- Algeria and Spain are locked in a territorial conflict over Western Sahara.
- Sonatrach, an Algerian company, may raise the price of gas paid by Naturgy, a Spanish company.
- Spain is attempting to establish itself as a European gas centre.
Algeria, which is locked in a political battle with Spain over Western Sahara, has pledged to sell gas to the European country, which aspires to become the continent’s natural gas hub as reported by S&P Global.
Recalculation of price
“Algeria won’t abandon its commitment to supply Spain with gas under any circumstances,” Abdelmadjid Tebboune told national media, state-run Algeria Press Service reported on April 24.
Tensions have flared between Algeria and Spain after Madrid in March altered its position regarding the autonomy of the disputed Western Sahara region in Northern Africa.
Western Sahara is the subject of a dispute between Algeria and Morocco.
Algeria’s state-owned Sonatrach has not ruled out a “recalculation” of the price paid for its gas by Spain’s Naturgy, CEO Toufik Hakkar said on April 1.
Sonatrach and Naturgy are long-standing partners in the gas sector, but the political row is stoking fears of a disruption of supply at a time of high European gas prices.
However, he singled out Spain for a potential change in pricing terms.
10-year high
In October 2020, after gas prices fell to historic lows in Europe, the two parties agreed to revise pricing terms for Algerian gas deliveries.
Spanish PVB front-month was assessed on April 22 at a Eur9.25/MWh loss on the day, with the contract priced at Eur80.25/MWh, according to S&P Global Commodity Insights data.
Spain has seen more LNG delivery as recent gas demand has increased on colder than average weather, which is expected to continue until May 1.
Russian pipeline gas was the biggest source of EU imports at 41% in 2021, according to European Commission data, followed by pipeline gas from Norway (23.5%), LNG (20.5%), Algerian pipeline gas (10.5%) and pipeline gas via TAP (2%) and from Libya (1%).
Against the background of higher demand and lower domestic production, EU imports rose by 3% to 337.5 Bcm in 2021.
US LNG
Algeria has already diverted pipeline volume from Spain, which in turn has turned to US LNG to replace the reduced Algerian volume, taking advantage of Henry Hub-indexed long term contracts that Spanish importers have with Gulf of Mexico suppliers.
Algerian flows to Spain fell 33% year on year in Q1 to 28.1 TWh, also down 29% on the Q1 average over the last five years.
The deal was part of a wider Italian mission to Algeria which resulted in the signing of a letter of intent to increase cooperation in the energy field.
From a European perspective, the deal should help Italy reduce its dependence on Russian gas.
The volume could lift imports through the Transmed pipeline from Algeria to Italy to near its full 30 Bcm/year capacity.
Did you subscribe to our newsletter?
It’s free! Click here to subscribe!
Source: S&P Global
