UK's Sound agrees binding 10-year gas sales deal with Morocco's ONEE

The UK's Sound Energy has agreed a binding 10-year deal to supply gas from the second phase of its Tendrara project in eastern Morocco to the country's state-owned utility ONEE, in a major boost for the development.

In a statement Nov. 30, Sound said the new deal would see up to 350 million cu m/year supplied to ONEE, with an annual take-or-pay requirement of 300 million cu m.

Gas will be supplied to ONEE from Tendrara via the now-empty GME pipeline, which until October flowed gas from Algeria into Morocco before the expiry of a transit deal between Algiers and Rabat.

"The agreement is an important and long-awaited step which will allow the company to progress development planning for the proposed Phase 2 development," Sound executive chairman Graham Lyon said.

The deal with ONEE is in addition to Sound's first-phase development at Tendrara that will see Sound pursue construction of a micro-LNG production facility for the early monetization of its gas resources at the project.

The ONEE agreement is, however, conditional on a number of deadlines that must be met within 90 days.

These include the approval of all necessary permits for the construction of the Phase 2 gas installations, approval by the Moroccan authorities of the final investment decision once it is taken, and an interconnection agreement with the operator of the GME pipeline and the start of work to connect it to Tendrara.

An extension of the 90-day limit is allowable with the consent of all parties.

"Satisfying the conditions precedent within a tight 90-day timetable is challenging, however all parties have expressed support to conclude with financiers," Lyon said.

The agreement includes a fixed unitary price for the annual volume, which will result in annual gross revenues attributable to the Tendrara concession of some $84 million.

Sound is partnered at Tendrara by Morocco's state-owned ONHYM.

GME halt

Morocco has started talks with a number of regional and international players on establishing new gas supply options following the suspension of deliveries from neighboring Algeria on Nov. 1.

Morocco's energy transition minister Leila Benali said earlier this month that while the two gas-fired power stations that took Algerian gas via the GME pipeline were currently idled, Morocco was able to meet power demand.

Moroccan gas demand has traditionally been pegged at around 1 Bcm/year, with most of the gas consumed by the two gas-fired power stations at Tahaddart and Ain Beni Mathar supplied with gas from Algeria via GME.

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

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 ONEE.

The standoff came as global gas prices hit record highs in October due to winter supply concerns.

S&P Global Platts assessed the benchmark TTF day-ahead price at a record high of Eur116.10/MWh Oct. 5, with price volatility continuing through October and into November.

The TTF day-ahead price was assessed at Eur93.08/MWh Nov. 29, up by 540% from a year ago.

Morocco used to receive gas as part-payment for transiting Algerian gas to Spain.

It has relied on gas for around 10% of its power generation needs and Rabat is reportedly interested in reversing part of the GME line so that it can import gas from Spain.

Regasified LNG supply could potentially enter the pipeline via the Huelva LNG import terminal, close to the entry point of the GME line, sources have told S&P Global Platts.

Morocco is also in the process of evaluating bids from parties interested in providing the North African country with a floating LNG import facility.

The initial scope of the FSRU project in Morocco is for an annual requirement of 1.1 Bcm by 2025 rising to 1.7 Bcm in 2030 and 3 Bcm in 2040.