Algeria a convert to OPEC price hardliner camp
* Algeria with Iran and Venezuela a lead OPEC price hawk
* IMF says Algeria needs $121 oil to break even
* Social spending on the rise, oil output falling
VIENNA/ALGIERS, Dec 10 (Reuters) - Social spending on the rise, oil output in decline and the price of its main earner natural gas sinking, Algeria has quietly joined Iran and Venezuela in OPEC as a hawk on oil prices.
The Organization of the Petroleum Exporting Countries probably will not tamper with its production target when it meets on Wednesday but if anyone calls for output to be cut to support prices it is likely to be Algeria.
Last year when OPEC fell out over oil policy, Algerian Oil Minister Youcef Yousfi led the opposition to a Saudi proposal to increase production, splitting the group down the middle.
"Algeria has no choice but to defend a policy that favours high prices inside OPEC," said Abderahmane Mebtoul, a former senior adviser at Algeria's energy ministry.
"Expenditures have hugely increased in the past few years and remember that Algeria is a gas country, not an oil country. The price of the gas is going down rather than up."
The harder line has evolved as attempts to diversify Algeria's economy away from oil and gas have failed and social spending to head off any risk of the Arab Spring spreading to the nation has increased.
"Because of what has happened in the region, the social demands for housing and healthcare have to be met," said a former senior Algerian government official. "So Algeria definitely needs higher revenues. Every year, they are going to need more and more and more."
Youth unemployment in Algeria is more than 20 percent. A wave of protests over pay and better living conditions shook Algeria in 2011, pushing the government to spend billions of dollars to calm opposition.
While all OPEC members to an extent need high oil prices, now at $108 a barrel, Algeria's dependence is among the highest. Oil and gas account for about 97 percent of exports. One of OPEC's smaller producers, it pumps just 1.2 million barrels per day of OPEC's 31 million bpd.
Algiers needs an oil price of $121 to balance the books, according to a November estimate from the International Monetary Fund, not far below Iran - the highest at $134. Biggest producer Saudi Arabia's fiscal breakeven price is pegged by the IMF at just below $80.
Oil minister Yousfi is no stranger to OPEC politics. In a previous stint in the job in 1999, he was the unsung hero of an OPEC oil market rescue - working behind the scenes to coordinate supply cuts that hauled oil up from single digits.
Yousfi shuns the media spotlight, a contrast to his predecessor Chakib Khelil who he replaced in 2010. To be sure, that contrast in ministerial styles may have exaggerated the perception of Algeria's increased price hawkishness, the former government official said.
Algeria's oil and gas industry faces a number of challenges.
As a major gas exporter, it needs strong oil prices because its gas contracts are linked to oil. Gas prices are under pressure in some markets because of high supply and slow economic growth.
Algeria has failed to stem a reverse in crude output, which is in slow decline from a peak of 1.37 million bpd in 2007.
Output at two major fields, gas field Hassi R'mel and oil field Hassi Mesaoud has peaked and no new exploration projects of note have been launched because foreign firms, complaining of poor fiscal terms, have avoided bid rounds.
Algiers is hoping to address this by linking the taxes on foreign energy companies to their profit, rather than turnover, in a draft amendment of the oil and gas law.
To make matters worse, Algeria's crude oil, Saharan blend, has lost some of its price premium partly because a major buyer, the United States, is importing less because of rising supply of domestically produced shale oil.
The differential of Saharan blend to dated Brent <BFO-SAH> sank to a discount of $3.30 a barrel in June, the lowest since at least 2003, although it has since recovered to a premium of around 60 cents.
"As this is our main source of income and Algeria needs to continue investments in development projects, this creates pressure for higher prices," said Arslan Chikhaoui, an economy analyst who runs a consultancy firm.
(additional reporting Peg Mackey, editing by William Hardy and Richard Mably)