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Spain's Naturgy still in talks with Morocco, Algeria over GME gas link extension


Flows halted on Nov. 1 after non-renewal of transit deal

Additional volume would be 'upside': Naturgy

Medgaz flows up to 25 million cu m/d this month

  • Author
  • Gianluca Baratti    Stuart Elliott
  • Editor
  • Alisdair Bowles
  • Commodity
  • Electric Power LNG Natural Gas Shipping

Spain's largest gas group Naturgy said Nov. 10 it remained in continued talks with parties in Morocco and Algeria to potentially achieve an extension of the gas transit agreement for supplies of Algerian gas in the GME pipeline via Morocco to Spain.

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Gas deliveries through the GME pipeline fell to zero Nov. 1 after the long-term transit deal between Algeria and Morocco was not renewed ahead of its expiry on Oct. 31.

Relations between Algiers and Rabat have worsened significantly in recent months, with Algerian President Abdelmadjid Tebboune on Oct. 31 ordering state-owned Sonatrach to break all commercial relations with Morocco's state utility ONEE.

Jon Ganuza, Global Head of Controlling at Naturgy, said Nov. 10 after the company released its third-quarter earnings report that talks continued to see whether the concession for the pipeline could be extended.

Ganuza said it would be "sensible" for all parties and "create value for all."

Algeria has repeatedly said it can meet Spanish gas demand using only the direct Medgaz gas pipeline and LNG deliveries, with Sonatrach CEO Toufik Hakkar reiterating that there was no cause for concern.

Cited by the state news agency APS on Nov. 8, Hakkar said that Medgaz alone "currently ensures the entire volume of Algerian gas exports to Spain stipulated under long-term contracts."

Ganuza said Nov. 10 that the company had sufficient firm gas volumes to meet its customer needs and that this guaranteed volume was independent of any outcome of the negotiations with Morocco and Algeria, whereby any additional volume would be an "upside."

He added that Naturgy had been aware since July 2018 that the GME concession was unlikely to be continued.

Despite Algeria's assurances, the non-renewal of the GME transit contract has caused some concern in Europe given the current tight gas market and high prices.

The TTF day-ahead contract hit a record high on Oct. 5 of Eur116.10/MWh, according to S&P Global Platts price assessments, and has remained volatile through the remainder of October and into November.

Platts assessed the TTF day-ahead price on Nov. 9 at Eur72/MWh, up by 420% from a year ago.

Medgaz expansion

Algeria is currently working to expand the capacity of the Medgaz pipeline from 8 Bcm/year to 10.7 Bcm/year, with the work expected to be completed in the fourth quarter.

Naturgy's Ganuza confirmed Nov. 10 that the company -- whose capacity on the pipeline is contracted via a euro-denominated send-or-pay contract through to 2031 -- was also involved in adding the fourth compressor to Medgaz.

There is also scope for further upgrades to eventually take the capacity to 16 Bcm/year.

In early 2020, Naturgy boosted its stake in Medgaz to 49%, buying out a 34% stake held by Abu Dhabi's Mubadala, and then split its holding with Black Rock.

Thanks to a Spanish ruling in July 2021, the partners were granted a 10-year extension to exempt them from having to offer third-party access in Medgaz, allowing them to face financing costs including the capacity expansion.

Naturgy signed a 9 Bcm/year supply contract with Sonatrach, itself a minority shareholder in Naturgy, in 2018 running to 2030, although the agreements were modified in October 2020, without details being disclosed.

Current flows

Since the flows in the GME pipeline were halted on Nov. 1, Medgaz deliveries have stepped up and are now running at some 25 million cu m/d, or around 4 million cu m/d higher than the average in the first 10 months of the year, according to S&P Global Platts Analytics data.

According to shipper nominations, flows on Medgaz are seen reaching 26 million cu m/d this month.

At 25 million cu m/d, current flows already suggest an annual capacity on Medgaz of 9.1 Bcm/year, and once Medgaz reaches capacity of 10.7 Bcm/year, daily flows could come in at close to 30 million cu m/d.

The GME pipeline transited 5.93 Bcm of Algerian gas via Morocco to Spain in the first 10 months of 2021 -- an average of 20 million cu m/d -- according to Platts Analytics data.

That was enough to meet roughly 25% of Spanish gas demand.

Meanwhile, Sonatrach's Hakkar said Nov. 8 that it was too early to assess the supply picture in the event of additional Spanish gas demand in the future.

"Let's talk about how to meet additional needs only when there is an additional demand", he said, adding: "The capacities of Sonatrach to meet Spanish demand are sufficient, whether through the [Medgaz] pipeline or LNG tankers."

According to Platts Analytics, Medgaz alone may not be enough to cover its forecast of Algerian supply to Spain for the balance of this winter, with 14 million cu m/d at risk, even after considering the capacity expansion.

However, Platts Analytics expects the impact on the Spanish balance this winter to be "subdued."

"Platts Analytics currently estimates that Algeria has sufficient LNG export capacity to cover the GME shortfall after factoring in Sonatrach's contractual obligations," it said.