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Marketing Algerian gas 'not as easy' as in the past: Sonatrach CEO

Highlights

Market conditions now very different

European pipeline gas supplies 'fundamental'

LNG tool for reaching more distant markets

Malabo — Marketing Algerian gas is more challenging now than in the past due to changes in market conditions, the new CEO of state-owned oil and gas company Sonatrach said Wednesday.

Kamel Eddine Chikhi, speaking at a summit of the Gas Exporting Countries Forum in Malabo, Equatorial Guinea, said that while Sonatrach had successfully renewed all its pipeline gas supply deals with countries in southern Europe, it has become more challenging to secure agreements.

"Marketing gas is not as easy as it was in the past," Chikhi -- who took over as Sonatrach CEO on November 17 -- said. "You have to cope with new market conditions."

Europe is currently awash with gas, with LNG supplies having soared over the past 12 months and Europe's status as market of last resort for surplus LNG being put to the test with storage stocks filled to capacity.

Against that background, buyers have requested shorter contracts with more flexibility and lower take-or-pay volumes.

Contract renewals

Sonatrach in recent months has successfully renewed its gas supply contracts with a number of buyers, including Italy's Eni, Edison and Enel.

They are the latest in a string of gas supply contract renewals by Sonatrach with its European buyers in the past 18 months as the Algerian state-owned company looks to lock in term supplies to the end of the next decade against the backdrop of an increasingly competitive European gas market.

As well as renewing its import agreements with the Italian buyers, Sonatrach has also signed new deals with Portugal's Galp, Spain's Naturgy and Turkey's Botas for term LNG supplies.

Algeria supplied some 33 Bcm of gas to Europe by pipeline last year and also shipped some 14 Bcm of LNG -- mostly to European markets.

"Pipelines are appreciated because the infrastructure secures energy to the southern part of Europe. That is fundamental," Chikhi said.

"It is a very strategic position to provide agreed quantities of gas securely, regardless of the political conditions," he said, in a likely reference to the ongoing risk of Russian gas disruption to Europe via Ukraine. "[Our buyers] appreciate the consistency of contracts and secure supply," he said.

LNG diversification

However, he said Sonatrach would look to expand its LNG business in the future as the fuel gives the company the ability to expand its customer base.

"You can reach clients that are further away," he said. "It is important to be a relevant producer for our different clients."

Sonatrach has said it hopes to boost its LNG exports to Asia -- the world's strongest-growing demand center -- in the coming years in a bid to diversify its export destinations and make more use of its LNG production capacity.

LNG offers additional flexibility, he said, allowing Algeria to divert more gas for LNG production when European buyers nominate down their purchases.

The company is also hoping to make the most of seasonal variations in European supplies, with lower nominated imports from its buyers in Europe over April-September, meaning more gas is available for other markets.

Long-term LNG contracts are also traditionally oil-indexed, meaning its LNG supplies do not always compete with pipeline gas.

Chikhi added gas prices globally were converging and that "maybe in a few years" there would be total price convergence.

--Stuart Elliott, Stuart.Elliott@spglobal.com

--Edited by Jonathan Dart, newsdesk@spglobal.com