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Guest Post: Why Europe Should Pay Attention To Algeria

Tyler Durden's picture





 

Marin Katusa, Chief Energy Strategist, Casey Research

Why Europe Should Pay Attention to Algeria

Tunisia’s uprising has democracy watchers wondering if the instability will spill over into neighboring North African countries, but really that instability is already there. In the first week of the year, Algeria experienced violent protests after the government hiked prices for staple foods like milk, sugar, oil, and flour. Some 800 people were injured in several days of rioting, prompting President Abdelaziz Bouteflika to cut costs on some foods and lower import duties on others. The rioters went home, but odds are they will return to the streets when prices rise again.

Those rioters are not just angry about high food prices. Unemployment in Algeria is officially at 11%, but estimates from outside of the government run much higher, along the lines of 25%. Inflation keeps creeping up, and the country’s impoverished population, who has very little freedom, has grown distrustful of the government. A massive boycott rendered the results of the last presidential election, where Bouteflika won with 92% of the vote, almost meaningless.

But Algeria is not poor – an OPEC member, it is the ninth largest crude oil producer in the world. More importantly for this conversation, Algeria is the world’s sixth largest natural gas producer, pumping out just over 3 trillion cubic feet (Tcf) of natural gas in 2008. At the beginning of 2010, the country’s proven natural gas reserves stood at 159 Tcf, the tenth largest in the world, and notably, Algeria exports some 3.6 billion cubic feet (Bcf) of natural gas each day to Europe.

On top of the natural gas flowing to Europe through pipes, Algeria has become a key supplier of liquefied natural gas, or LNG. In 2008, Algeria exported 711 Bcf of LNG, and 90% of it went to Europe.

Europe is growing increasingly reliant on LNG – for two reasons. First, Europe does not like relying on Russia for natural gas because that gas has to come through Ukrainian pipelines. Three times in the last five years, there have been major supply disruptions due to allegations that the Ukrainians were siphoning off gas. The most serious disruption came in January 2009, when 18 European countries reported major drops or complete gas cut-offs.

Second, Europe’s energy needs continue to rise, but many European governments have committed to reducing greenhouse gas emissions. Since natural gas is low-carbon and clean-burning, it has become a key part of Europe’s future energy strategy.

The EU has a “four corridors” plan for its natural gas needs: it will draw from Norway, a reliable supplier; Russia, through those Ukrainian pipelines; North Africa, primarily Algeria; and Central Asia and the Middle East, through Turkey. It would be a great plan, if only it were closer to reality. The Turkish route relies on the long-planned Nabucco pipeline, which is making very slow progress towards construction. And Norway’s reserves are dwindling. Up steps Algeria in importance.

Algeria already supplies 20% of Europe’s natural gas and more than 30% of the EU’s LNG imports. And in November, European LNG import volumes set a new record high – Europe imported a staggering 302 Bcf of LNG, shattering the old record (set only in September) by 52 Bcf. The United Kingdom, facing its coldest winter in years, alone accounted for 73 Bcf. Whether the average Brit, Spaniard, or Italian realizes it, they rely on Algeria.

And along with high unemployment, high food prices, and little freedom, Algeria’s citizens are justifiably angry that their country’s resource wealth is not making things better for the average person. If Algeria’s rioters return, spurred on by their Tunisian neighbors or by their own government’s inadequacy, and overthrow Mr. Bouteflika in favor of an anti-European government, gas prices could take a serious jump. And LNG is transported by ships, not pipelines, so if Europe is not willing to pay those higher prices, the ships will simply sail to other countries that will.

This is no certain thing – no one knows if Algeria will follow in Tunisia’s footsteps, especially if the current confusion in Tunisia evolves into prolonged chaos. And Algerians know how important oil and gas revenues are for their country – even during Algeria’s bloody civil war in the 1990s, during which some 160,000 people died, oil and gas exports were not affected.

 


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Wed, 01/26/2011 - 19:20 | Link to Comment SilverIsKing
SilverIsKing's picture

Now that the Algerians have seen that protesting/rioting gets results, evidenced by the fact that the government reduced prices subsequent to their violent protests, there's a 100% chance that they will be back again when prices rise which is itself a 100% certainty.

