Spain is preparing to pay more for gas supplies from Algeria, with both sides warning of the raise.
One factor driving the move is likely to be Madrid’s decision to endorse Morocco’s approach to Western Sahara. Algeria and Morocco have been at loggerheads over Western Sahara for some time. Algeria shut off gas to Morocco in November.
Spanish Minister for the Ecological Transition Teresa Ribera told RTVE’s La Hora de La 1 that Spain would see a “moderate” increase in prices.
Sonatrach intends to raise prices, she said, although saying such a price review dates back to October. State-owned Sonatrach “understands that prices are well below the price at which gas was quoted on international markets”, the minister said.
She went on to say negotiations were likely to a take a long time. Ribera went on to say Spain needed a strong relationship with Morocco and Algeria.
Spain’s “relationship with Algeria, which is a reliable country that complies with its commitments, seems to us to be assured”, the minister said. Spain has “total” confidence in Algeria meeting its commitments – a position shared by most analysts.
Commercial to political
Naturgy chairman and CEO Francisco Reynés shared his thoughts at an event organised by CEDE on April 7.
Reynés warned energy was “going to be more expensive”. Naturgy’s contract for the next three years for Algerian gas would not be easy.
Negotiations with Sonatrach have an inevitable political dimension, he said. Sonatrach accounts for a majority of Algeria’s GDP so the negotiation is “not only company-company but also company-state”.
Previously, Sonatrach had sold gas on a Brent price basis, the executive noted. He suggested that Sonatrach may be working on a shift to a different reference benchmark.
Naturgy is working on alternative energy sources, announcing it would work with Equinor on offshore wind off the Canary Islands. Spain is due to hold an auction for offshore wind rights in 2023.
Naturgy is focusing on decarbonisation, Reynés said. However, the company also needed to think about “energy today and how to heat homes today”.
The Royal Bank of Canada (RBC) noted that Naturgy was already facing higher costs. “Therefore, we don’t expect Naturgy will benefit for the buoyant gas market at least in the next quarters.”
The Spanish comments align with Sonatrach CEO Toufik Hakkar. In an interview on April 1, Hakkar told Algeria’s APS that prices had soared since Russia invaded Ukraine, but Sonatrach had not benefited.
“We do not rule out recalculating prices with our Spanish customers” in future, Hakkar told APS.