Algerian gas flows to Europe shrink, but Italy gains as trade ties strengthen

Algerian gas flows to Europe fell by around 6 Bcm in 2022, totaling 44 Bcm last year, according to data from S&P Global Commodity Insights, as lower LNG exports to the Continent and reduced transit to Spain were only partially offset by burgeoning energy ties with Italy.

However, with lower Russian gas supplies to Europe last year, Algeria -- Africa's largest gas exporter – saw its share of EU gas imports increase, accounting for around 12% of the EU's gas imports in 2022, S&P Global data showed, up from some 10% in 2021.

And with Europe's ongoing drive to reduce Russian gas imports, EU-Algeria energy ties have strengthened since the Russia-Ukraine conflict.

In global terms, Algeria produces around 100 Bcm of gas annually, but consumed around half of its production domestically, according to state-owned producer Sonatrach.

Of its exports, Italy is growing in importance, exemplified by Italian Prime Minister Giorgia Meloni's visit to Algiers last week, accompanied by Eni CEO Claudio Descalzi. The Italian premier reaffirmed the importance of the two countries' bilateral relationship in her official comments, continuing the approach taken by her predecessor Mario Draghi.

Eni signed two strategic memorandums of interest with Sonatrach on Jan. 23, solidifying cooperation on future joint projects concerning energy supply, decarbonization and energy transition, according to a company statement.

Pipeline exports to Italy via the TransMed pipeline – with its technical capacity of up to 35 Bcm/year -- totaled 22 Bcm in 2022, climbing from a total of 20 Bcm in 2021, S&P Global data showed.

For Algeria, pipeline exports remain the key focus. In December, the Algerian government announced that the country would again consider the feasibility of constructing the Algeria-Sardinia GALSI gas pipeline.

The proposed pipeline is initially expected to transport surplus gas, shifting to more hydrogen and ammonia export upon market maturation, according to Algeria's Minister of Energy and Mining, Mohamed Arkab.

Spanish flows decline

By contrast, Spanish imports of Algerian gas in 2022 paint a mixed picture, reflecting a complicated trade relationship between the two countries in recent years. In June, Algeria opted to suspend a two-decade old friendship treaty, freezing several banking services to and from Spain in the wake of Spain's reversal of its neutrality position in the Western Sahara dispute.

In 2022, Algerian gas exports via the Medgaz pipeline -- the only pipeline route for Algerian gas to reach Spain after the GME line via Morocco was suspended – totaled 9 Bcm, increasing from just under 8 Bcm the year prior, according to data from S&P Global.

However, accounting for the closure of the GME pipeline in late 2021, which saw just under 6 Bcm of additional gas flow to Spain, total Algerian gas exports to Spain fell by more than 35% in 2022 compared to the year prior, the data showed.

Spain's largest gas importer Naturgy said Oct. 6 it had reached an agreement with Sonatrach on revising the pricing terms of their long-term gas supply contracts.

The revised pricing terms, which were not disclosed, are to be applied retroactively to volumes supplied for the whole of 2022 and take into consideration "market conditions," Naturgy said.

It said the two companies were continuing negotiations on the contractual prices applicable from Jan. 1, 2023.

The contracts covered by the price revision were signed more than 20 years ago and cover volumes of 5 Bcm/year through to 2030, with both parties contractually obliged to the volume, Naturgy said.

Sonatrach holds a 4% stake in Naturgy, while the two companies are also co-owners of the Medgaz pipeline that links Algeria and Spain.

LNG boost

On the LNG front, Spain leads the charge in European import capacity, boasting six import terminals across the country, over a third of LNG storage capacity in the EU, and a gas network that long pre-dates the energy crisis and has cushioned both price and demand shocks across Iberian gas markets in 2022.

Last year, Spain strengthened ties with key global LNG exporters, soaking up a considerable portion of US supply, while LNG imports totaled just under 73% of total Spanish gas supply in December 2022, according to data from Spanish transmission system operator Enagas.

Algeria's LNG exports to Europe were a contributing factor, coming in at a total of around 13 Bcm in 2022, but falling from just below 17 Bcm in 2021. Most exports were shipped to France over that period, totaling around 4.4 Bcm in 2022, down from around 5 Bcm the year prior.

LNG exports to Spain accounted for around 500 million cu m of the total in 2022, falling from around 2.1 Bcm in 2021, while exports to Italy totaled 1.5 Bcm last year, up from around 1.3 Bcm over the same period, according to the data.

Total Algeria LNG exports in 2022, including to markets outside of Europe, came in close to 14.5 Bcm.

Platts, part of S&P Global Commodity Insights, assessed the JKM for March at $18.895/MMBtu Jan. 30, the lowest since Jan. 17, as it declined for five trading days in a row. Platts assessed the first half of March at $19.148/MMBtu and the second half of March at $18.643/MMBtu.