Wed, 01/26/2011 - 20:40 | Link to Comment Rahm
Rahm's picture

Hey Spain/France/Italy/Portugal (fill in the blank), your next!  (everyone except Germany)

Thu, 01/27/2011 - 09:04 | Link to Comment CH1
CH1's picture

Spelling Police:

You are = you're

YOUR refers to a possession

Sun, 01/30/2011 - 12:56 | Link to Comment Rahm
Rahm's picture

In completely unrelated news, CH1 was found headless, i.e. body floating without his Muth@f^Kk!N head!

Wed, 01/26/2011 - 19:21 | Link to Comment Sophist Economicus
Sophist Economicus's picture

OK -- Speaking of Algeria, how much do I need to chip-in to stop having Barry stare at me while I'm reading ZH?    That banner ad is giving me the willies -- I'm palming my Glock -- I won't be responsible for what happens soon....

Wed, 01/26/2011 - 19:33 | Link to Comment gratefultraveller
gratefultraveller's picture

Try using Firefox with Add-On "Adblock" (under Tools)

Wed, 01/26/2011 - 19:36 | Link to Comment New_Meat
New_Meat's picture

Barry staring at you and you are 'palming' your, oh, your 'gun'. ;-)

- Ned

Wed, 01/26/2011 - 22:04 | Link to Comment Dr. Porkchop
Dr. Porkchop's picture

No Script add on/extension works well too.

Wed, 01/26/2011 - 19:23 | Link to Comment dearth vader
dearth vader's picture

When you look at the smart grid project for the EU to become an 80% renewable energy dependent clean economy by 2050, it's hard to not see the implications for energy security. Europe has to get an iron grip on the North-African dictatorships including Algeria.

http://www.spiegel.de/flash/flash-24396.html

Wed, 01/26/2011 - 19:36 | Link to Comment hambone
hambone's picture

Wonder if all this Fed inspired chaos will have a 1988 "end of the soviet union" quality to it?  Peoples living under corporately and militarily supported despots, dictators, dipshit royalties may finally say enough?!?  Could Ben's great blackswan be tossing the 3rd world into inflationary chaos at the very moment it becomes apparent the US can no longer afford to be the (corporate) worlds policeman.  Things could be allowed to work out more locally or spiral out of control more easily?

Thu, 01/27/2011 - 09:10 | Link to Comment CH1
CH1's picture

The US took (claimed) the role of protecting Europe after WW2. Hence NATO. Look at the Euro military budgets. (Save Switzerland's, which is nuts.) If the US were to pull out, lots of maniacs would be emboldened, and the Euro budgets would have to skyrocket.

Tutti-fruity swans?

Wed, 01/26/2011 - 19:32 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

Europe has spent most of its excess wealth on apartments lining the Northern Med - nuclear was seen as too expensive at the time - but mass concrete poured over beeches was OK - this is what happens to decadent populations - nasty surprises.

Wed, 01/26/2011 - 19:30 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

double post

Wed, 01/26/2011 - 19:31 | Link to Comment topcallingtroll
topcallingtroll's picture

Even more reason it is their own damn fault they are starving.  Not only do they peg too low, they have import duties on food?

Thu, 01/27/2011 - 00:08 | Link to Comment StychoKiller
StychoKiller's picture

Someone's gotta pay for the perks, Dictators don't work for free ya know!

Wed, 01/26/2011 - 19:42 | Link to Comment New_Meat
New_Meat's picture

Le Grande Charles avec le Grand Nez also had his ups and downs with Algeria.  But can't blame the Frogs for the current situation.  Just another step in the Long War:

e.g.: http://proceedings.ndia.org/7030/Riggle.pdf

but it is well distributed.  Rather un-PC these days, still ...

