
Cheaper oil is also forcing oil companies to delay or cancel new projects, and production is already starting to slide. In the United States, oil output is projected to slip 7.4 percent this year compared with 2015 as low oil prices force companies to delay or cancel new projects, federal researchers estimated. Iraq, Nigeria and the United Arab Emirates saw production drop by a combined 350,000 barrels a day in February due to outages, the International Energy Agency reported this month.
“We should anticipate IS [Islamic State] and other terrorist groups to focus on higher-profile targets, as has unfortunately been the case, which makes continued production growth from OPEC more difficult in 2016,” said Charles Wall, a portfolio manager in the commodities and resources team at Investec Asset Management in London.
He said oil prices at around $40 a barrel don’t adequately reflect that supply risk.
“As one looks forward on the oil price curve, there’s no risk priced into oil expectations,” he said. “A disabling attack on oil infrastructure at a time when the oil market is tightening would likely have a material impact on crude markets.”