Spain prepares for a rise in Algerian gas while Italy fills its gap


REUTERS/Yara Nardi

Draghi gets Algeria to increase its gas sales to the country by a third in the midst of escalating geopolitical tension over the Sahara

The war in Ukraine and the sanctions against Russia resulting from the invasion have caused a real earthquake on the European energy board, with all countries looking for alternatives to Russian gas. A scenario in which, due to geographical proximity and storage capacity –a third of the total–, Spain was well positioned to become the bridge between Algeria and the Old Continent. But the tension unleashed after the turn of the Pedro Sánchez government on Western Sahara, supporting the Moroccan proposal for sovereignty over the region, could have ruined that possibility.

Italy has made clear its intention to maintain the diplomatic balance between Rabat and Algiers. And it is in an unbeatable position to win new contracts and occupy that key point in Algeria's energy relationship with Europe.

Italian Prime Minister Mario Draghi traveled to the region on Monday to sign an agreement by which Algeria will increase its gas sales to the country by a third, thus reducing dependence on Moscow, which until now covered more than 40% of its imports of this hydrocarbon.

The North African country will thus supply 30,000 million cubic meters per year compared to the previous 20,000 million, making the most of the capacities of the Transmed gas pipeline, which connects the Algerian fields with the Sicilian coast, crossing Tunisia and the Mediterranean.

Brussels' doubts about the Iberian project for gas delay the negotiation

The current good understanding between Italy and Algeria, confirmed by Draghi's visit and the upcoming trip to Rome by the Algerian president, Abdelmadjid Tebboune, contrasts with the tension that the North African nation is experiencing with Spain, where the Government already assumes that Sonatrach will raise prices of gas in the review scheduled for the 2022-2024 period. Of course, it detaches it from geopolitical tension.

However, with the rest of its gas buyers, Algeria has decided to "maintain" the current contracts despite the large increase in the price of hydrocarbons registered after the start of the war in Ukraine. In the case of natural gas, it was trading below 80 euros per megawatt hour (MWh) before that fateful February 24. At the beginning of March it exceeded 200 euros/MWh. Today it is trading around 103 euros/MWh, according to data from the Iberian Gas Market (Mibgas).

Contract Review

Far from what the Executive thinks, experts in the sector agree that the relationship between governments influences, and a lot, in this type of decision. Even more than agreements between private companies. “It is clear that Algeria is going to review all the agreements with Spain, in all areas, to see how the relationship develops in the future,” Chakib Kaid, Secretary General of the Ministry, told this newspaper two weeks ago. of Algerian Foreign Affairs.

A large part of consumers, companies and industry will thus suffer a new price increase in contracts, although it is foreseeable that the impact for those clients covered by the rate of last resort (TUR) will be less due to the measures adopted -and extended- by the Government of Pedro Sánchez. Among other aspects, these measures establish that the rate cannot be increased by more than 5%.

Despite everything, Mario Berná, a partner at the electrical consultancy Ingebau, recalls that "for every euro of gas that becomes more expensive, whoever buys it transmits twice as much to their customers." Berná explains that, in terms of prices, Spain has little direct alternative to Algerian gas. The option that would be consolidated would be imports through methane tankers. Something that is already happening and that in February placed the US, for the second consecutive month, as the main supplier of natural gas to Spain, with 12,645 gigawatt hours (GWh), 33.4% of the total and ahead of Algeria ( with 8,801 GWh, 23.2%), according to the latest records of the Corporation for Strategic Reserves of Petroleum Products (Cores).

"Although prices can be renegotiated, Spain should not worry about the supply or the amount of gas, since Algeria will respect the contracts that were signed in the long term," says Javier Colón, from the consulting firm Neuro Energía.

He agrees that the country is also well positioned to receive gas from methane tankers, with the six regasification plants already operating to transform the liquefied natural gas that comes from the ships. According to data from Gas infrastructure Europe, Spain has 27% of all regasification capacity in the EU plus the United Kingdom, which is the second country with the most capacity (22%), followed by France (17%), Belgium (8 %) and, behind, Italy (7%).

However, Colón warns that the option of methane tankers and regasification is more expensive than transportation by tube. Furthermore, these infrastructures are not accompanied by a powerful interconnection network with the rest of Europe. The Government has already proposed that the EU finance this network, in a context in which Brussels has already recognized the peculiarity of the Peninsula as an energy island. The problem is that it may be that in a few years, when Spain has the necessary interconnection to be the center of European gas, it will cost more to recover the lost ground that Italy is now gaining.



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