Spain and Algeria seal their new gas supply prices

Several specialised newspapers announced it last Thursday and shortly afterwards the heads of Sonatrach and Naturgy made it official. Both companies renewed their partnership agreements last week in Algiers to review the conditions governing the purchase and sale of Algerian natural gas through the Medgaz pipeline, owned by both entities with priority for Algeria.

According to Sonatrach's press release, both parties agreed to review natural gas supply prices for the long term, in light of the evolution of the energy market, which has been severely affected by the Russian invasion of Ukraine. The Algerian state-owned company claims that the revision of contracts is done on a win-win basis. 

However, in a meeting with members of the CEOE and CEPYME, Francisco Reynés, president of Naturgy, said that the new agreement with Algeria "is not all good news", according to the Spanish media La Información. In the same speech, Reynés stressed the difficulties in the negotiation with Sonatrach, as it is the same partner in the management of the Medgaz pipeline. 

Both companies have not yet fixed the prices to be set from 2023, but it is known that the agreement includes take or pay clauses, whereby payments must be made even if the product is not consumed.  Naturgy notified the signing of the agreements via a note to the Spanish Securities and Exchange Commission (CNMV), according to which "the agreements establish the new price which will be applied retroactively for the volumes supplied until the end of 2022 and which, as established in the contracts between Sonatrach and Naturgy for price revisions, takes into account market conditions". The two companies continue to negotiate within the framework of the contractual clauses the prices applicable as of 1 January 2023". 

Spain is Algeria's second largest natural gas customer in terms of volume. It is second only to Italy, followed by Turkey, France, Portugal and Greece. For Spain, Sonatrach represents its second largest gas supplier, with 24%, behind only the United States, which sells 26.5% of the gas bought by Spanish traders. 

When Pedro Sánchez sacralised his government's new stance on the Moroccan autonomy plan for Western Sahara, relations with Algiers were strained to the point that the good neighbourhood and cooperation agreement that articulated relations between the two countries broke down. Gas supplies were put in doubt, despite the Spanish Foreign Minister José Manuel Albares' reassurances on this issue. 

While the rise in gas prices does Spain no favours, the agreement at least means that Albares' words were well-founded and that the relationship between Sonatrach and Naturgy has been spared major damage from the diplomatic storm.