According to Sonatrach, Algeria’s hydrocarbon export revenues are expected to exceed $50 billion in 2022 thanks to the rise in oil prices, mainly driven by the war in Ukraine.
That windfall could become even more significant with Sonatrach’s decision to begin negotiations to increase the price of its long-term contracts. The customers of the Medgaz gas pipeline, which connects Algeria with Spain, are particularly affected.
On the spot market (cash sales), gas prices have skyrocketed, but Algeria is not benefiting as most of its exports, particularly via the gas pipelines that connect it to southern Europe, are at a price set by contracts signed for the long term , before the current outbreak, therefore disadvantageous.
According to Reuters, citing sources familiar with the matter, the Algerian oil giant is negotiating with its European customers how to benefit from recent gas price hikes.
Several options are being considered, including introducing a partial link to spot gas prices in the contracts, while prices were only indexed to oil prices.
Year-to-date, Dutch TTF (spot) gas is up 80% and 110% respectively for one-month and one-day-ahead contracts, while oil’s are up 55% over the same period. The rise in gas prices is being helped by concerns about Russian supplies.
These concerns have strengthened the position of Algeria, which, like other gas-exporting countries, is looking at ways to offset the revenue losses caused by the terms of the long-term contracts.
The price revision comes at a difficult time for Europe, which is looking for alternatives to Russian gas while trying to fill storage before winter. This puts Algeria in a position of strength.
Three Spanish customers affected
Sources told Reuters that the Algerian group has a “ very strong bargaining power because he got the gas and realizes that Europe needs it “.” Shoppers now realize they are stuck between a rock and a tough spot ‘ these sources explained.
According to another source cited by Reuters, Sonatrach is trying to raise prices for customers supplied by the Medgaz gas pipeline, which directly connects Algeria and Spain. The companies concerned are Naturgy, Cepsa and Endesa (Spain), Engie (France) and Galp (Portugal).
Sonatrach’s negotiators are skilled and “ move heaven and earth ‘ assures a source of the British agency.
” They leave no stone unturned and maintain Brent formulas, including TTF formulas. They demand an increase similar to international (gas) prices and apologize that the TTF is very expensive (…) ‘ explained Reuters.
Algerian negotiators can “ offer one company all TTF, another only Brent, yet another Panorama because they negotiate with everyone. They are skillful negotiators and will try to get the maximum out of it ‘ according to the same source.
A spokesman for Naturgy confirmed that negotiations are ongoing, adding that the company’s relations with Sonatrach are good, while relations between Algeria and Spain have been strong since the March 18 announcement.
Algeria, which supplied gas to Spain at below-market prices, felt cheated and decided to revise its gas prices upwards.
Algerian customers tied to Brent have benefited greatly from the situation. They have benefited from a huge discount to the TTF and other global gas indices, Tamir Druz, chief executive of consultancy Capra Energy, admitted to the British news agency. The overhaul of the contracts should allow Sonatrach to recoup a good chunk of lost revenue, he assures.