- Ned

[ed. to get a correct link]

Wed, 01/26/2011 - 19:43 | Link to Comment bank guy in Brussels
bank guy in Brussels's picture

A great film from 1966, « The Battle of Algiers » -

Extremely relevant still today -

here with English subtitles -

http://www.youtube.com/watch?v=ZV4YvPeO5n4

Wed, 01/26/2011 - 19:46 | Link to Comment anyways
anyways's picture

**QUOTE** 

DEAR JOURNALISTS OF THE WORLD,

You were intrigued by us when we took on the financial sector by attacking Visa, Mastercard, and Paypal as part of Operation Payback. Many of you became enamoured with us during Operation Tunisia and applauded our efforts. Some of you are now paying close attention to Operation Algeria. We know that we have gained support from even a few of you. Those few are hoping against hope that our unconventional methods will continue to have an effect on people, perhaps even the world. Those few admire us, if for no other reason than the fact that, in a world full of apathy, a world filled with people who don't even bother to read the information you painstakingly present, we are trying to do something. This intrigues you. At the very least, it inspires you to keep an eye on us, hoping we continue to take newsworthy actions.

You know that, whether you are risking your own safety - perhaps even your own life - to share the truth, or whether you are beholden to your dictators or your advertisers, unable to write anything they do not approve, we, Anonymous, are on your side and are fighting for you and your freedoms. You, the journalists, reporters, and bloggers. You, the newspapers, television networks and websites who hunt down and disseminate information. We are fighting for you.

Some of you have recorded milestones of our efforts. Some of you have reported upon them, and some of you have even participated in our fight. You are the press, and you have our gratitude.

We need your help now. From North Africa to Gaza, people are rising up and risking their lives to demand nothing more than basic rights, an end to the corruption, and a fair chance to progress in life. What the Western world is unaware of, and the Western media largely ignores, is the fact that the people protesting and the people dying in the Arab world are just like them. They have the same desire for basic freedoms, similar ambitions for themselves and for their family and friends, the same inherent intelligence and, the same keen sense of injustice as their counterparts in the West when oppressed.

Here is where we need your help. We ask you, the journalists, to bring to the rest of the world the humanity of these revolutions. What we are witnessing are not extremist acts that are committed by misled, ignorant people. Indeed, they are committed by intelligent, but desperate people - people willing to sacrifice themselves in order to inspire their fellow citizens to rally against their oppressors. The world needs human news. The world needs to know who it is that needs their support, and not just the number of casualties or the politics involved.

What we ask is simple. There are people protesting in Algeria, Egypt, Yemen, Albania, Libya, and many other countries at this very moment. Tell us who they are and what it is they want for their country and their people, for now and in the future. So many voices are raised in protest right now and all the world can hear is the noise. Tell us what the people are saying.

Some of you will ignore this message. It announces no new operations, as we are still focusing our efforts on Operation Algeria. This message issues no threats, as you are the press and are always safe from us. If you heed our request, however, it could make all the difference in the world, as it made a difference for the Tunisians to know that they were speaking and the world was hearing their message. Help us do this for Algeria, Egypt, and other countries where the people are imploring to be heard.

Signed,

Anonymous.

We are Anonymous.
We do not forgive the denial of basic human rights.
We do not forget those who assist the oppressed.
To the Tyrannical governments of the world... Expect us.

**UNQUOTE**

Wed, 01/26/2011 - 19:52 | Link to Comment New_Meat
New_Meat's picture

Source s'il vous plait.  Merci - Ned

Wed, 01/26/2011 - 21:10 | Link to Comment New_Meat
New_Meat's picture

merci.

et ma grandmere would be skosh proud that I remember un petite peu of what she taught me.

- Ned

Thu, 01/27/2011 - 05:29 | Link to Comment plongka10
plongka10's picture

Current coverage on Al Jazeera of the turmoil in the Magreb is good. Online or satellite FWIW.

Thu, 01/27/2011 - 09:17 | Link to Comment CH1
CH1's picture

I hope this gets some results, anyways, but don't forget that the bigger journalists have been bought-off or indebted to various parties for a very long time. To varying but significant extents, they are owned.

Sad but true.

Wed, 01/26/2011 - 19:52 | Link to Comment bugs_
bugs_'s picture

Great article thanks for the info!

