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    Sonatrach considers spot market price link: press


Proposal could dent Southern European efforts to tackle energy inflation.

by: Callum Cyrus

Posted in:

Natural Gas & LNG News, Liquefied Natural Gas (LNG), LNG Condensed, Security of Supply, News By Country, Algeria, France, Italy, Spain

Sonatrach considers spot market price link: press

Algerian national oil and gas company Sonatrach could link spot markets to gas export prices for European long-term contracts, allowing it to benefit from near-term spikes caused by tighter supply and ramifications from the conflict in Ukraine, Reuters reported June 29.

Forthcoming contracts could add a partial link to spot markets to the traditional relationship to Brent crude benchmarks, Reuters said.  The change could well hinder southern European efforts to tackle energy inflation, increasing the cost of sourcing gas from one of the region's key non-Russian gas suppliers.

"Sonatrach has very strong bargaining power because it has got the gas, and realises that Europe needs it," one source told Reuters, "Buyers now realise they are being stuck between a rock and a hard place."

Algiers agreed in April to increase natural gas exports to Italy by as much as 50%, equating an additional 9 to 10 bn m3/yr by the end of this year, according to media reports. Italy bought around 21bn m3 from the north African country in 2021, compared to around 29 bn m3 from Russian sellers including Gazprom.

Rome receives Algerian gas via the 32bn m3/yr Trans-Mediterranean gas pipeline, also known as the Enrico Mattei, which runs through Tunisia to the Isle of Sicily and then on to mainland Italy.

Sonatrach also sells gas to Spain, Portugal and France via a second trans-Mediterranean string, the 10.2bn m3/yr Medgaz pipeline. Medgaz deliveries would be the first to be affected by new pricing formulae, Reuters said, impacting customers including Naturgy, Cepsa and Endesa in Spain, as well as France's Engie and Portugal's Galp.

Algeria has been known to use its energy exports as a diplomatic bargaining chip. Algiers threatened to cut off all deliveries to Spain in late-April, after Madrid launched efforts to agree an LNG re-export deal with Algeria's neighbour Morocco, amid a diplomatic fall-out between the two north African nations, according to Al Jazeera.