WorldCity, Annual Report: No. 10 Algeria- Algeria ties its fortunes to oil | Connecting Local Business Leaders To The Global Economy

Annual Report: No. 10 Algeria- Algeria ties its fortunes to oil

July 6th, 2006

An energy trifecta – crude oil, natural gas and refined petroleum – has given a boost to Houston’s trade with Algeria.

As Algeria relies on an oil and gas windfall to boost its economy, Houston is playing a role.

Petroleum commodities are the backbone of the Algerian economy, accounting for 30 percent of the North African nation’s GDP, which grew 6 percent in 2005. The oil boom lifted Algeria’s foreign reserves fivefold last year.

As part of that success, Houston and Algeria saw a 43 percent jump in the value of their bilateral trade. Houston imported $3.5 billion in Algerian products, led by $2.8 billion-worth of crude oil – up 30 percent from 2004.

Unlike some other OPEC producers, Algeria has been open to foreign investors. Houston-based Anadarko Petroleum Co., Burlington Resources and Halliburton have helped developing the North African country’s oil and gas sector. Anadarko’s wholly owned subsidiary in Algeria is the country’s second largest oil producer, trailing only government-owned petroleum company, Sonatrach. Anadarko has been operating in Algeria since 1990.

The Arab nation hopes to increase oil output in the next few years by enticing more foreign investment. Energy Minister Chekib Kalil has said his goal is to double the number of international companies operating in Algeria.

Although crude oil was Houston’s top import from Algeria, natural gas was its fastest-growing. Natural gas imports spiked, rising 445 percent to total $457 million in 2005. The natural gas sector is a newer contributor to the Algerian economy, and it is just since 2002 that it has been opened to foreign investors – with a caveat. Foreign operators are required to establish joint ventures with Algerian Energy Co., or AEC.

In a recent joint venture, Anadarko and General Electric were contracted to build Algeria’s first privately financed gas-powered plant in the city of Hassi Berkine.

Refined oil turned up as the third most valuable import from Algeria, increasing 41 percent to close 2005 worth $299 million. Naftec – a subsidiary of Sonatrach – operates four refineries. Most of the refined products leaves from Arzew, Algeria’s top oil port.

Sonatrach is planning large-scale projects to rehabilitate oil and gas fields in the next five years. The price tag? Some $24.5 billion.

Houston’s exports to Algeria make up just a fraction of the trade exchange. Houston shipped nearly $283 million in goods to the North African country last year. That was a gain of 17 percent but still left Houston with a $3.3 billion trade deficit.

Machinery parts destined for Algeria’s oilfields were the top export, reaching nearly $113 million. That figure was a 12 percent slip from 2004. At a distant second were iron tubes used in oil drilling. In 2005, companies in Texas shipped nearly $25 million-worth of the tubes – an impressive 134 percent hike from the year before.

To foster ongoing business with U.S. suppliers, the Export-Import Bank of the United States has extended a $1 billion line of credit to Sonatrach as the oil giant boosts its purchases of equipment and services.

Houston also exported nearly $16 million in dairy products to Algeria, a dramatic jump from the $3.6 million exported in 2004. Corn exports, meanwhile, skyrocketed to $13.3 million from $1.6 million in 2004.

Although a major producer of oil and gas, Algeria is seeking to diversify its exports to reduce its dependency on energy commodities. In a recent visit to Washington D.C., Abdelhamid Temmar, Algeria’s chief economic counsel, said that if his country limits itself to selling just oil and gas, it could become lost in the global marketplace. At one time, Algeria supplied food products to France and Spain.

The North African nation is in the process of joining the World Trade Organization. There are indications the WTO membership might be followed by a U.S. free trade agreement similar to the one signed by neighboring Morocco.