Chakib Khelil will resume the OPEC presidency feeling more comfortable at home than he has for several years, writes Jon Marks with Our Algiers Correspondent.

Energy and Mines Minister Chakib Khelil passed a politically very prosperous holy month of Ramadan, with victories on the international front – notably being elected president of the Organisation of Petroleum Exporting Countries for 2008 (AE 122/14) – and at home, where his tough line on companies that Algiers deems to have failed to meet their contract obligations has played well among nationalist opinion, as has the announcement that the revised hydrocarbons law’s windfall tax will yield around $1bn this year.

Debate continues over Khelil’s action to deprive Spain’s Gas Natural/Repsol YPF consortium of the coveted contract to develop the Gassi Touil gas resource into an export LNG scheme. For some analysts, the issue boils down to Algeria’s loss of confidence in the consortium’s ability to make the project work as costs continued to soar and commercial deadlines slipped ever further behind. Others saw what Sonatrach described as a “major industrial fiasco” as another expression of resource nationalism (AE 121/24).

Whatever the reason, a range of international oil company sources told African Energy that the more hostile noises coming from the Algerian regime were giving real cause for concern. Even though only a few firms will have to pay the retrospective windfall tax – including Anadarko Petroleum Corporation, Italy’s Ente Nazionale Idrocarburi (Eni) and Denmark’s AP Moller Maersk – IOC executives have been complaining loudly that Khelil has shown that if it suits the government’s agenda Algeria will behave ruthlessly – some claim in an “arbitrary manner”.
Companies are talking about pressure on several other IOCs – including ConocoPhillips – over separate issues. Such is the nervy mood that there have been recent rumours that BP might be rethinking its participation – with some downsizing at least being considered.

These rumours are unconfirmed, but they say much for the prevailing atmosphere: the Gassi Touil decision, following on from a bruising battle with Spain over marketing rights and the price of the gas transported through the Medgaz pipeline, established Khelil’s credentials as a genuine Algerian tough guy.

His approach now seems far removed from that of the globalising World Bank official who returned to Algiers with President Abdelaziz Bouteflika in 1999 with a remit to transform the industry. (Ironically, one of Khelil’s proudest achievements as Latin American energy policy expert at the Bank was facilitating the Argentine national oil company’s privatisation, to become part of Repsol YPF.)

Khelil’s return to favour after the grisly battles over his hydrocarbons law was confirmed when last month Bouteflika confirmed his position as energy minister and granted the office holder some new powers, after the Journal Officiel (official gazette) published an executive decree signed by the president. This said that Ministry of Energy and Mines incumbent was responsible for the formulation of policy on exploration, production and marketing; the monitoring of implementation; development of the electricity sector, including nuclear and renewable energies (for further analysis of this, visit AE’s online subscriber Reference Library).

Windfall tax

Recently released oil export data show the extent to which the government is profiting from the windfall tax. These show that value of the exports share owned by Sonatrach’s associates fell by 33% to $1.99bn in H1 2007 (compared to H1 06). Sonatrach said this was mainly due to the volumes paid off for the windfall profits tax deducted in 2007.

The volume of Sonatrach’s oil exports fell by 3% year-on-year in H1 07, to 67.86m toe, while the value of exports fell by 1% to $26.81bn.

Maersk reported that it had made significant charges against profits to account for the tax. “The total effect of the additional taxation, $175m, including additional effect for the period 1 August to 31 December 2006, $50m, is included in the tax charge for the first half year 2007. It is still maintained that the contract includes provisions about protection of the financial balance between the parties.” The Danish firm said its share of oil production fell slightly to 5.8m bbls, compared to 5.9m bbls in H1 06.

Partners line up

Very mixed signals are emerging about the future of Gassi Touil. Companies including Gaz de France – which is very keen to sign up a big new deal, and will receive a marketing boost when French President Nicolas Sarkozy visits Algiers, again – and Royal Dutch Shell have sent out signals of interest.

Some Sonatrach sources have been quoted as saying the state company could go it alone – but its record of project implementation has not been great, and Sonatrach does not have the staff to carry out a major engineering, procurement and construction contract.

Industry sources say it is questionable whether the big EPC players (led by Kellogg Brown & Root/JGC Corporation and Bechtel) have the capacity to build a greenfield liquefaction plant within the timescales and costs set by Sonatrach.