Supply of Algerian gas via Morocco to Spain in the GME pipeline was set to end Nov. 1 after the long-term transit deal between the two countries was not renewed ahead of its expiry on Oct. 31.
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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.
Algeria has previously said a number of times that it can meet Spanish gas demand using only its direct subsea Medgaz line and LNG deliveries, but the non-renewal of the GME transit contract could still cause some concern in Europe given the current tight gas market and high prices.
Tebboune's office, cited by the Algerian state news agency, said the transit contract would not be renewed given Morocco's "hostile" actions toward Algeria. "The president has given instructions to Sonatrach to cease all commercial relations with the Moroccan company and not to renew the said contract," the office said.
Spanish gas importers had already flagged that a non-renewal was likely, with data from Spanish grid operator Enagas in mid-October showing zero nominations for Algerian gas imports via the GME pipeline for November.
Algeria has moved to reassure Spain that it could guarantee gas deliveries, with energy minister Mohamed Arkab in August saying that preparations had been made to divert all gas from the GME pipeline into Medgaz.
In May, Arkab formally inaugurated a new 197 km pipeline from El-Aricha on the border with Morocco to Beni Saf, the starting point of the Medgaz pipeline, to allow for supplies into GME to be moved instead into Medgaz.
In addition, the capacity of Medgaz is being increased to the equivalent of 10.5 Bcm/year, up from 8 Bcm/year currently, with the expanded capacity expected to be available from December.
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 S&P Global Platts Analytics data. That is around 25% of Spain's annual gas demand.
By comparison, the Medgaz pipeline supplied some 6.51 Bcm of gas to Spain, or 21 million cu m/d, in the January-October period.
Total supplies in the first 10 months of 2021 in the two pipelines (12.44 Bcm) are already more than the expanded capacity of Medgaz, suggesting that pipeline would not be able to meet all Spanish gas demand in the future.
"Medgaz is not enough to cover our forecast of Algerian supply to Spain for the balance of this winter, with 14 million cu m/d at risk," Platts Analytics said. "This is even after considering the current expansion that will increase Medgaz capacity to 10.5 Bcm/year by the end of November," it said.
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.
Current LNG exports from Algeria sit at 44 million cu m/d on a 30-day moving average, below the year-to-date peak of 68 million cu m/d reached in late March and far below the liquefaction nameplate capacity of 98 million cu m/d.
"There should be room for volumes currently being exported via the GME pipeline to be diverted to the LNG facilities," it said.
Algeria's contractual LNG commitments are estimated at 31 million cu m/d this winter, implying uncontracted volumes could be reoriented to meet Spanish pipeline commitments even if total LNG exports cannot ramp up from current levels, it said.
However, bullish risks remain as more Spanish supply will rely on Algeria's two LNG liquefaction terminals, one of which -- Skikda -- has seen extended outages in recent years.
"Another outage could see Algerian LNG exports fail to pick up from the current loading levels, or even fall below," Platts Analytics said.
Spanish gas grid operator Enagas, meanwhile, said Oct. 31 it had sufficient stocks in November for 40 days' worth of demand after it ensured additional volumes were injected into storage prior to the halt of deliveries through the GME pipeline.
"Thanks to a concerted effort with the ecological transition ministry, the Spanish gas system has greater contracted gas capacity than at the same point in previous winters and is in a better position than other local markets," it said.
The current situation means that there "are no signs that there will be a shortage of gas supply in the coming months," it said.
Underground storage sites are at 80% of capacity with 28.3 TWh held, it said, while the stored volume has been boosted by 18.8 TWh of LNG stored in tanks, or 65% more volume than at the end of October 2020.
When added together, the stored volume of 47.1 TWh is greater than the 43.5 TWh stored a year ago.
Enagas has also assigned 45 extra LNG import slots over September and October to meet the shortfall triggered by the loss of GME volumes.
This has resulted in a pick up in delivered volume in October of 3.9 million cu m of LNG, double the volume in October 2020, and a scheduled volume of 3.8 million cu m for November.
In terms of contracting, Enagas said 100% of LNG terminal capacity was booked, excluding the 5% buffer for daily contracting, while LNG tank capacity booking is at 95% for the month -- also the maximum possible.
For December, with one auction still to be held, contracted LNG capacity is already at 77.4%, Enagas said.
Overall, the total number of slots booked for the winter season, November through March, is 136, up from 86 in the year-ago period, it said.