Wed, 01/26/2011 - 20:09 | Link to Comment spongeBOB
spongeBOB's picture

The problem with many MiddleEastern and north african countries is they moved thier economies to market based, rather than government controlled, as the results of being able to join the WTO, not to mention IMF mandate in return for loans. The people  of those countries are used to having governmet subsidies on everything from bread to gasoline and never had to deal with global price increases specially in food and energy. Wealthier countries with low population like Qatar or the UAE with $300B+ surplus can deal with the problem by raising salaries or giving cash injection to thier citizens or even make all food free for a year like Kuwait just did. On the other hand countries like Egypt with near 90m people is not able to do that hence the riots.

Wed, 01/26/2011 - 20:49 | Link to Comment BigJim
BigJim's picture

I'm confused. First you say that

The problem with many MiddleEastern and north african countries is they moved thier economies to market based, rather than government controlled,

and then you say

Wealthier countries with low population like Qatar or the UAE with $300B+ surplus can deal with the problem by raising salaries or giving cash injection to thier citizens or even make all food free for a year like Kuwait just did. On the other hand countries like Egypt with near 90m people is not able to do that hence the riots.


How are these examples of 'market based' economies?

Wed, 01/26/2011 - 21:59 | Link to Comment spongeBOB
spongeBOB's picture

You're right, I should clarify more. In countries like Jordan or Lebanon for example before they decided to join the WTO , the government owned large industires and assets like Power generation, airports, cement factories...so they were able to set the prices. They charged (low) so most people can afford these services. Also, the price of everything was set by the government and profit margin on food and other staples were set by the government not the market . The government would import things like rice, grain, gasoline and sell it to the local market and tells the merchants at what price they should sell it. After joining the WTO they had to sell all govenment assets to the private sector, many of the investors are European and American corporations motivated by profit, and liberate the market where prices are set by supply/demand. Rich countries like Kuwait and UAE are also market based economies where people are free to buy and sell whatever they want , don't have price controls but governments still own the main source of wealth, the oil industy, so they are able to raise puplic employees salaries and give people vouchers to purchase basic food items for free. They also have little to no taxes, provide free education and health care for all of thier citizens. Countries like Egypt with 90M people and large poor population have no business adopting free market ideas because the wealthiest 5% got wealthier and 80% who are poor got poorer.

Wed, 01/26/2011 - 20:35 | Link to Comment chindit13
chindit13's picture

What if, according to the original plan of the Neocons, the US could export democracy to the Middle East?  Now I'm not sure there is any democracy left in the US to export, but that's another matter.  Just suppose that democracy really did take a foothold in a part of the world ruled historically by monarchs or self-appointed strongmen.  Democracy, in case some readers have forgotten, is all about majority rule, where it is one person, one vote (as opposed to American Plutocracy which is one contributed dollar, one vote).

Democracy would mean, for example, that if the majority so chose, the Palestinians could elect a preponderance of Hamas candidates to the ruling Parliament.  Oh right, they already did that.

Now that some of the streets in the Middle East are beginning to rumble, and one long time leader has already fallen (Ben Ali), what will the near term Middle East look like?  What types of candidates will appeal to the masses if the Mubaraks of the region were replaced by truly democratically elected leaders?

Hamas was originally an offshoot of the Ikhwan al Muslimeen, or the Moslem Brotherhood, an organization that arose a long time ago in....Egypt.  Egypt is amongst those countries where there is rumbling in the streets.  Over there in the Levant, on the other side of "America's Only True Ally (c)", Lebanon is now in the process of deciding what Hezbollah means in that country's gerrymandered democracy.

Further East, in the sub-continent, the rulers of Pakistan, no friend of America's Only True Ally, are barely maintaining a paper thin hold on power, partly for the same reasons Tunisia and Egypt are seeing protests (rising food prices) and partly because a certain Nobel Peace Prize winner has a fascination with technology and computer games.  Both of these issues are helping to contribute to the growing appeal of a particularly strident and conservative view of Islam.  Indeed, less than a month ago the governor of Pakistani Punjab, an Islamic moderate, was assassinated by one of his own bodyguards, and the confessed suspect immediately became a folk hero.  Let's suppose the current Paki government falls and is replaced in a democratic election.  What will be the platform that excites the electorate?  I think one can guess what it would be.  One wonders if in a new government A.Q. Khan will serve as Minister of Commerce, in charge of exports.

