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Business English

Spanish gas groups fear reliance on Algeria

von Leslie Crawford and Andrew England
The debate on energy security in Europe has previously centred on northern Europe's dependence on
Russian gas and overlooked southern Europe's high dependence on Algerian gas. But that is about to
change.
The north African country is a significant gas supplier to Italy, Spain, France, Portugal and Turkey. It
will become even more important when two new pipelines - one to Spain and France and the other to
Italy - are completed over the next 18 months.

Once the pipelines are operational, Sonatrach, Algeria's state-owned oil and gas company, will for the
first time start marketing gas in southern Europe rather than just supplying it. That will put it in direct
competition with local suppliers such as Spain's Gas Natural.

Italy has not placed any obstacles to Sonatrach's entry into its domestic gas market. But in Spain, gas
distributors have tried - and failed - to keep the Algerian company off their home turf=eigener Platz,
heimischer Boden##.

The dispute has soured diplomatic relations between the two countries and was resolved in Algeria's
favour only when Sonatrach threatened to cancel the Medgaz pipeline project to Spain. Last year,
Spain imported 37 per cent of its gas from Algeria.

Disagreements between Madrid and Algiers have multiplied - in addition to the marketing spat, Algeria
caused bad blood by cancelling the contracts of two Spanish companies for a gas development project
last September. Sonatrach and Gas Natural, Spain's largest gas importer, are also locked in a price
dispute that could affect long-term supplies.

Unfair competitive advantages

Gas Natural says Algeria is using Spain's energy dependence to extract unfair competitive advantages.
Some Spanish energy executives go so far as to describe Sonatrach as a "Gazprom on the Med",
accusing it of adopting the bullying tactics of the Russian producer.

The Spanish government does not share the alarm of those companies. One senior diplomat said:
"Algeria is a reliable partner. I don't think you will ever see Algiers using energy as a geopolitical
weapon or threatening to cut off supplies to whole countries in the way Gazprom has done."
Independent analysts also think Sonatrach's participation in the Spanish
market will be a good thing. "Allowing Sonatrach to distribute gas in Spain
will not diminish Spain's energy security as it will reduce the logic for
politically motivated supply cuts," said Paul Isbell, an energy analyst at the
Real Instituto Elcano, a foreign policy think-tank in Madrid.

Chakib Khelil, Algeria's energy minister, acknowledges that southern

Europe's energy dependence is a sensitive topic.
Arguments between Russia
and the Ukraine about gas "Of course there are lots of politics in it," Mr Khelil said in an interview. "The
supplies could soon be Russian issue, Ukraine, has created a big [concern] - that all the producing
replaced by issues with firms are going to take control of your resources, of your markets and all
Algeria that," he added.

But Mr Khelil thinks dominant gas companies such as Gas Natural are deliberately fanning such fears.
"Companies don't want to lose their dominant positions in the market," he said. "The whole strategy is
to keep us out of the market in Spain."

Fixed gas prices

On the price dispute with Gas Natural, Mr Khelil said the company had failed to adhere to the terms of
a long-term contract signed in 1995 - when oil prices were around $15 a barrel, compared with more
than $120 today. He said the company refused to follow a clause in the contract that allowed gas
prices to be renegotiated if there was a substantial increase in oil prices. The dispute has gone to
international arbitration.

Mr Khelil also said the expulsion of Repsol and Gas Natural, two Spanish energy groups, from the
Gassi Touil project last year was because of cost overruns and delays. It was not a nationalist move or

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a slight against Spain, he explained.

Second pipeline on the way

As for concerns about energy security, Mr Khelil said dependence cut both ways. Algeria was more
dependent on Europe than the other way round, as 90 per cent of its gas was exported there, he said.

Gas Natural does not like the fact that Sonatrach will be Medgaz's operator and major shareholder. It is
even less thrilled by the fact that Sonatrach has been licensed as a distributor in Spain. The company
believes its price dispute with Sonatrach is linked to the imminent arrival of the second pipeline.

"The more Gas Natural pays for gas, the more Sonatrach will earn from its second pipeline," it said.
"That is Sonatrach's hidden agenda. Its entry into the Spanish distribution market marks another
extension of the power of energy-producing countries."

The Spanish company acknowledged it was getting its Algerian gas on favourable terms, but it was
resisting any price increase because paying more will increase Sonatrach's profits when it starts
operating as a distributor.

centred on = sich drehen um

significant = beachtlich, bedeutsam
operational = betriebsbereit
obstacles = Hindernis
spat = Krach
caused bad blood = böses Blut verursachen
bullying tactics = Einschüchterungsmethoden
Algiers = Algier
diminish = mindern
sensitive topic = heikles Thema
fanning = anfachen
adhere to the terms = an die Bedingungen halten
renegotiated = neu verhandeln
cost overruns = Mehrkosten
slight = Beleidigung
cut both ways = hier: keine Einbahnstraße
imminent = unmittelbar bevorstehend
hidden agenda = geheimer Plan

FTD.de, 09:00 Uhr

© 2008 Financial Times Deutschland, © Illustration: dpa

http://www.ftd.de/karriere_management/business_english/363328.html?mode=print 10/06/2008