Algeria has broken with Spain, but a thread of gas still holds: all of Europe prays that it stays

Algeria has said enough is enough has decided20 years later, breaking the friendship and cooperation treaty with Spain due to its turn with the Sahara in favor of Morocco. This means that relations are broken and all foreign trade is frozen. This could be a drama for Spain as Algeria is our largest supplier of natural gas. However, the gas supply is assured. For now. And all of Europe is waiting for it to continue to be that way.

The Government trusts that Algeria fulfills the contracts. In the words of the foreign minister, José Manuel Albares: “the Algerian government is well known for being a reliable partner, a reliable supplier. Guarantees have been given at the highest level and nothing indicates that it will be otherwise.” He is referring to the contracts that Sonatrach has with Naturgy, by which it is guaranteed that the gas will continue to arrive until 2032.

In the event that Algeria decided to unilaterally break this contract, the conflict would escalate and would end up being resolved through international arbitration. Thus there is trust that the gas will continue to arrive and in the agreed proportions.

Another issue is the price, which leads to betting on other providers. Algeria has historically been Spain’s leading gas supplier. According to Enagás data, in 2021, 41% of LNG came from Algeria. But already at the beginning of 2022 it fell significantly, going to 23.2%, to the detriment of the United States, the true winner of this energy crisis in Europe.

These weeks negotiations are taking place between Naturgy and the Algerian state gas company to determine the price for the 2022-2024 period. A price that, Francisco Reynés, president of Naturgy, has already warned that in no case will they be cheaper. In the same direction Tewfik Hakkar pointed out, responsible for the state group Sonatrach: “Algeria decided to maintain, for all its clients, the prices of the contracts. However, proceeding to a recalculation of the prices with our Spanish client is not excluded.” White and bottled. Spain will pay more for the gas that comes from Algeria.

A conflict with a lot of money at stake. Spain has guaranteed, by contract, the supply of gas for the next decade. But this conflict with Algeria has put the spotlight on this issue. The last official data from the Foreign Trade Institute (ICEX) indicate that imports reached 2,511 million euros and exports were 1,916 million. Although these data are from 2020 and before the pandemic those figures almost doubled.

Algeria thinks of Italy as a substitute. Gas and oil are the main resources of Algeria. The supply to Spain is guaranteed, but from Algeria they already have another country willing to cover that gap that Spain seems to be progressively abandoning. Italy imports almost 40% of its gas from Russia and Algeria is the great alternative. In April of this year, Italy agreed to increase by 40% their imports to Algeria.

Europe trusts in the great role that Spain plays with gas. According to data from Gas Infrastructure Europe (GIE), 35% of the European regasification capacity passes through Spain. Our country plays a key role in storing and exporting the gas that came from Algeria and now from the United States. At a time when European countries cannot receive gas from the northeast (Russia), they must turn their sights to the south.

Meanwhile, the European Commission is already openly talking about reforming the entire energy market. Just this week, the President of the European Commission, Ursula von der Leyen, has been willing to a possible reform of the European electricity market that prevents the high price of gas from affecting the entire system.

“This market system no longer works. We have to reform it, we have to adapt it to the new realities of dominant renewables. It’s not trivial, it’s a huge reform. It will take time and it has to be well thought out,” explains von der Leyen, in a reform that would go beyond the Iberian exception. The gas problem hits Spain directly, but all of Europe is attentive.