DAVOS (Reuters) - Oil executives are resigned to a rise in security costs which will be steep even for an industry used to working in dangerous places, as they strengthen defenses against militants and cyber attackers alike.
Officials at the energy industry’s biggest annual gathering believe investment in some new projects may slow, particularly in North Africa, following last week’s siege at an Algerian gas plant and a 2012 cyber attack on Saudi oil computers.
“Our industry is traditionally linked to political risks but last week’s events will lead to a major review of security spending,” said Andrei Kuzayev, who heads overseas operations at Russia’s Lukoil(LKOH.MM).
This would inevitably mean a big rise in costs, Kuzayev said at the gathering held on the sidelines of the World Economic Forum in Davos. The Algerian siege staged by Islamist militants ended with heavy loss of life among foreign hostages when government forces stormed the plant deep in the Sahara desert.
Industry officials are usually reluctant to discuss their security arrangements in detail. Kuzayev, who spends his time between operations in countries including Iraq, Egypt and Ghana, said security usually accounted for one to three percent of a project’s overall costs.
Although security was not necessarily decisive in final investment decisions, costs were already rising rapidly.
Kuzayev cited Egypt, where president Hosni Mubarak was overthrown in a 2011 uprising. “We had to evacuate people from Egypt three times during the revolution. Basically, the main take out here is that you cannot relax even for a second,” he said.
Oil firms are experienced in operating in turbulent countries but often the threats are greater than ever before.
Two operators of the Algerian gas plant, London-based BP (BP.L) and Norway’s Statoil (STL.OL), experienced their worst security incident in the siege staged by jihadists, who said they were retaliating against France’s intervention in Mali.
BP has operated in Algeria for more than 60 years and the energy industry there suffered no major attacks even during a civil war in the 1990s between the secular government and Islamists.
But during the siege major oil companies had to evacuate dozens of expatriate workers and review security across North Africa in Libya and Egypt. Those worries are spreading as French forces battle Islamists across the Sahara in Mali.
Nigeria has already faced rebel attacks on its oil industry in the south and Islamist violence in the north. President Goodluck Jonathan said in Davos this week that he feared the attacks in the Sahara could spread through west Africa if the instability in Mali were not contained.
The Sahara region is awash with armed men, particularly since the revolution in Libya which overthrew Muammar Gaddafi.
BP Chairman Carl-Henric Svanberg acknowledged the problem in the region but noted Algeria’s tough response when it sent in special forces to end the siege.
“It is clear that with so many weapons around and all sorts of veterans, it will be tough. It is hard to speculate if it can become the new Afghanistan, but certainly not in Algeria, which made its response very clear,” he said.
DEFENDING “OUR WORLD”
Attackers on the oil industry don’t necessarily carry guns. Saudi Arabia said in December that it had suffered a cyber attack on 30,000 computers last August, aimed at stopping oil and gas output of the world’s biggest crude exporter.
“If you don’t protect your computer systems you cannot do anything. Same if you don’t protect your oil wells. We will have to do our utmost so they don’t attack our world,” an emotional Total (TOTF.PA) Chief Executive Christophe de Margerie told Reuters.
Daniel Yergin, a Pulitzer prize-winning writer on the energy industry who chaired the energy meeting at the Swiss ski resort, said security has emerged as a paramount issue since the Saudi attacks.
“Cyber security and security of physical energy infrastructure emerges as the key concern,” he said, noting developments such as looting of arm depots in Libya during the revolution. “The weapons have become so much more available to non-state actors in the past two years,” he said.
Faced with the threats, producing countries are bound to experience unwelcome consequences.
Crescent Petroleum’s Chief Executive Majid Jafar, said North Africa should avoid a sudden drop in energy production but would suffer a slowdown in investment and projects. “Majors are especially careful with security risks, given that they are seen these days as national flag carriers,” said Jafar, whose firm is active in Egypt and autonomous Kurdistan in northern Iraq.
The International Energy Agency’s chief economist Fatih Birol believes governments in the region will have to work harder to attract investment in their energy industries.
“The Algerian attack will make life more challenging for everyone in the region. Producing countries will have to make terms more attractive and guarantee political stability,” he said.
editing by David Stamp