Algeria unlikely to use gas as pressure point in Spanish line

ALGIERS, March 22 (Reuters) – Algeria is unlikely to seek to use gas supplies as a pressure point in its diplomatic row with Spain after Madrid moved closer to Morocco’s position on the Sahara West, former Algerian officials and energy officials said.

On Saturday, Algiers announced it was recalling its ambassador to Madrid for consultations after Spain backed a Moroccan plan for autonomy in Western Sahara that is being rejected by the Algerian-backed Polisario Front independence movement. Read more

The spat comes as Algeria aims to take advantage of higher prices and greater long-term demand for its gas in Europe following the Ukraine crisis, developments that could help reverse years decline in its energy sector.

State producer Sonatrach has long-term gas supply agreements that make it a major supplier to Spain, which it could not easily break, although the contracts include regular price reviews.

“Algeria is a reliable country in terms of natural gas supply and intends to remain so,” said a former Sonatrach executive.

A second former Sonatrach executive said that although most of Algeria’s gas supply is tied to long-term contracts, the company aims to increase its exports to Europe over the next few years.

A source close to the company’s current thinking recalled that Sonatrach had undertaken to make its deliveries as stipulated in the contracts.

As European customers turn away from Russian supplies, there could be greater competition for Algerian and Libyan gas, especially between countries in the Mediterranean.

“They are in a great position, so it makes sense to turn the screws on Spain a bit from a business perspective,” said a European trader, indicating that Algeria was likely to seek higher prices. .

On Monday, Sonatrach signed an agreement with Italy’s Eni to accelerate the development of an oil and gas field in Berkine as part of the Italian company’s plans to increase total gas supply in the short and medium term, including understood from Algeria.

Falling energy sales have been a constant concern for Algeria in recent years, causing the state’s foreign exchange reserves to collapse by three-quarters since 2014.

Sonatrach itself has been in turmoil with frequent management changes and a lack of foreign investment deemed necessary to increase production capacity despite a new law in 2020 to improve conditions for investors.

Until last year, Algeria supplied Spain through two different pipelines, one of which passed through Morocco. However, the agreement governing the use of this pipeline expired last year and ownership of the line reverted to Morocco.

After Algeria severed ties with Morocco last summer as their already frosty relationship soured amid escalations in Western Sahara, Algiers said it would not seek to renew the pipeline deal.

Instead, it supplied its contractual volume to Spain using the other pipeline, direct, and with liquefied natural gas.

Reporting by Lamine Chikhi, additional reporting by Marwa Rashad, editing by William Maclean

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