Algerian Gas Contracts Contain Destination Restriction Clauses

Gas contracts concluded between Algeria and its customers, prevent the transfer of the purchased quantities to a third destination, and impose that the customer is the final party to the deal, which legally justifies the last Algerian position on Spain, as Algeria warned if Spain supplied Morocco with Algerian gas it will rescind the contract and stop supplying Spain, Energy experts said.

The expert in energy affairs, Ahmed Machraoui, told Echorouk that the gas contracts linking Algeria with Spain or other countries prevent the resale of gas to another destination, meaning that the contracts include a legal article confirming that the customer who buys gas must be the final customer, and if Spain violates this article and will transfer Algerian gas to Morocco this means that it will not respect the contents of the agreement, which would allow Algeria to take the next step, which is to cancel the contract or stop the supply, although such a decision will lead both Algeria and Spain to the international courts, which it will also take a long time to process the file unless it is submitted urgently.

“Spain is looking for manoeuvring by emphasizing that the gas transferred to Morocco is not Algerian, but rather concluded following other agreements with countries other than Algeria, as the Ministry of Energy and Sonatrach will seek to prove the opposite if it will appear before international arbitration. If Algeria witnessed a moratorium on gas supplies to Spain, all European countries would seek to obtain additional supplies and raise their supplies, especially since Europe is looking today for freedom from Russian gas and finding an alternative in a difficult international circumstance characterized by the absence of major producers and the high prices of this energy resource, which reached record levels.

The expert expected that Italy would be the first destination for Algerian-Spanish gas in case of stopping the supply, given that the Algerian-Italian gas pipeline has a capacity of 120 billion cubic meters, while a large part of it is untapped, and Spain’s supply today reaches 10 billion cubic meters annually that can simply be converted to the Italian destination.

The speaker recalled the possibility of reviewing gas prices in old deals, as contracts allow for negotiations again on the price of gas every two or three years, and the price of gas is linked as a reference to the price of oil, which is also witnessing a rise, which makes the hypothesis that the Algerian party may benefit from the increasing prices during the next stage.

In this context, the Italian expert and senior advisor at the Med-Euro Research Center, Daniel Rovanetti, told Echorouk that the Algerian Ministry of Energy issued a statement in which it announced that Spain will supply Morocco with gas starting tomorrow, and warns that “this is a violation of the terms of the contract”, which could lead to the cancellation of the entire contract with Spain, so Algeria may soon find itself with surplus production that it can sell to Italy”, Rovanetti added.

The Italian expert admitted that Spain is under great pressure in the field of energy in light of the Russian-Ukrainian war and the current circumstances, explaining that Algeria can use the economic factor for pressure, but he expected in return that the two countries can find a common solution.

Regarding the future review of gas prices by the Algerian side, the expert affirms; “I think that before talking about a possible price adjustment with Italy, we must wait for the development of this tug-of-war between Algeria and Spain.”

The Italian expert asserted that gas deals today in the world are affected by political decisions that dominate the legal level, according to which laws are subject to change according to political interpretations, and he concluded: “International relations are moving today according to the methodology of political interpretation.”