All the Algeria jokes about the price of gas to Europe
The Algerian company Sonatrach wants to change the prices of gas contracts to Europe to bring them into line with the levels on the spot market. All the details and consequences (also for Italy)
Algerian state-owned oil company Sonatrach is looking for a way to raise the price of the gas it sells to Europe through long-term contracts. In doing so, it aims to derive greater benefit from the sharp increase in the international value of this fuel. This was revealed by two anonymous sources to the Reuters agency.
PRICES LINKED TO THE TTF, NOT TO THE BRENT
Among the options considered by Sonatrach is that of partially tying the price of gas in the contracts with the price of gas on the spot, daily and wholesale market. Usually, the price of gas in contracts is linked to the price of Brent crude oil, the main international reference.
Since the beginning of 2022, and especially after the invasion of Ukraine, which raised fears of an interruption of Russian gas supplies to Europe, the prices of gas contracts on the FTT (the trading point in the countries Bassi which serves as a hub for continental Europe) at one month and one day rose by approximately 80 and 110 percent respectively. Over the same period, Brent oil increased by 55 percent.
MF-Milano Finanza writes that an investigation by the Italian energy authority has established that 80 percent of national gas import contracts are indexed to the TTF, and only 20 percent to Brent.
THE NEW ROLE OF ALGERIA
The war in Ukraine has strengthened Algeria's role as an alternative gas supplier to Russia, especially for Italy and Spain. Last April Eni also signed an agreement with Sonatrach to increase exports of Algerian fuel through the TransMed pipeline up to 9 billion cubic meters a year more, but from 2023-2024.
In recent months, given the decrease in flows from Russia to Europe (notable is the case of Nord Stream 1 ), Algeria has also become the largest supplier of gas to Italy: on 29 June, for example, Algerian supplies they have almost reached 68 million cubic meters, compared to a bimonthly average of around 60 million.
Rising energy demand and prices are doing good for Algerian public finances, which have come from years of low oil prices. The forecasts for 2022 say that, for Algiers, the revenues deriving from the sale of energy will amount to 50 billion dollars, compared to 35.4 billion in 2021.
THE NEGOTIAL POWER OF SONATRACH
A source told Reuters that Sonatrach has "very strong negotiating power, because it has gas and knows Europe needs it." In fact, European countries are now trying to replenish gas stocks to guarantee themselves sufficient stocks for this winter, when the demand for fuel will be stronger and any interruption of Russian supplies could have very serious social and economic consequences.
By 1 November, therefore, the European Union wants the gas reserves of the member states to be at least 80% of their capacity. To date, only Portugal and Poland are above that threshold; most countries (including Italy) are below 60 percent.
The source told Reuters that European buyers are "between a rock and a hard place": if they agree to Sonatrach's contract review, they will end up paying a lot more for gas; if they refuse, they may not be able to get enough fuel.
ITALY EXCLUDED?
A second source explained to the agency that the Algerian company wants to review the price terms with those buyers who receive gas from Medgaz, the subsea pipeline between Algeria and Spain: namely companies like Endesa in Spain, Engie in France and Galp in Portugal. Eni and Italy would not be involved, therefore, given that supplies flow through TransMed. As reported by MF-Milano Finanza , Eni renegotiated the contracts with Sonatrach in 2027, and the conditions will remain in force until 2027.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/energia/sonatrach-algeria-prezzi-gas-europa/ on Thu, 30 Jun 2022 13:56:21 +0000.