Algeria, Libya Play Catch-Up

The global economy may be crawling ahead at a snail’s pace, but for many U.S. providers of industrial equipment and project cargo, North Africa’s major energy producers — Algeria and Libya — could offer a wide range of business opportunities.

Although overlooked by many shippers for years because of its unstable, socialist political system, Algeria was the world’s 15th-largest oil producer in 2008, according to the CIA’s World Fact Book. Sonatrach, the national oil company, plans to spend $45 billion over the next few years to develop its petrochemical industry.

And the Algerian government, long critical of U.S. foreign policy, is now encouraging U.S. and other global suppliers to help build massive new electric power generation and renewable energy projects, including wind and solar; help modernize the mining industry; develop water treatment and reclamation projects; develop cold-chain technology; and build hospitals, roads, railways and more.

Badreddine Hamadi, who represents BDP Project Logistics in the Algerian port city of Skikda, is confident these enormous projects will continue no matter how rapidly — or slowly — the global economy recovers. “The price of oil does not have any impact on these projects,” he said. “These are signed contracts for 10-year periods, no matter what happens. Algeria cannot go backward now.”

Hamadi said the massive projects are being built with capital and equipment from North America, Europe and Asia, but most of the equipment in U.S.-funded projects will be purchased in the U.S. and delivered from U.S. ports. Although the Port of Algiers has significant container capacity, much of the breakbulk activity occurs in two other ports on opposite ends of the country — Mostaganem, about 300 miles west of Algiers, and Skikda, about 300 miles to its east.

Libya, long ostracized by the global economy for its government’s notorious support of terrorism, also has rejoined the global community and is playing catch-up on a grand scale. It plans to expand and upgrade its infrastructure for producing oil, petrochemicals, electricity, cement, steel and aluminum, as well as to construct new ports and airports, and extend its railway system across the 1,200-mile breadth of the country, which also faces the Mediterranean.

There is plenty of room to grow. Libya is the second-largest crude oil producer in Africa after Nigeria, but its oil production is still only half of what it was in the early 1970s, despite the lifting of sanctions on Libyan oil. Although its production is expected to climb steadily to 3 million barrels a day by 2015, reaching that production level will likely cost more than $30 billion, according to BDP.

Fortunately, Libya has the cash to pay for the equipment imports required to turn its dreams into reality. Its foreign currency reserves last year were estimated at about $100 billion, in part because Libya’s economic growth accelerated from a 5.2 percent pace in 2006 to 6.8 percent in 2008.

Mongi Zeglam, commercial delegate for BDP in Tripoli, Libya, said Libya’s port capacity will nearly triple between this year and 2012 to handle all the new activity. Unlike Algeria, where most energy sector projects occur hundreds of miles south of the Mediterranean coast, most of Libya’s development is focused along the coast.

Libya’s proximity to Europe, combined with its relatively low production cost for oil, gives the country an advantage in energy markets because transportation costs are relatively modest. After U.S. oil companies left Libya in the 1980s, European oil companies maintained their operations in Libya, and Libyan National Oil Corp. maintained its production at lower levels. After the U.S. lifted sanctions in 2004, U.S. energy companies, including ConocoPhilips, Marathon and Hess, resumed operations in Libya.

Not surprisingly, given past political tension with the U.S., traffic volumes between Libyan ports and the U.S. have long been much more modest than traffic volumes to and from Europe — especially major ports in Italy (Genoa), Germany (Hamburg), France (Marseilles, Le Havre) and Spain (Barcelona).

“Now, we expect an increase in traffic to the U.S., but it will not be so quick,” Zeglam said. “The first stage is to develop the infrastructure” for the cement, steel and other projects that will use equipment imported from the United States.

While U.S.-Libya trade grew dramatically from $18 million in 2004 to $4.9 billion last year, some $4.2 billion of that was spent on oil exported to the United States. Libyan imports from the U.S. amounted to only $721 million last year, mostly machinery, vehicles, iron and steel, cereals and electrical machinery. If U.S. project cargo exporters participate in the predicted infrastructure boom, the ratio may become more balanced.

Nordana is the only carrier to provide scheduled liner service (breakbulk, ro-ro and containerized) from the U.S. to North Africa, directly linking Houston, Jacksonville and Baltimore to Mostaganem, Algeria, and Tripoli, Libya. It also provides transshipment to other ports, including Istanbul, Turkey; Piraeus, Greece; and Tarragona, Spain.

“Our activity level is fairly stable; we are doing reasonably well,” said Steen Obst, president of Nordana (USA) in Houston. Algeria and Libya are “not unharmed by the (economic) crisis, but at least they are not being hampered to the same extent as the rest of the world.” That’s because their banking sectors were more closely controlled by their governments and took fewer risks.

Although it does not operate scheduled liner service, Clipper Projects (Americas) also has provided a regular project parcel service since last January that calls on various ports in Algeria (Algiers, Skikda), Libya (Tripoli, Marsa El Brega, Misurata, Benghazi), Tunisia (Sousse, Sfax, Djerba) and Egypt (Alexandria). Suppliers of oil field-related and project-related equipment use the service to ship from Gulf ports, especially Houston.

Joe Webb, chartering manager of Clipper Projects (Americas), said the service is based on demand and serves deep- and shallow-draft ports at a pace of one or two voyages a month. Shippers use it for project and breakbulk cargo, such as shipments with odd shapes and weights, that aren’t suitable for the liner trade. The charter service uses multipurpose, heavy-lift ships and serves ports that do not normally receive many vessel calls.

Webb said the new service has “met our expectations. We are holding our own.” Demand for energy-related project cargo has been strong because energy prices have risen significantly over the past year in response to growing optimism about a global recovery.

“The demand,” he said, “will continue as long as oil prices are stable and don’t drop significantly.”

Contact Alan M. Field at afield@joc.com.