Western oil workers at In Amenas, the gas plant in Algeria that militants stormed on January 16, knew how vulnerable they were.
An executive from Statoil, the Norwegian oil company, told a visitor to the facility in 2007 that he worried about the risks to expatriate staff travelling to and from the site. After flying from Algiers into the middle of the Sahara, they faced an hour-long bus trip to In Amenas. “We want to build an airstrip near the plant and avoid bus transportation from the airport,” he said.
No airstrip was built. But his concern proved well-founded. The siege at the gas plant this month began when militants attacked a bus convoy taking workers to the airport.
The assault, which claimed the lives of at least 37 foreigners, was a watershed – the worst terrorist attack on an oil and gas installation in the industry’s 150-year history. Shocked into action, companies are reviewing their safety procedures and reconsidering their drilling plans.
“This gives a whole new dimension to the idea of energy security,” says Daniel Yergin, head of Cambridge Energy Research Associates. “The security of physical infrastructure has long been an issue for the industry, and this has given it even greater urgency.”
The Middle East and north Africa are the heart of the global energy business, accounting for more than half of global oil reserves. Yet the region is increasingly prone to instability as the Arab spring unleashes passions that have toppled once entrenched regimes and plunged countries into civil war. That has huge implications for the oil and gas industry and, by extension, for prices at the pump. The cost of a barrel of crude shot up to $127 in 2011 when the uprising against Muammer Gaddafi disrupted crude exports from Libya.
But the spread of instability to Algeria is a surprise. The protection afforded the country’s oil and gas installations is renowned: In Amenas had its own army base. Some fear that if Algeria is not safe, nowhere is. Underscoring the new risks, two guards died on Sunday in an attack on a northern Algerian gas pipeline – around the southern edge of the Kabylia mountains, where al-Qaeda has a stronghold.
Despite these dangers, oil companies are unlikely to abandon the region. They have to go where the oil is, despite the risks, and Algeria and its neighbour Libya have substantial reserves. But the need for tighter security will inevitably push up costs.
“Events like In Amenas make it more expensive to produce oil and gas in north Africa, so the majors are bound to look to the governments of the region to ease their fiscal terms,” says Paul Stevens, a senior research fellow at Chatham House, a think-tank. Algeria, with a population of 37m, is notorious for some of the most exacting tax rules in the oil industry.
Even before the hostage crisis, oil companies had to offer serious danger money to expatriates working in Algeria. Western employees posted there could expect a hardship allowance representing up to 30 per cent of their annual gross base salary, says Ellyn Karetnick, international mobility leader at consultancy Mercer. That implied “quite a significant recognition of risk”, she says.
But any attempt to get better contractual terms in the wake of In Amenas may provoke a backlash. “Companies should be concentrating on the security issues they have …but it should not be seen as an opportunity to renegotiate contracts,” says Opec secretary-general Abdalla El-Badri.
The problem for traditional petrostates is that investors now have a choice. The shale revolution has opened up an abundance of new and safer opportunities in the US and Canada. “The assumption is that the oil companies compete for acreage, but the acreage also competes for the oil companies,” says Mr Stevens.
The oil sector was never traditionally in the crosshairs of the global jihadi movement. As Mr Yergin wrote in his book The Quest, Osama bin Laden originally argued against attacking oil infrastructure in the Middle East, writing in 1996 that the “great Islamic wealth” they embodied would be needed “for the soon-to-be-established Islamic state”.
Al-Qaeda’s strategy gradually changed and, by the mid-2000s, Bin Laden was urging assaults on oil targets to drive up the price of crude and push the US into bankruptcy.
Those words were translated into action in 2006 when suicide bombers attacked Saudi Arabia’s Abqaiq processing plant, which handles 7m barrels of oil a day. Although there was no damage to the facility, the Saudi government created a new 35,000-man force to protect the kingdom’s oil infrastructure.
Al-Qaeda considered other tactics, too. Tellingly, when US Navy Seals killed Bin Laden in 2011, they found plans for attacking oil tankers.
Installations were also targeted outside the Middle East. For years, the Movement for the Emancipation of the Niger Delta waged an insurgency in Nigeria’s south that involved frequent kidnappings of oil workers. But it went a stage further in 2008 when its gunmen raced out to sea in speedboats to attack Bonga, a large offshore oil platform.
