Identifier
Created
Classification
Origin
07ALGIERS1035
2007-07-21 06:41:00
UNCLASSIFIED
Embassy Algiers
Cable title:  

PRICE HIKE FEARS LEAD TO DIESEL SHORTAGES

Tags:  ECON EPET KNRG AG 
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VZCZCXRO9258
RR RUEHTRO
DE RUEHAS #1035 2020641
ZNR UUUUU ZZH
R 210641Z JUL 07 ZDK
FM AMEMBASSY ALGIERS
TO RUEHC/SECSTATE WASHDC 4098
INFO RUEHRB/AMEMBASSY RABAT 1861
RUEHTU/AMEMBASSY TUNIS 6704
RUEHFR/AMEMBASSY PARIS 2274
RUEHLO/AMEMBASSY LONDON 1685
RUEHCL/AMCONSUL CASABLANCA 3025
RUEHTRO/AMEMBASSY TRIPOLI
UNCLAS ALGIERS 001035 

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON EPET KNRG AG
SUBJECT: PRICE HIKE FEARS LEAD TO DIESEL SHORTAGES

REF: 06 ALGIERS 01961 (NOTAL)

UNCLAS ALGIERS 001035

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON EPET KNRG AG
SUBJECT: PRICE HIKE FEARS LEAD TO DIESEL SHORTAGES

REF: 06 ALGIERS 01961 (NOTAL)


1. Rumors that private gas distributors would strike in response to
an expected cut in state subsidies of diesel prices led to fuel
shortages and long lines at filling stations throughout Algiers
beginning July 11. Private distributorships have accounted for
roughly half of the filling stations in Algeria since the opening of
the market in 2001, but all gasoline is supplied by the state-run
refiner Naftal. Beginning July 13, Naftal deployed additional oil
distribution trucks and demanded filling continue into the evening,
alleviating some but not all shortages. Nonetheless, the
uncertainty about price hikes has sparked even greater demand, as
privately owned stations have attempted to fill all of their
reserves so as to maximize profits in the event the government
raises prices at a later date.

GOVERNMENT SIGNALS PRICE HIKE,
THEN DENIES CURRENT SHORTAGES
--------------


2. The scramble at the pumps follows Energy Minister Khelil's
announcement July 14 that Algeria would reduce diesel subsidies in

2008. Khelil called the unspecified diesel price hike "a strategic
and inescapable option" to limit foreign diesel imports, which have
cost Algeria an estimated USD 52 million so far this year. Khelil
also suggested that the cut signals an effort by the GOA to support
more environmentally friendly fuels, such as unleaded gasoline and
liquefied petroleum gas. Although Khelil did not say how much
diesel prices would rise, the owner of a Naftal station in Algiers
said prices last rose by 15 percent in 2006.


3. The GOA has attempted to portray the shortages as the normal
result of increased demand during the summer travel season, when
European emigres travel back to Algeria to visit family members. A
representative for Naftal told the Algerian press that "there is no
shortage of gasoline." However, Algerian consumers told us that the
magnitude of shortages is already more severe than last summer.

DIESEL DEMAND RISING
--------------


4. Domestic supply and demand factors offer a clearer explanation
of Algeria's move to limit diesel imports than environmental
considerations alone. Algerian diesel consumption has increased by
10 percent each year since 2000, according the Ministry of Energy.
Algerian domestic refining capacity has been unable to keep up with
this demand, however, as a growing share of Algerian consumers has
shifted from gasoline-powered French cars to diesel engines, which
now account for 31 percent of the Algerian market. This change in
consumers' preference has in turn likely been a function of the
notable discrepancy between diesel and unleaded fuel prices in
Algeria (USD 0.17 verses USD 0.32 per liter, respectively).

COMMENT: NO MORE SUBSIDIES TO CHINESE BULLDOZERS
-------------- ---


5. While the government's denial of current shortages has hardly
been convincing, its swift move to replenish stocks appears to have
contained the panic and frustration more rampant at Algerian gas
pumps a few days ago. In the longer run, overhauls underway at the
Skikda and Arzew refineries (reftel),coupled with the construction
of a new refinery in Adrar and plans to build another facility in
Tiaret, are slated to increase Algeria's domestic refining capacity.
While some diesel-driving Algerian consumers will face higher
prices at the pump, it will be foreign contractors who are
implementing Algeria's USD 100 billion infrastructure program that
will most feel the pinch. The Chinese contractors working on the
East-West highway project alone employ some 600 pieces of
diesel-guzzling heavy equipment.

DAUGHTON