Algerian pipeline gas flows to Southern Europe remain robust in 2023

Algerian exports of natural gas to Southern Europe have remained strong so far in 2023, with Italy continuing to rely on imports from the country and gas flows to Spain recovering from a slight Q1 lull, data from S&P Global Commodity Insights showed.

Algeria is now the single biggest gas supplier to Italy after Russian imports were sharply curtailed in 2022, while in Spain pipeline flows from Algeria reached their highest level since February earlier this month.

Pipeline gas supply from Algeria to the Continent has two main entry points -- the Medgaz pipeline to Spain and the TransMed pipeline, which sees gas flow to mainland Italy via Tunisia and Sicily.

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North Africa's largest exporter of gas, Algeria produces around 100 Bcm/year, of which a little under half is exported and the rest consumed domestically.

The country is well positioned to meet Europe's energy needs, leveraging existing transit routes, utilizing its vast energy resources and recalibrating policy frameworks to boost upstream developments.

State-owned Sonatrach expects to supply some 110 Bcm/year of gas for export and use domestically over the next five years, CEO Toufik Hakkar told S&P Global Commodity Insights in a March interview.

Exports to Italy

Italy is a key market for Algeria, both in terms of its long-term supply arrangements but also additional sales via TransMed on the spot market, which amounted to some 4 Bcm last year.

Italian imports via TransMed averaged just over 61 million cu m/d through 2022, data from S&P Global showed, and have remained largely in line with the 2022 average so far this year.

The country imported a total of 22.4 Bcm of pipeline gas from Algeria in 2022, up from around 20 Bcm in 2021.

As of May 18, imports of Algerian gas this year totalled 8.36 Bcm, slightly higher when compared to the same period last year, when imports averaged 8.33 Bcm, according to the data.

Algeria now ranks as Italy's largest supplier of gas, with cumulative global LNG imports into Italy trailing second at a total of 5.56 Bcm, while imports from Azerbaijan have totaled 3.45 Bcm so far this year, according to S&P Global data.

However, scheduled maintenance across the TransMed pipeline network in May did see flows drop to 53.9 million cu m/d on May 20, their lowest level since March 6, the data showed.

Italy's Eni is a major buyer of Algerian gas and plans to incrementally increase gas flows through TransMed, targeting a progressive ramp-up to an additional 9 Bcm/year by 2024, the company said in its 2022 annual report.

Spanish imports recover

Spain, meanwhile, has traditionally benefitted from its proximity to Algeria for energy needs, supplementing its vast LNG import infrastructure.

Algerian gas accounted for around 24% of Spain's gas supplies in 2022, second only to the US at 29%, according to Spanish transmission system operator Enagas.

Pipeline flows reached a recent peak in December last year at 28.1 million cu m/d, before tailing off at the start of 2023.

In late March, supplies fell further, sliding to 15.9 million cu m/d before recovering to reach 24.7 million cu m/d on May 2, the highest level since mid-February, the data showed.

Spanish energy company Naturgy is a major buyer of Algerian gas.

In February, it said it was in negotiations with Sonatrach to agree a price for 2023 volumes having agreed in October last year to implement retroactively a new price for 2022.

The contracts covered by the price revision were signed more than 20 years ago and cover volumes of 5 Bcm/year through to 2030.

Spanish gas prices are currently the cheapest across Europe's traded hubs due to the robust Algerian supplies, its LNG import infrastructure, and high gas storage stocks.

Platts, part of S&P Global Commodity Insights, assessed the PVB month-ahead price at Eur26.60/MWh on May 19, a discount of Eur3.50/MWh to its TTF equivalent.