Algeria is flexing its considerable muscle in the gas industry, expanding its distribution network, pushing for price increases and also being among the countries actively promoting discussions on forming a cartel of natural gas producing states, similar to the Organization of the Petroleum Exporting Countries (OPEC).
Algeria is well placed to exercise its influence in the sector, having the eighth largest gas reserves in the world, in excess of 4.5 trillion m3, with more stocks being identified all the time. On March 26, Norwegian firm Statoil announced it had struck gas with its first exploration well at Hassi Mouina in the Sahara, a site it is developing in partnership with Algeria’s state-owned energy group, Sonatrach.
Algeria supplies the EU with 10% of its gas needs, with much of the gas being transferred directly via the Transmed network of pipelines beneath the Mediterranean. This figure is set to rise to meet between 15 and 20% of EU member states’ consumption in the coming years as the pipeline grid is expanded. This expansion includes the construction of a second line from Algeria to Italy, coming ashore on the island of Sardinia. This 2 billion euro pipeline is expected to bring another 8 billion m3 a year of Algerian gas to Italy by 2011. Another $790 million line is planned to pipe supplies to Spain and is due to open in 2009. A third pipeline is still in the planning stages.
Limits on selling
On March 26, Algerian Energy and Mines Minister Chakib Khelil announced that Sonatrach was seeking to hike the price of about one-third of the gas it exports to Spain by 20% this year, with a 6% rise as the initial step.
The price increase for Spain has been directly linked to Madrid limiting Sonatrach’s direct access to the Spanish market to just 1 billion m3.
“They allow us to sell only a drop in the ocean,” Khelil said on the Spanish industry ministry’s decision, adding that none of the other 43 companies selling gas in Spain had been subject to similar restrictions.
Algeria is also pushing to play a greater role in the sale and distribution of gas within Europe, rather than merely being a supplier of gas to local companies. Late last year, Sonatrach signed deals with five Italian companies for the sale of 6 billion m3 per year to be delivered through the new Algeria-Sardinia pipeline, with the 2 billion m3 remainder of the line’s 8 billion m3 annual capacity to be marketed in Italy by a subsidiary of the Algerian company.
Proposed cartel controversial
It is Algeria’s willingness to consider a proposal to establish an OPEC-style cartel of gas producing nations to set output quotas and frame international pricing policy. It has been suggested that such a group would include Russia, Iran, Qatar, Venezuela and Algeria, which collectively hold almost 70% of the world’s proven gas reserves.
Khelil had previously said he did not support the cartel proposal, saying that the gas market is far more rigid than that for oil and the sales contracts were long term in nature. However, in a more recent interview, Khelil said a committee to study the proposal could be agreed to at the Doha meeting set for early but blamed consumers for first raising the spectre of a gas producers’ consortium.
“It is not really an idea that came from producers,” he said. “It is the consumers really that deep in their sub-conscious want to have a monster. Then they have to accuse it of all ills.”
Europe is less than keen on the idea of a cartel, fearing the potential twin evils of higher prices and the possibility of cuts to supplies.
On March 21, Ferran Tarradellas Espuny, spokesman for EU Energy Commissioner Andris Piebalgs, said the best solution was for commodities such as gas to be traded in a free and open market.
“A cartel certainly isn’t going to help in this sense,” he said. “It will have a negative impact on the supply of gas in the world. If a cartel is created, then we will have to react.”
In the end, the gas producers meeting in Doha failed to find common ground on the establishment of a cartel, with the Qataris the main sticking point. Qatar’s Energy Minister Abdullah al-Attiyah said after the meeting, “We should work towards greater cooperation to stabilize the market, to give confidence to our consumers.”
However, Khelil was not shaken by this temporary setback in cartel formation, and was reported to have said, “In the long-term we are moving towards a gas OPEC.”
