Tuesday, May 11, 2010

Algeria resists pressure to alter gas deals


* Customers ask for lower gas price, rebuffed
* Technical problems delay Medgaz link to Spain further

By Simon Webb and Regan E. Doherty

DOHA, May 11 (Reuters) - Algeria is resisting pressure from big gas customers to renegotiate long-term contracts, and technical problems have further delayed the first Medgaz pipeline exports to Spain, Algerian energy minister Chakib Khelil said on Tuesday.
Algeria supplies about 20 percent of Europe's gas through existing pipelines to Spain and Italy at prices indexed to oil.

But plentiful supplies of liquefied natural gas (LNG) have swelled the European market with cheap alternatives over the past year, forcing buyers of oil-indexed gas to resell some contracted fuel at a loss, or not at all.

Khelil told reporters in Doha on Tuesday its mid-stream customers had pressured Algeria to bend, so they could compete effectively with suppliers offering cheap gas snapped up on Europe's booming spot markets.

"Lots of them came and asked to lower volumes and so forth," he said when asked whether Algeria's gas buyers had tried to renegotiate their contracts.

"We didn't agree ... We are resisting."

Khelil said consumers could be risking their future security by pushing for cheaper deals and taking minimum amounts on their long term contracts so they can buy cheap spot gas.

He warned that low spot prices were making new projects look less competitive for companies bidding for exploration blocks that could boost future supply.

"If you come back to me every time the price comes down and tell me 'the price is too high,' then I won't have the guaranteed volumes," he said in the capital of Qatar, the world's biggest exporter of LNG.

"Which means tomorrow if you ask me about volumes 'too bad I've sold it to somebody else'."

He said Algeria was still getting about $7 per million British thermal units on its oil index contracts, unchanged from the first quarter of this year.

State-run Algerian gas giant Sonatrach has made a second gas discovery in Libya and is working on offshore exploration in Egypt, along with exploration projects in Mauritania, Niger, and Mali, he added.


The Medgaz pipeline, which could boost Algerian exports to Spain by about 8 billion cubic metres a year when it opens, has been further delayed until September 2010 due to technical problems on both sides of the subsea pipeline, Khelil said.

"This will slow down volumes," he said, adding that Algeria had revised down its European sales expectations for this year because of the latest in a string of delays to the project.

Less than a month ago, the then interim chief executive of Sonatrach said the pipeline would enter commercial operations in July.

Although Spanish gas demand has recovered in the first few months of 2010, plentiful supplies of LNG for Spain's many import terminals and ongoing uncertainty about the country's economic prospects could dampen gas demand growth.

(Writing by Daniel Fineren)

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