Algeria was never completely immune from the mounting violence. Two foreign engineers working for Schlumberger, the world’s largest oil services group, were executed in 1994 by Islamist militants. But such incidents were rare: the country’s civil war of the 1990s, in which more than 150,000 people died, barely impinged on the oil industry.
BP entered Algeria after a long hiatus in the mid-1990s. The UK group was generally well-treated by the government. “They always appreciated the fact we came there during their black decade,” says a former BP executive in Algeria.
After discovering gas at In Amenas, BP and its partner Statoil sent in 5,500 people to build a plant. Amid a sprawling tangle of pipes gleaming in the desert sun, distillation towers strip out valuable liquefied gases such as ethane and butane. Enormous compressors push the gas north into Algeria’s pipeline network.
Others followed BP and soon, oil executives packed Algiers’ few chic hotels. As the expatriate community grew, the US embassy prepared to open an international school for the children of diplomats and oil workers. By 2005, 10 to 15 companies were ready to invest. Some westerners even brought their families to Algiers.
But the calm did not last. In 2006, militants blew up a bus carrying expatriate oil workers in an Algiers suburb, killing the driver. The following year, a bus carrying gas-pipeline workers was attacked west of Algiers, killing one Russian and three Algerians. Later in 2007, al-Qaeda in the Islamic Maghreb, a group that up until then had targeted police stations and security forces, for the first time threatened westerners working in Algeria. In December, two huge bombs rocked the capital, killing 34 people. Plans for the international school were dropped.
Foreign oil companies beefed up their security, putting barbed wire on the walls of their villa compounds in Algiers’ embassy district. Staff visiting Algiers always had to be accompanied by an armed guard.
But, initially at least, the danger at In Amenas was not from Islamist terrorists. In barren scrub close to the Libyan border, 1,000km south of Algiers, the plant suffered more from opportunistic bandits than from militants.
“People hijack your 4x4s for their smuggling operations,” says the former BP executive. That risk meant the plant’s large fleet of jeeps could never be driven at night.
Kidnappings were a constant threat. One employee of the joint venture observed that the Scandinavians and Australians were the most vulnerable, because “they always pay up” when faced with ransom demands. “That’s not good for the Norwegians,” he said.
This resulted in a level of security almost unprecedented for the industry. The Algerians set up a military base nearby equipped with attack helicopters and Soviet-designed T-72 tanks. Soldiers patrolled the perimeter fence and checkpoints manned by the Algerian gendarmerie checked visitors and vehicles entering the complex. Staff flying in from Algiers were driven in an armed convoy from the local airport. “People can drive to the wells and to the central processing facility but outside of the base you need an armed escort wherever you go,” said one employee. “I’d love to visit some of the local towns, but we’re not allowed to.”
Shielded by the military, westerners expressed no qualms about security. “The authorities are so afraid people might get hurt,” said one western oil executive before the attack. “It just takes one phone call from us and they give us all the protection we need.”
But life in the desert was harsh and tedious. Summer temperatures reach 52C. Sandstorms, which can shut down production, whip up in minutes. In deference to local customs, no alcohol is permitted on base.
Unsurprisingly, it has sometimes proved hard to find people willing to work there. In 2007, a year after production started, the joint venture still had 10 per cent of positions unfilled.
Inside the plant, BP and Statoil took steps to alleviate the boredom. They built a gym, indoor swimming pool and a football pitch. Volleyball tournaments were held and every Saturday the Norwegians gathered for waffle parties – a Nordic ritual. Workers received plenty of holiday, working four weeks on and four weeks off.
As the venture matured, the tension of the first few years began to ease. In Amenas, which was producing 9bn cubic metres of gas a year before the attack – about 12 per cent of Algeria’s total output – seemed invulnerable.
That, some analysts say, may have lulled BP and its partners into a false sense of security. An oil industry consultant who often travelled to Algeria says that in the early days he would be driven around in an armoured car, accompanied everywhere by an ex-military private security guard, employed by BP as “liaison”.
“That fell away later and it all became much more relaxed,” he says. “The companies took their eyes off the ball.”
When disaster struck, it came out of the blue. The terrorists had intended to take their captives to northern Mali and use them as a bargaining chip to halt French intervention. But meeting armed resistance, they stormed the gas plant, setting the stage for a four-day siege.
Speaking to reporters after the bloody denouement, Bob Dudley, BP chief executive, dismissed suggestions that the Algerians had not done enough to protect the workforce. “It’s a very highly secured site,” he said.
Additional reporting by Sylvia Pfeifer and Ajay Makan
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