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Algeria has taken 'necessary measures' to offset non-renewal of Morocco gas deal

Highlights

Contract for key gas export line expires at end-October

Reports that Morocco has decided to halt talks

GME pipeline transited 3.67 Bcm in 2020: Platts Analytics

Algeria has taken all the "necessary measures" to ensure stable gas exports to Spain even if Morocco fails to renew a key gas transit agreement for supplies via the GME pipeline, which expires at the end of October, the CEO of state-owned Sonatrach said June 29.

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Cited by the state-owned APS news agency, Toufik Hakkar said no decision had been taken regarding the renewal of the transit deal, but that regardless of the outcome there would be no impact on Algerian gas exports to Spain.

"Even if the contract is not renewed, Algeria can supply Spain without any problems and even respond to any additional demand from the Spanish market," Hakkar said.

Morocco has reportedly opted to halt talks on the renewal of the transit deal due to worsening relations with both Algeria and Spain.

Algeria sends gas to Spain via two pipelines -- the GME pipeline via Morocco and the direct Medgaz link -- with volumes totaling 9.06 Bcm in 2020, according to S&P Global Platts Analytics data.

More gas was sent via the Medgaz line to Almeria (5.39 Bcm) than via the GME line to Tarifa (3.67 Bcm).

Relations have worsened in recent months between Algeria and Morocco, primarily over the sovereignty of Western Sahara, and there has been no indication of a breakthrough in talks for a renewal of the transit deal.

There have been signs that Algeria might be happy to stop using the GME pipeline, which enters Spain at the Tarifa interconnection point, and instead focus flows on the shorter, and cheaper, Medgaz line.

For Morocco, the stakes are high as it relies on Algerian gas to help meet its own demand, taking gas in kind for the transit service it provides under a 25-year agreement that came into effect in November 1996.

Rabat is also due to take over ownership of the line from current owners -- Spain's Naturgy and Portugal's Galp -- later this year.

Industry sources have also said that some of the delivery of Algerian gas to Spain has already been contractually moved away from the GME to the Medgaz pipeline.

Mitigation actions

Hakkar said discussions between all parties involved in the GME pipeline were ongoing, but that Sonatrach had already taken action to mitigate the potential loss of the GME pipeline.

"We were already prepared for all scenarios in 2018-2019," Hakkar said, referring to a new loop pipeline that can divert gas from the GME link into Medgaz.

Energy minister Mohamed Arkab on May 6 formally inaugurated the 197 km pipeline from El-Aricha on the border between Algeria and Morocco to Beni Saf, the starting point of the Medgaz pipeline.

The new El-Aricha-Beni Saf pipeline was designed as a tool for Algeria to be able to maintain exports to Spain should there be issues in future with supplies via the GME line.

Sonatrach began construction work on the new pipeline in 2018 to create the new "loop" between the export lines.

In order to be able to move gas in that direction, the capacity of Medgaz was expanded to 10.5 Bcm/year and could be expanded further to 16 Bcm/year.

"If there is a new demand from the Spanish market for Algerian gas, there will be discussions between the Algerian and Spanish parties," Hakkar said, adding that Algeria had the means to supply more gas to Spain.

"We have the Medgaz with a capacity of 10.5 Bcm/year," he said. "We have the gas liquefaction units whose capacities are available. We will deliver on any Spanish requests for more gas without any problems."