Algeria committed to supply gas to Spain despite tensions: president

Algeria, which is embroiled in a political dispute with Spain over the Western Sahara, is committed to supplying gas to the European country that is seeking to become a natural gas hub for the continent.

"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 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 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 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.

Sonatrach had opted to maintain its pricing under long-term contracts with buyers despite the rise in prices due to the Ukraine crisis, Hakkar said at the time. However, he singled out Spain for a potential change in pricing terms.

The two companies co-own the Medgaz gas pipeline carrying Algerian gas to Spain, and their commercial relationship dates back to the 1970s.

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.

Spain is seeking to become a a major gas hub in the 27-member European Union, where consumption reached a 10-year high in 2021, with demand rising by 4% to 412 Bcm due largely to a longer-than-usual winter.

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.

Germany imported 83 Bcm of gas, followed by Italy (71 Bcm), France (40 Bcm), Spain (34 Bcm), and Poland and Belgium (both 18 Bcm).

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.

US LNG shipments to Spain hit a monthly record high of 16.3 TWh in March, equivalent to 43% of the country's natural gas intake in the month, establishing the US as the country's principal gas supplier ahead of Algeria, according to data published April 8 by gas grid operator Enagas.

US supplies have largely displaced those from Algeria after one of the two pipelines that connect the countries, the 11 Bcm/year Magreb pipeline that transits Morocco, closed in November 2021.

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.

Meanwhile, Italy's Eni and Sonatrach have agreed to a new gas supply deal that will rise to 9 Bcm/year by 2023-24, Eni said April 11.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.