Spain Incurs A Threefold Increase In Algerian Gas Prices
The difficult and complex negotiations between Sonatrach and its Spanish counterpart, Naturgy, the exclusive distributor of Algerian gas in the Spanish market, are proceeding in a direction that terrifies the Spanish party because of the three-fold increase in gas prices, which is one of the worst scenarios that was expected by the Pedro Sanchez government.
The reason for this resounding rise in gas prices exported to Spain is controlled by three factors. The first is Algeria’s decisive and justified decision to change the price-setting index. The second factor is the rise in gas prices in international markets, since the launch of the Russian special military operation in Ukraine, and the third factor is related to the tension between Algeria and Madrid, which has exceeded its sixth month.
Before the start of the ongoing negotiations between Sonatrach and Spain’s Naturgy, Algerian gas prices were determined based on the price index of a barrel of Brent oil, but now, as the “20 Minutes” news website confirmed, in its Spanish version, “Algeria has decided to adopt the Dutch “TTF” index, which is approved currently by the European Union that seeks to review it.
As it is known, the gas contracts concluded between Algeria and Spain are secret, which is normal as long as those contracts are long-term, and Madrid was obtaining Algerian gas at very attractive prices before the crisis, based on the Treaty of Friendship, Good Neighborliness and Cooperation signed in 2002, which Algeria unilaterally terminated it last June, following the diplomatic crisis between the two countries.
The Brent crude oil spot price, according to energy forecasts, reached $91.68 at the end of last week in the daily market for sales one week ago. It will reach $93.09 for the next two weeks and $101.13 for the coming three weeks.
Now, in light of the worsening crisis with Madrid, Algeria has decided to adjust the price of its gas based on the Dutch gas market index “TTF”, which is determined by the events surrounding the gas arriving via the gas pipeline from Russia and affected by the repercussions of the war in Ukraine.
According to the Dutch index “TTF”, the price of natural gas is 199.29 euros per megawatt-hour, 228.7 euros per megawatt-hour and 311.8 euros per megawatt-hour, according to the same source, which means that the prices of Algerian gas exported through the “Medgaz” pipeline to Spain, will triple, depending on the figures shown, compared to the price set by the Brent Crude Index.
For short-term purchases that take one month, according to the site, the price determined according to the “TFF” index is equivalent to 200 euros/megawatt-hours, while in the past decade it ranged between 15 to 20 euros, which confirms the significant jump in gas prices in recent times.
The Dutch “TTF” index for determining gas prices has gained great credibility, especially at the level of the European Union, and today it has become “the main indicator used in Europe for long-term gas contracts”, which makes the Spanish negotiating position weak in the face of the insistence of the Algerian party, which did not impose an extraordinary condition.
The blow that Spain received from Algeria was not the only one. Madrid soon received another blow from Paris, in a scene that confirms the weakening of European solidarity when it comes to economic interests. The French party, after obtaining an increase in Algerian gas exports by up to half, decided to compete with Spain in the activity of gas recycling and re-exporting, after Madrid was the owner of this concession.
Previously, French President Emmanuel Macron decided to speed up the procedures for the double transfer of the gas pipeline “Obergailbach-Medelsheim” so that his country could supply Germany with gas from France after diverting it starting on the tenth of October after his country was only a transit land.
