INTERVIEW-Algeria shortens gas contracts to earn more

Algeria plans to shift from long-term gas contracts to deals lasting around five years to maximise earnings from rising fuel prices, Sonatrach's chief executive said on Monday.

Gas contracts, often based on the cost of oil products, have traditionally been fixed for long periods, which has limited gains for gas producers from record high oil prices.

“We had long-term contracts for 15 to 20 years, but the market has changed. We find we’re always in the process of renegotiating contracts, so now we are going to set contracts for four to five years,” Mohamed Meziane told Reuters.

The remarks confirm a press report last week that Algeria would not sign any more long-term contracts for gas.

The Gas Exporting Countries Forum (GECF), a group of gas producing nations, has said it will reassess gas pricing as part of measures to become more like the Organization of the Petroleum Exporting Countries.

Algeria is a member of both producer groups.

Meziane said he could not say whether other gas exporters would follow Algeria’s lead or how likely the GECF was to obtain OPEC-like power.

PAYING THE PRICE

Algeria has reaped the benefits of high oil prices, which touched a record $117.40 on Monday for U.S. crude, and Sonatrach’s first quarter revenues hit a record of $19 billion.

But it has also encountered problems as production costs have risen and a global labour shortage in the energy industry has increased competition for staff.

“We have lost a few dozen people,” Meziane said, adding that the struggle to retain qualified staff affected all oil companies, not just Sonatrach.

“We are in the process of training. We are trying to improve salary conditions. We offer a lot of social benefits, it’s not just about salary,” he added.

Algeria’s progress in developing its reserves has also been hampered by a disagreement with Gas Natural and Repsol YPF.

Last September it ended a deal with its Spanish partners on the development of natural gas at Gassi Touil and is suing its former partners over the project delays.

“We lost three years,” Meziane said, adding he hoped the project would now come onstream around 2011-12.

Gas Natural has said its removal from the Gassi Touil project had come about because of a change in Algeria’s energy policy and the desire of Sonatrach to continue alone.

Algeria is working on various projects to export its gas, including the Medgaz pipeline to Spain, scheduled to start up next year and the Galsi pipeline into Sardinia in Italy, scheduled to start exporting gas in 2012.

It previously had a memorandum of understanding (MOU) to work with the world’s leading gas exporter Russia, but that expired in August 2007.

“A lot of ink has been spilt on this,” said Meziane. “The MOU has finished … It’s possible there could be another.”