Ben (Bernanke, not Ali)?  Is saving a few incompetent and greedy bankers really worth it?  Are you willing to risk the political stability of the prime oil producing area of the planet, not to mention contribute to the malnourishment of hundreds of millions of people worldwide, simply to cover for the mistakes and paper over the damage the bankers brought upon themselves in the American Plutocracy?  Is Dow 36000 THAT important?

Are you THAT power hungry Ben, trying to not only run the Fed but also usurp the authority of Hillary at State, Leon at CIA, and Clapper over at DNI?

You really are a cold-hearted bastard, Ben, not to mention a fool.  Here's hoping you pay a fool's price.

 

 

Wed, 01/26/2011 - 20:44 | Link to Comment Crassus
Crassus's picture

Food is Algeria's problem. Food causes unrest in a hurry.

Wed, 01/26/2011 - 23:30 | Link to Comment Jump The Shark
Jump The Shark's picture

Remember Katrina, they just needed bottled water, then look what happened.

Wed, 01/26/2011 - 21:25 | Link to Comment midtowng
midtowng's picture

The Algerian government can kill 10,000 civilians and not even blink.

Wed, 01/26/2011 - 21:30 | Link to Comment iota
iota's picture

I work with a guy from Algeria and I know he's been watching Tunisia with interest.

He assured me that the first to go will be the police then on to the houses of government. He said the average Algerian doesn't necessariy want the consumer culture of America and Europe but they do want the freedom and the only thing stopping them from taking it is a full belly.

 

 

 

Wed, 01/26/2011 - 23:20 | Link to Comment Kondor01
Kondor01's picture

gratefutraveller,

Thank you for the Firefox tip.

As for all the Islamic lands, expect nothing but trouble from them for quite a while. Egypt is in flames right now and Jordan may follow. Giventhe economic state of the rest of the World, there may not be much help for them only commiseration.

Thu, 01/27/2011 - 01:22 | Link to Comment JW n FL
JW n FL's picture

Jordan is solid... period. The King has a house down the road from me here... and even if they do make him leave, he can crash on my couch... he is good people.

Thu, 01/27/2011 - 09:19 | Link to Comment CH1
CH1's picture

Sorry to tell you, but power corrupts. Roughly zero percent of autocratic rulers are "good people."

Find better people to entertain.

Thu, 01/27/2011 - 05:02 | Link to Comment hugovanderbubble
hugovanderbubble's picture

Tyler,

 

Egypt halted when crashing -6%

 

Lybia problems in Bengasi...

 

France and specially Belgium are kaput in debt terms....DEXIA is the biggest sell in European banks with Banco Popular Español (POP SM EQUITY) till nationalization

Thu, 01/27/2011 - 05:04 | Link to Comment hugovanderbubble
hugovanderbubble's picture

*** BREAKING NEWS ***
Japan's sovereign credit rating has been downgraded to AA- by Standard and Poors. S&P said that the downgrade reflected concerns that Government debt ratios will rise further and that the Government lacks a coherent strategy to to tackle the debt's problems.

*** COMMENT ***
Our initial thoughts are that, despite the dramatic headline, this is not anything new. Japanese debt numbers have looked bad for a long time with total debt at over 200% of GDP. Despite this, Japanese 10yr yields have continued heading lower.

The key difference between Japan and other European countries, and even the US, is the makeup and structure of the Japanese debt. Although the debt burden is large, it must be remembered that:

1) Approximately 95% of Japanese debt is yen denominated and owed to domestic investors.
2) Japan has a current account surplus that continues to provide a steady inflow of foreign exchange into the country. Japan is the second largest holder of US Treasuries and is suspected to have foreign exchange reserves of about $1tn.
3) Japan has a high savings ratio of relatively risk averse investors who continue to provide adequate funding for the Japanese Government via structures like the Japanese postal fund.
4) The yen is at 83 and the Japanese Government has a stated intention to get the yen lower. It can print as much money as it wants for the time being to repay domestic debt.
5) Japan is politically stable, and the Japanese are a wealthy nation. There is a low probability of riots in the streets in Japan due to economic conditions - the average Japanese person is a long way from the bread line.
6) Finally and perhaps most crucially, Japan has deflation, not runaway inflation. The Japanese can print money to their heart's content and have been for the past 20 years without a hint of resuscitating inflation.

