Algeria on Monday dismissed a consortium led by Repsol YPF of Spain from a €5bn ($6.8bn) project to develop a large natural gas project, dealing a huge blow to the Spanish company as it looks to build depleted reserves and secure supply contracts.
The move, which follows months of political wrangling between Madrid and Algiers, means the north African country will regain control over the Gassi Touil project, the only large-scale energy project controlled by foreign companies in the country.
Repsol had a 48 per cent participation in the project, with fellow Spanish utility Gas Natural holding 32 per cent and Algeria’s state-owned energy group Sonatrach controlling 20 per cent.
The cancellation of Gassi Touil comes days after Kazakhstan’s government suspended work of an Eni-led consortium to develop one of the biggest oil fields in the world.
Sonatrach blamed the Spanish groups for delays and cost overruns in the construction of the gas terminal, which was due to begin shipping liquefied natural gas in 2009.
Repsol said on Monday night it “lamented and rejected the Algerian decision to illegally appropriate the project now”.
It said it would take the state-owned group to international arbitration.
Industry executives said the project was a key gauge of Algerian energy sector openness to international investors. For years, the north African country was the Organisation of the Petroleum Exporting Countries’ member most open to international investors.
But the relationship began to change in 2006 as the country increased taxation on foreign companies and signed an agreement of co-operation with Russian gas group Gazprom. The new Algeria energy law, passed last year, assigns Sonatrach an automatic 51 per cent of all new ventures in the energy sector.
Signed in 2004, the project envisioned an estimated €5bn investment and included the exploitation, production and liquefaction of reserves from the Gassi Touil gas fields in the east of the country. The move comes at a delicate time for Repsol, which has been forced to write down gas and oil reserves in South America partly as a result of energy nationalisation in countries such as Bolivia and Venezuela.
Gassi Touil was Repsol’s largest international project. Industry executives said the Spanish group presented in 2004 an excessively tight budget for the project that fell apart as soon as cost inflation hit the oil and gas industry. Costs from steel to drilling rig had surged more than 50 per cent in the past five years.