Sonatrach May Relax Gas Sales Monopoly

Algerian state producer Sonatrach is seeking to set up joint ventures with marketing companies to sell its gas, its CEO Abdelmoumen Ould Kaddour said October 17.

The new agreements with companies "will not be indexed to oil prices and will not be long term," he told a conference in London, according to a report carried by state news agency APS October 18.

Sonatrach has already begun to consider how to renegotiate its long-term contracts with European customers, as the majority of these contracts expire by the year 2021, the CEO noted October 17.

APS quoted Ould Kaddour saying: "We are trying to find new ways to export our gas and we are looking to have joint ventures taking risks together,” and that "long-term contracts and indexation on oil are no longer appropriate." A further announcement on this marketing model is expected by end-2017.

While more detail remains to be disclosed, NGW believes this may potentially mean a relaxation of Sonatrach's monopoly over Algerian piped gas sales.

Sonatrach has been the monopoly marketer of all gas produced in Algeria, even when produced by joint ventures with foreign companies, the latter normally being paid for the wellstream gas in cash and/or in kind (typically as a higher share of condensate produced).

Carrot and stick from Algeria's biggest market

Leading investor, co-producer and importer Italy’s Eni has shown increasing frustration over Sonatrach’s gas sales monopoly, but also a willingness to engage with the state company.

Eni achieved late 2016 a breakthrough in aligning its Algerian gas import contract to Italian hub pricing. Then at a March 1 strategy presentation, CEO Claudio Descalzi stressed how Eni intends to maximise the future value of equity gas, in its overall gas import portfolio, by reducing or phasing out long-term gas purchase contracts as they expire. But this need not mean excluding Algerian gas imports in the 2020s, he hinted.

Ould Kaddour’s London remarks suggest that Eni and Sonatrach may be reaching a mutual arrangement, which may not be exclusive to the Italian firm. 

Were Sonatrach to relax its monopoly over gas sales in future, it would leave just Gazprom as the only monopoly piped gas supplier into the EU market.

Mark Smedley