Gas Price Review Between Sonatrach And Spain Is About To End

After months of tug-of-war, the Spanish government finally succumbed to Algerian pressure and reluctantly agreed to raise the prices of gas imported from Algeria by Naturgy as it is the company that holds the exclusive concession.

Since the outbreak of the crisis between Algeria and Madrid about six months ago, Sonatrach has not stopped asking its Spanish partner, “Naturgy”, to raise gas prices in line with the boom in the energy market in the wake of the Russian special military operation in Ukraine.

According to the famous Spanish journalist, Ignacio Cembrero, a writer in the newspaper “El Confidencial”, “Naturgy” company is compelled to agree to raise the prices of gas imported from Algeria, and only some partial details remain before the official announcement of the agreement.

Journalist Cembrero confirms that “Naturgy Company” agreed, during the ongoing negotiations with the Algerian party, to equalize the price of the gas it buys from Sonatrach, with a retroactive effect from October / November 2021, just as happened with the Italian “Eni” and the French “Engie”.

Although the same source confirmed that the negotiations have not ended and there is no agreement yet on the deadlines, the Spanish company, says Cembrero, has nothing left but to accept the prices offered by the Algerian side over three years, but the company headed by Francisco Reynés is trying to reduce the period to only two years, on the pretext that gas prices will not remain at the current levels, and return to the levels of the normal situation, similar to those before the crisis.

Future contracts in the Iberian market (Spain and Portugal) currently indicate that the gas contract for 2024 amounts to more than 114 euros/megawatt-hour, i.e. lower than the current price, but it is still five times higher than it was before the pandemic, knowing that the current negotiations represent a regular review of the mega contract which takes place every three years and must be updated by 2022.

The long-term agreement signed in advance between Algeria and Spain extends beyond 2030, and the Algerian authorities have asserted on more than one occasion amid the crisis with Madrid that the gas supply will continue, but if the Spanish party refuses to comply with the reasonable conditions set by Sonatrach, then there are buyers waiting their turn.

Unfortunately for the Spanish side, the crisis with Algeria coincided with the arrival of gas prices to historical levels, as they increased in Europe by 15 times compared to what they were before the crisis (up to 300 euros/megawatt- hour), compared to 20 euros/megawatt-hour in the past decade).

Despite this, the Spanish side is trying desperately to manoeuvre, suspicious of the Algerian conditions, as it sees that the Spanish case is not similar to the Italian case, because Madrid does not depend on Russian gas compared to the Italian case, even though the Spanish side knows that what it receives from Algerian gas through pipelines is much less expensive than the gas that arrives from the United States of America, Nigeria or Qatar, via giant tankers. After all, the costs include transportation prices and re-converting it from its gaseous state to liquified (to facilitate transportation), and then converting it again from liquid to gaseous state, to become usable.

Negotiations between Sonatrach and Naturgy coincide with the courtship of the Spanish Prime Minister, Pedro Sanchez, to visit Algeria in the hope of softening its tough stance on supplying Madrid with gas at preferential prices, after it lost the concession following the worsening crisis between the two countries, in a situation which he sensed as being part of his responsibility when pulling his country out of its historical neutrality on the Western Sahara issue.