BAKU, Azerbaijan, Sept.22
By Leman Zeynalova – Trend:
The current transit agreement for the GME link, which brings gas from Algeria to Spain through Morocco, is due to expire at the end of October. Between 2016 and 2020, Algeria used this route to transport 34.8 Bcm (entry at Tarifa), or 52 percent of its total exports to Spain. Very recently, the Algerian Minister of Energy and Mines, Mohamed Arkab said that Algeria would no longer necessarily need the GME / GPDF to export its gas to Spain, in particular through the expansion of Medgaz.
The Oxford Institute for Energy Studies (OIES) believes that for Europe, the impact of a scenario of non-renewal of the GME transit agreement is limited, Trend reports.
“It would only be a short-term preoccupation if Algerian gas supplies to Spain are not quickly re-routed, and this situation takes place during a tight gas supply period,” reads the recent analysis issued by OIES.
“Algeria’s long-term gas pipeline export contracts with Spain and Portugal total 11.5 Bcm per annum (p.a.) (9 Bcm to Spain and 2.5 Bcm to Portugal). These contracts, which were signed over the last three years, will expire in less than 10 years. Their total volume is equivalent to about a third of the two countries’ total gas imports in 2020 and less than four per cent of Europe’s total gas imports for the same year. In case of non-renewal of the GME gas transit agreement, Algeria could still honour these export commitments through the expanded MEDGAZ pipeline and possibly with some LNG cargoes during the winter’s peak demand. This would, of course, depend on the terms and conditions of existing contracts; supply nominations; gas infrastructure capacity availability from the MEDGAZ’s landfall point in Spain to off-takers; and possibly gas supply swaps within the Iberian Peninsula,” reads the analysis.
OIES says it could be argued that the renewal of the GME gas transit agreement could provide Algeria with additional export capacity flexibility to supply Europe’s south-western Mediterranean gas markets.
“This flexibility could help reduce the short-term volatility of gas prices during tight gas supply situations like the current one. Although, when considering that European gas demand is set to decline substantially from 2030 onward, a non-renewal of the GME transit arrangement may well be a non-issue. On the supply side, Algeria would find it difficult to significantly expand its gas export potential to Spain and Portugal to the combined capacity of both the GME and MEDGAZ. 4 Furthermore, international competition among new gas exporters to capture a share of this shrinking European gas market will severely intensify and put more pressure on existing gas exporters, such as Algeria. Even though Algerian gas supplies should continue to be cost competitive for gas exports to southern European gas markets, Algeria will also need to react rapidly and strategically to such competition with realistic export terms and conditions that reflect the transformations in today’s international gas markets.”
---
Follow the author on Twitter: @Lyaman_Zeyn