Sonatrach Italian partners buying spot Algerian gas on top of long-term volumes: sources

London — Italy's three long-term buyers of Algerian are purchasing additional spot volumes on top of their long-term contracted volumes, after being offered the option by Algerian oil and gas producer Sonatrach, two industry sources independent of each other told S&P Global Platts.

The offer came in 2019 when long-term contracts held by Sonatrach's three historical partners Eni, Enel and Edison were being renegotiated, one of the two sources said, adding that "there is no cap to the level of spot gas supply they can purchase" on top of their long-term contracted levels.

The second industry source said: "I can confirm that spot purchases are happening now."

A spokesman from Eni confirmed on April 16 that spot transport capacity on its 100%-owned Trans Tunisian Pipeline (TTPC) and the Trans-Mediterranean Pipeline (TMPC) jointly owned with Eni and Sonatrach has been purchased since the winter. The two pipelines connect Algerian gas fields to Italy via Tunisia.

"Eni confirms that some monthly/quarterly transport capacity on the TTPC/TMPC pipelines have been purchased," an Eni spokesman said, adding that operators of the TTPC and Transmed pipelines have been offering spot transport capacity since spring 2020.

Quarterly transport products have been available since summer 2020, while monthly products have been available since Oct. 1, he said.

"This new spot transport products have been welcomed by shippers, who have been using it already this winter," the spokesman said.

Eni's spokesman, however, declined to comment on whether Eni itself had purchased spot gas volumes from Sonatrach.

Data from PRISMA shows that a monthly transport product at the Mazara del Vallo entry point -- which is where the Transmed pipeline connects to Italy -- was purchased the last time on March 15, with about 1 million cu m sold, out of about 2 million cu m offered.

New assumptions needed

The news comes at a time of very strong Algerian imports into Italy and is set to change assumptions of Algerian imports for the remainder of the 2021 gas year.

Market players were expecting to see the three Italian players importing a big chunk of their annual contracted volumes in the first half of 2021, amid favorable prices, and lower volumes in Q3 and Q4.

However, with the three players able to import more than the contracted volumes things may turn out differently.

According to Konstantinos Pantazopoulos of S&P Global Platts Analytics, "additional Algerian imports could exert bearish pressure to the Italian system, keeping the PSV-TTF day-ahead spreads narrow for the remainder of Q2 and Q3 2021. In turn, Passo Gries flows are expected to come under pressure should these extra spot volumes continue."

In the money

Algerian volumes have been in the money since Q4 2020, thanks to the significant drop in oil prices seen during spring 2020, which was triggered by the coronavirus pandemic.

The structure of the long-term formula is believed to be 6 0 3, where 6 is the number of months used to calculate the average of Brent, zero is the number of months in advance used to calculate the average and 3 is the number of months the set price will last.

Platts Analytics data shows that so far in the 2020 gas year (Oct. 1-April 13), Italy has imported 11.1 Bcm of gas , against the 4.6 Bcm imported in the same period last year, and the 8.2 Bcm imported in the Oct. 1, 2018-April 13, 2019 period.

Sonatrach's offer came as the three buyers reduced the level of their long-term volumes when renegotiating their contracts in 2019.

Eni nearly halved its volumes from 16 Bcm/year to around 9 Bcm/year for an agreement for 2019-2027. The contract started at the beginning of the gas year.

Eni didn't disclose the precise volumes of gas but said the new agreement covered almost 15% of the gas imported into Italy, equaling about 9 Bcm/year.

Edison reduced its volumes from 1.8 Bcm/year to 1.5 Bcm/year for an eight-year contract starting on Oct. 1, 2019. Edison's contract also runs on a gas year basis.

Enel extended its long-term deal with Sonatrach to 2028 starting Jan. 1, 2020. Agreed volumes were 3 Bcm/year, down from 7 Bcm/year under the previous agreement.

To compensate for the volume reduction, Sonatrach tried in 2019 to find new buyers among Italy's medium to large gas players but was unsuccessful -- according to intelligence gathered by Platts so far -- to find anyone willing to take up the risk of its oil-indexed formulas.

Enel declined to comment, Edison was not available for immediate comment.