Russia Might Gain from North African Chaos — An Expert View from Cairo

February 23, 2011

Russian companies are very keen to establish a strong presence in North Africa to secure natural gas for various reasons, and oil is a bonus.

Lukoil already holds stakes in Egypt, Tatneft is in Libya, and Gazprom is in Algeria. Gazprom also just completed a deal with ENI for the Elephant Field in Libya. While Libya’s future is most uncertain at this point, I think that Russian companies may have a political advantage over their American and European counterparts should the Qaddafi regime stay in place, and if not, the playing field should stay pretty level.

There will definitely be short-term supply disruptions out of Libya. Based on President Qaddafi’s remarks Tuesday, it does not appear he will go easily, opening the door for more oil supply concerns and the continued rise of the barrel price. Both Ben Ali and Mubarak also said they were not going anywhere, and we know how that turned out. But Qaddafi is a different animal; I would characterize him as a megalomaniac, which makes him especially dangerous as can be seen with the all out deadly force being used against the demonstrators.

As a result of the force shown so far, Wintershall announced on Monday that it had already shut-in its production while Repsol, RWE, Tatneft and ENI followed suit announcing Tuesday that they had also shut-in production. Wintershall, Repsol and ENI alone account for about 250,000 bpd of oil production; ENI also puts out 780 Mmcf/d of natural gas.

Other European producers will likely turn off their taps sooner rather than later if the status quo continues. Also of concern is gas supply into Europe as Libya ships a substantial amount of gas to Italy through the Greenstream Pipeline. The pipeline has a capacity of 11 Bcm per year equating to about 11% of Italy’s gas supply, which has now been shut-in by ENI. A protracted shut-in could become problematic for Italy.

It doesn’t seem likely in the near-term that much will change on the Tunisian supply front and the smaller volumes there are probably not as interesting to the large Russian companies. There is a small risk however, that terms may be re-written by Egypt as its long-term petroleum minister Sameh Fahmy has just been replaced.

The investment climate in Algeria has for the past 4-5 years become less attractive to the oil majors and as a result, a softer line from the Algerian regime has recently emerged, but without concrete results so far. While protests in Algeria are not currently on the scale of Libya or Egypt, President Bouteflika’s regime is already making concessions and there is a chance the Algerian people might not take as harsh of a line as their neighbours.

On the other hand, if the situation deteriorates, gas supplies to Europe could take a further hit as a substantial amount of natural gas flows into Europe by way of Algerian pipelines. The country has the Maghreb–Europe Gas Pipeline which links the large Hassi R'mel field in Algeria