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Spain expects 'moderate' increase in Algerian gas price: minister

Highlights

Contract negotiations with Algeria 'strictly commercial': Ribera

Sonatrach CEO pointed to 'recalculation' of Spanish gas price

Spanish border customs price at discount to spot levels

  • Author
  • Gianluca Baratti    with Stuart Elliott
  • Editor
  • James Leech
  • Commodity
  • Natural Gas

Spain is expecting a "moderate increase" in the contract price for gas supplied by Algeria's state-owned Sonatrach, Ecological Transition Minister Teresa Ribera said April 7 in comments to Spanish state broadcaster RTVE.

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Ribera said that the price negotiations, which started in October 2021, were a "strictly commercial operation between companies and not governments," and expected a conclusion soon.

Spain's biggest gas company, Naturgy, has long-term import arrangements with Sonatrach, whose CEO Toufik Hakkar said April 1 he had not ruled out a "recalculation" of the price paid for its gas by Naturgy.

Naturgy said April 7 it was in the process of an "ordinary price revision" of its supply contract with its long-standing partner, without commenting further.

Ribera noted that the price of Algeria's gas supply to Spain has been at a large discount to current market prices.

The price of imported gas at Spain's border in November 2021 was Eur41.58/MWh, according to the latest customs data, compared with the average outcome price of Eur84.09/MWh for day-ahead delivery on the MIBGAS exchange, according to regulator data.

Sonatrach and Naturgy are long-standing partners in the gas sector, but new tensions have emerged between Algeria and Spain after Madrid altered in March its position regarding the autonomy of the disputed Western Sahara region.

Cited by Algeria's state news agency APS, Hakkar said Sonatrach had opted to maintain its pricing under long-term contracts with buyers despite the rise in price due to the Ukraine crisis, but singled out Spain for a potential change in pricing terms.

"Since the beginning of the crisis in Ukraine, gas and oil prices have soared," Hakkar was quoted as saying.

"Algeria has decided to maintain relatively correct contract prices for all its customers. However, it is not excluded to carry out a 'recalculation' of prices with our Spanish customer," he said.

Price shifts

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

In October 2020, after gas prices fell to historic lows in Europe, the two parties agreed to revise pricing terms for Algerian gas deliveries.

But now the shoe is on the other foot after European gas prices soared to record highs.

The day-ahead price on Spain's PVB hub hit a record high of Eur207/MWh March 7, according to S&P Global Commodity Insights price assessments.

It was last assessed at Eur100.50/MWh on April 6.

The fact that Hakkar singled out Spain -- as opposed to any of its other European buyers in Italy or France, for example -- could reflect the escalating tensions between Algiers and Madrid.

In March, Spain reversed a decades-old policy of neutrality with regard to the Western Sahara territory.

Madrid is now supporting a proposal by Morocco to allow Western Sahara to have limited regional autonomy, a stance that was condemned by Algeria.

Algeria currently exports pipeline gas to Spain only through the Medgaz pipeline after flows via Morocco in the GME link were halted in November 2021 amid worsening relations between Algiers and Rabat.

Medgaz previously had a capacity of 8 Bcm/year, but it has been expanded to have a capacity of up to 10.7 Bcm/year with the startup of a fourth compressor station.

In 2021, Algerian gas exports in Medgaz averaged 22 million cu m/d, according to data from S&P Global.

Since the start of 2022, flows via Medgaz have averaged a steady 28 million cu m/d, the data showed, which is equivalent to 10.2 Bcm/year.