Algeria threatens to terminate Spanish gas supply contracts over Morocco flow

Algeria has threatened to terminate gas supply contracts between state-owned Sonatrach and Spanish buyers if Algerian gas is delivered to destinations other than those specified in those contracts.

Algeria's energy minister Mohamed Arkab, cited by state news agency APS on April 27, said that if Algerian gas that was supplied to Spain is redirected to a third country it would be considered a breach of contract.

"Any transport of quantities of Algerian gas delivered to Spain, whose destination is none other than that provided for in the contracts, will be considered as a breach of contractual commitments, and therefore, could lead to the termination of the contract binding Sonatrach to its Spanish customers," Arkab said.

Spanish gas is currently among the cheapest in Europe thanks to its access to global LNG via its six operational LNG terminals and its pipeline imports from Algeria.

The PVB month-ahead price was assessed by S&P Global Commodity Insights on April 27 at Eur82/MWh, a discount of Eur23.50/MWh to the TTF month-ahead price.

Spain is supplied with pipeline gas from Algeria via the 10.5 Bcm/year Medgaz pipeline, with deliveries currently running at some 26 million cu m/d.

Morocco flow

The new contractual threat comes after Arkab was informed by his Spanish counterpart Teresa Ribera that Spain was planning to begin reverse gas flows on the currently idled GME pipeline for the supply of gas from Spain to Morocco.

Algerian gas flows to Spain via Morocco using the GME pipeline were halted on Nov. 1, 2021 after the non-renewal of a key transit deal between Algiers and Rabat amid increased tensions between the North African neighbors.

Morocco was also cut off from Algerian supply at the same time, leaving it with only very limited domestic production.

Spain in February said it had responded positively to a request from Morocco regarding possible gas supplies via the GME pipeline in reverse flow.

The supply would entail Morocco buying LNG on the market, unloading it at one of Spain's six LNG terminals and flowing it through the GME pipeline, the ministry said at the time.

Sources have told S&P Global that the Huelva terminal would be the most logical option as it is located close to the entry point of the GME line.

Algeria previously supplied gas directly to Morocco via the GME link, partly in lieu of payment for transit, with deliveries seen at some 1 Bcm/year.

Most of the gas was consumed by two gas-fired power stations at Tahaddart and Ain Beni Mathar that were supplied from Algeria, but the plants were idled after the GME flow was halted.

The country also has limited domestic production that is supplied to local industrial customers including automakers and paper mills.

Morocco has also launched a tender to install a floating LNG import terminal in the country as it looks to increase its gas supply.