Sonatrach's bruising rift with its Spanish partners Repsol YPF and Gas Natural is unlikely to deter other international firms from seeking to do business with the state-run Algerian energy company.
Sonatrach terminated its agreement with its Spanish partners early this month and has said it will claim substantial damages to compensate for delays and cost overruns at the Gassi Touil gas field. Repsol and Gas Natural have said they would challenge Sonatrach's termination of their accord through international arbitration.
Analysts said the dispute was isolated and commercial, rather than political, and was unlikely to inflict lasting damage on Sonatrach's reputation as one of the best national oil companies to link up with.
"While Sonatrach is showing some assertiveness in demanding a high level of performance from commercial partners, I don't think it would be accurate to label this as a case of resource nationalism," said Ben Cahill of PFC Energy in Washington. "In the long run, Sonatrach's image as a reliable partner probably won't be harmed by the Gassi Touil affair," he said.
For both Algeria and Spain, analysts said, there was good reason to end the Gassi Touil partnership. "I think what we have here is an isolated and specific commercial dispute," said Derek Butter of consultancy Wood Mackenzie. "I don't think this is any sort of asset grab by Sonatrach in the way you have that kind of behaviour by Russia and Venezuela."
Wood Mackenzie estimated the cost of the project had increased from around $2.9 billion when the deal was struck in 2004 to around $6.8 billion now - a rise of 134 percent - as costs of construction materials and manpower soared.
Any profits were badly eroded and Sonatrach had said delays meant there was no possibility of the project coming on stream in 2009 as stipulated in the contract. Analysts said cost escalation had also contributed to delay of a project to revamp the Skikda liquefied natural gas (LNG) complex, which was damaged by an explosion in 2004.
The new complex was to have been completed in 2009, but start-up is now expected in 2011, according to a state-owned Algerian newspaper. Sonatrach earlier this year signed a $2.88 billion contract for the project with US firm KBR Inc.
But such delays have been industry-wide as escalating commodity prices have increased the pressure on individual projects. Similarly, general measures taken by Algeria to increase the share of profit it retains from its resource wealth can be viewed as relatively benign.
Algeria's windfall tax, introduced last year on foreign oil companies, raised concerns at the time that the country was following the lead of strident resource nationalists like Russia and Venezuela, especially as it has signed a memorandum of understanding with Russia's gas giant Gazprom. Analysts said that also had to be understood in an industry-wide context.
"As prices have gone up, governments have wanted to take more tax," Butter said. The bottom line is that Algeria is one of the few countries that has sizeable reserves and is open for business. Its oil reserves of 12.3 billion barrels, according to the BP Statistical Review, should last for more than 20 years and its gas reserves of around 159 trillion cubic feet will last around 50 years at current production rates.
Some 40 international oil firms already have acreage in Algeria, according to Wood Mackenzie, and foreign companies would like to see that number rise even if Sonatrach's terms are getting ever tougher. "The Western companies may seem dumb to keep trying to invest and trade with the upstream gas countries on normal commercial terms, but the prize on offer is too tempting for them to walk away," said one analyst who asked not to be named.
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