So despite the smoke, fire and shock that will inevitably come as the press screams these headlines across the world, in reality a Japanese sovereign default seems very unlikely. Japanese investors are unlikely to lose money buying JGBs and holding them to maturity - foreign investors may lose money but most likely due to adverse currency movements.

The Japan USD 5yr CDS is currently at 80bps, implying a probability of default of less than 8% over 5 years.

The larger concern is if the credit agencies are downgrading Japan, being aware of the fundamentals that we have described, how are they going to treat countries which are running large budget deficits, large current account deficits, a huge net debt/GDP ratio, low savings ratios and most of the debt owed to external counterparties with relatively little held by domestics. Sound like anyone we know? The United States, perhaps? We are not saying that the US is about to default but what markets may need to be concerned about is an increase in the probability of a credit downgrade in the US which could lead to much higher bond yields, if the credit agencies are adopting a more pro-active attitude, especially with the current debate around the US debt ceiling.

Despite the headlines, the track record of the credit agencies is relatively poor with companies and countries being downgraded once the event has happened rather than before. Japan has $2.7tn of debt to roll forward in 2011 and we see little difficulty in it doing so.

There are lots of reasons for this market to sell off, many of which we have rehearsed on previous occasions, but we do not believe that this is one of them. In Japan, a rise in long dated bond yields would actually help the banks rally as it would increase their margins and a weaker yen would help exporters. Japanese domestic pension funds are likely to buy any dip in JGBs and we see a swift unwind from them as fairly unlikely. The BoJ continue to buy JGBs via their QE program and will fight the market if it tries to raise yields - the resolve of the BoJ should not be underestimated by the market.

Although cautious on the Nikkei short term as we continue to await a global risk correction, we would use dips to around 9700 on the Nikkei as an opportunity to buy. After the initial reaction, markets are regaining their equilibrium.

There is probably more probability of a default event from China in the next ten years than there is one from Japan. On this call, we would have to respectfully disagree with S&P. If the S&P downgrade results in higher JGB yields and a weaker yen, they might have actually done Japan, and Japanese equities, a favour.
 
Citi:Source

Thu, 01/27/2011 - 09:34 | Link to Comment AnAnonymous
AnAnonymous's picture

Algeria’s citizens are justifiably angry that their country’s resource wealth is not making things better for the average person. If Algeria’s rioters return, spurred on by their Tunisian neighbors or by their own government’s inadequacy, and overthrow Mr. Bouteflika in favor of an anti-European government, gas prices could take a serious jump. And LNG is transported by ships, not pipelines, so if Europe is not willing to pay those higher prices, the ships will simply sail to other countries that will.

 

This part is pretty and explains clearly why all these people wont get what they are looking for : a government to represent their best interests.

The spin examplifies excellently what can be noticed when reading political research papers: political research is focused in the west on the means of installing pro western governments outside the Western world. It is not about working on better forms of government that would represent more accurately the interests of represented. Nope, it is all about installing pro western governments.

The spin is to tell that an algerain government looking for the better deal is fundamentally anti european.

It is funny. Usually, it is accepted that you dont need to be anti someone to look for the best deal, you only need to be pro  yourself.

But here, the spin reveals the real issue: these people can not be allowed to pro themselves.  It would hurt European interests.

Once again, it shows who  is dependent on who and who needs to make sure the other can not walk away freely to look for another deal.

The Europeans are dependent vitally on these people and can not afford to let them walk away to see if the grass is greener elsewhere. They will build pipelines to make sure no other deals can be sealed. And they will spend resources like subsidizes on food to make sure these people can not break free.

Just like a pimp can not allow his  hookers to walk away when they choose to.

 

Thu, 01/27/2011 - 13:49 | Link to Comment jmc8888
jmc8888's picture

Well if the people WITH oil can't eat.

How long before they realize that they have the oil and they're going to charge what they need so that they can eat.

Oh yes, we send you oil, we starve?

Any yokel should realize they'll use their oil advantage to feed themselves.  As goes the price of food, oil will surely follow, given top producers are having food riots.

 

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