Algeria renews major gas deal with Spain

Algeria’s state-owned energy company Sonatrach agreed to an extended 12-year gas deal with Spain’s Gas Natural Fenosa firm for $34.8 billion.
Sunday 24/06/2018
Major advantage. Workers ride bikes at the In Amenas gas plant, 1,300km south-east of Algiers.   (Reuters)
Major advantage. Workers ride bikes at the In Amenas gas plant, 1,300km south-east of Algiers. (Reuters)

TUNIS - Algeria’s state-owned energy company Sonatrach agreed to an extended 12-year gas deal with Spain’s Gas Natural Fenosa firm for $34.8 billion, solidifying its role as Europe’s main natural gas supplier.

The agreement is seen as a big win for Algeria, which had expressed concern that European firms could shift to supplies from the United States or Qatar. However, its proximity to Europe and reputation as a stable, reliable supplier give it an edge over other international providers.

Despite a brutal civil war from 1992-2004 and repeated attempts by Islamist rebels to sabotage supply lines, Algeria has honoured all its gas contracts and saw no major interruption in its pipeline exports.

“This agreement is a major step forward to strengthen our historical strategic alliance with Sonatrach,” said Fenosa Executive Chairman Francisco Reynes. “Moreover, it undoubtedly constitutes a significant milestone in the relationship with Algeria as this renewal guarantees the stability of gas supply to Spain.”

The gas deal, which is to provide 40% of the Spanish firm’s annual gas imports, demonstrates Algeria’s advantage in the market.

“In addition to contributing to the security of supply to the Spanish market, the agreement reinforces an optimal distribution of the supply mix for the country between natural gas supplied via pipelines, which represents 30% of domestic consumption and liquefied natural gas (LNG),” Fenosa said in a statement.

Algeria has a network of pipelines to supply gas to Europe via Italy and Spain, as well as a fleet of tankers to export LNG gas to European and other markets.

Algeria’s LNG supplies have been steady over the past two years but its gas supplies via pipelines to Europe have increased to Italy.

Gas flow to Spain via two underwater pipelines and to Italy through the Trans-Mediterranean Pipeline hit a 5-year high this year, with deliveries to the two countries averaging 120 million cubic metres per day, official figures state.

Algeria’s pipeline gas exports have expanded since 2015 due to a significant jump in supplies to Italy via Tunisia.

Algeria’s major advantages as a key gas supplier to Europe include its abundance of hydrocarbons as well as 4.5 trillion cubic metres of gas reserves, giving it the 11th-largest natural gas reserves in the world and the second-largest in Africa, behind Nigeria.

Algeria is also estimated to hold the third largest amount of shale gas resources in the world — more than 20 trillion cubic feet — and 5.7 billion barrels of recoverable shale gas and oil resources.

Algeria is the sixth-largest gas exporter in the world, sending more than 90% of its pipeline exports to Spain, Italy and other European countries, with the remainder going to Morocco and Tunisia as payment for transit fees.

Spain is increasingly transforming itself into a gas hub for Europe thanks to its position near North Africa that allows it to be a springboard for gas entering the continent via the Mediterranean Sea and the Atlantic, energy experts said.

Spain, through Fenosa, Endesa and Union Fenosa Gas, has invested about $1.16 billion since 2000 to improve its regasification capacity and construct specialised ports. Seven of Europe’s 22 regasification plants are in Spain.

Despite Algeria’s success with the European market, it is aiming to export half of its gas output to new territories, mostly in Asia.

“The 50% announced by Sonatrach is a target. It is also a message to its traditional European clients who are negotiating the extension of old deals,” said former Sonatrach CEO Abdelmadjid Attar.

“These clients are all asking for cuts in price and terms and other concessions. It is obvious that the European market is the most important to the Algerian gas and it must continue to be so but not at any price.”

“The announcement of the 50% is a manner to say that the Algerian gas can find other markets elsewhere, namely in Asia, which is becoming the main market for oil and gas… The competition in Asia is certainly tough but it is already fierce in Europe where the consumption of energy is in any way declining compared to Asia,” he added.

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