* Algeria needs investors to develop new gas fields
* Britain wants to reduce its LNG dependency on Qatar
* Security a main concern to investors
By Henning Gloystein and Peg Mackey
LONDON, Feb 28 Britain wants to wriggle a little
freer from its dependency on Qatar for gas imports - Algeria
could be part of the answer.
Algeria wants investment in its oil and gas sector to boost
revenue, potentially dented by the In Amenas gas plant attack.
The common ground seems clear for high level talks during
Algerian Energy Minister Youcef Yousfi's visit to London,
planned for March 10-12, say industry sources.
His anticipated arrival follows Prime Minister David
Cameron's end-January trip to Algiers, where he vowed to
cooperate on security and intelligence following the attack by
Islamic militants on In Amenas gas.
"It's important for Britain to prevent Algeria from erupting
into chaos, and building close ties by ensuring foreign
investment flows is a way to support a stable government," said
Mariam Al-Shamma, an analyst at PFC Energy in Washington.
After the attack on the desert gas plant, operated by
Britain's BP in partnership with Norway's Statoil
and Algerian state-owned Sonatrach, Algiers is doing
its best to attract the investment needed to maintain its
position as a gas exporter.
It passed new laws last month that provide incentives to
companies wishing to invest in shale gas and unconventional
hydrocarbons and offer foreign energy firms easier tax terms.
Other potential investors have already voiced their
interest. Russia's Gazprom held talks with Sonatrach
in Moscow earlier in February noting a "mutual desire for
Gazprom is the world's biggest gas producer and relies
heavily on pipeline supplies to Europe, which make up around 80
percent of its revenues. It is keen to expand in the liquefied
natural gas (LNG) sector to grow in the booming Asian market.
But analysts say unconventional reserves are still decades
away from being developed in Algeria, and that the changes for
conventional resources are fairly minor and unlikely to
encourage a wave of new investment needed to develop untapped
reserves in the South of the country, an area which is seen as
unstable because off high levels of militant activity.
Alone among its neighbours, OPEC producer Algeria has so far
been largely untouched by uprisings in 2011 that ousted leaders
in Egypt, Libya and Yemen. Yet its recent bid rounds attracted
lacklustre interest, raising questions about whether it could
maintain output levels and meet growing demand.
Output at two major fields, gas field Hassi R'mel and
oilfield Hassi Mesaoud, has peaked and no new exploration
projects of note have been launched.
Algeria, heavily dependent on oil and gas revenues, is now
battling declines in both oil and gas production. Output of
crude oil has fallen from a peak of 1.4 million barrels per day
(bpd) in 2008 to 1.2 million bpd, according to PFC Energy.
Gas output slumped to 7.55 billion cubic feet per day in
2011 from a peak of 8.54 billion cubic feet per day in 2005.
But Algeria's share of the global liquefied natural gas
(LNG) market, which it was at the forefront of developing, has
fallen from 19 percent in 2002 to less than 5 percent in 2012,
according to PFC Energy.
Most of Algeria's gas is locked into long-term supply deals
with France, Spain, Italy and Turkey, according to the U.S.
Energy Information Administration, and because of falling gas
output and rising domestic demand, Algeria may struggle to find
excess supplies to send to Britain.
"When it comes to reliability of supply, will Algeria
actually have the gas?" said Al-Shamma. "In an ideal case,
Algeria would maintain its current level of gas exports while
meeting domestic needs. But even that will be a challenge."
BRITAIN WANTS NEW SUPPLIERS
As much as Algeria is seeking new customers, Britain is keen
to find new suppliers of LNG, and despite the concerns, London
sees Algerian gas as a potential supply source as its own
The British government is keen to reduce its dependency on
Qatari gas, which covers nearly all of the UK's requirement for
LNG - natural gas super frozen to a liquid state for
international export on tankers beyond the range of pipelines.
Britain's natural gas imports from outside the North Sea
will surpass domestic production by 2015 and add more than $11
billion to import costs as domestic supplies dwindle and Norway
increasingly struggles to fill the gap, Reuters research shows.
The government is concerned that Britain is in danger of
suffering a long-term loss of LNG supply as Qatar sends only
left-over short-term deliveries to the UK while more and more
goes to higher paying Asian customers.
Top Asian buyers Japan and South Korea pay almost $20 per
million British thermal units (mmBtu), almost double the price
in Britain. [ID: nL4N0BA0TM]
Despite the higher price offered in Asia, the
British-Algerian talks come at the same time as the first
Algerian LNG tanker in almost eight months is scheduled to
arrive in Britain.
"The Algerians could easily have sold the cargo to Asia,
where customers pay a lot more for LNG, but I guess they are
wanting to send London a positive signal," one LNG trader said.