The world holds its breath in the face of what many already consider the Third Gulf War. According to ReutersEuropean gas prices have skyrocketed by more than 70%, dragged down by the Iranian attacks that 17% have been rendered useless of Qatar’s liquefied natural gas (LNG) export capacity, and by the almost total closure of the Strait of Hormuz.
The situation is so critical that the European Commission has urgently urged member countries to replenish their reserves – currently at a meager 28% – for next winter. However, in the midst of this geopolitical chaos, Spain breathes with unusual tranquility.
A resounding calm. During the recent shareholders meeting of Naturgy, its executive president, Francisco Reynés, sent the following message: “Our customers are assured of supply.” Reynés guaranteed that the company feels “more protected” by not depending “absolutely anything on any Middle Eastern country.”
Also backed by a strong historical commitment for renewable energiesSpain seems to have its homework done. But, just in case, the Government of Spain has decided to activate a “Plan B” to shield the country and keep energy prices at bay. This plan has a geographical name and surname: Algeria. A lifesaver that not only ensures volume, but also guarantees an energy bill with a strategic ‘discount’ compared to the exorbitant prices of the rest of Europe.
A strategic partner. To consolidate this energy shield, the Minister of Foreign Affairs, José Manuel Albares, has met on his first official trip to Algiers not only with his counterpart, Ahmed Attaf, and the Minister of Hydrocarbons, Mohamed Arkab, but with the Algerian president himself, Abdelmayid Tebune. The primary objective of the meeting has been to strengthen the bilateral strategic partnership in energy matters in the face of fears of global shortages.
but this trip certifies the definitive end of the deep diplomatic crisis unleashed in 2022, when Spain aligned itself with Morocco’s theses on Western Sahara. Despite that historic setback, Albares wanted to emphasize that “Algeria is a reliable, constant supplier, under any circumstances”, recalling that the flow of Algerian gas was never interrupted during the months of tension.
How is this cheap shielding going to materialize? The negotiations are in an advanced phase to squeeze the most out of the Medgaz underwater gas pipeline. The intention is to increase the volume of supply up to 10%which would mean injecting around 1,000 million additional cubic meters per year. At the moment, according to data from Bloombergthe pipeline was operating at about 28 million cubic meters per day at the beginning of the year, compared to its nominal capacity of 32 million.
This government movement walks hand in hand with corporate strategy. Naturgy seeks to give even greater stability to its historical relationship with Sonatrach, the Algerian state company, with which it maintains supply contracts for around 5,000 million cubic meters annually until 2030. The alliance is so close that Sonatrach owns 51% of Medgaz and 4.1% of Naturgy’s capital. It is precisely these long-term contracts that act as an “anti-inflation shield”, protecting Spanish consumers from the violent increases of the free market.
Beyond gas. The recovered attunement is not limited to ensuring the most immediate fossil supply. According to Europa PressAlbares and his counterparts have agreed to explore greater cooperation at the infrastructure level, opening the door to “possible analyzes and joint work” between Spanish and Algerian companies throughout the hydrocarbon sector. Furthermore, the will of both governments is to go one step ahead and analyze another type of supply where there is “a shared interest and commitment”, putting on the table the development of solar energy and the promising green hydrogen.
The Italy factor: copy or desperate competition? Spain’s movement is not an isolated event in the Mediterranean. Just one day before Albares’ arrival, the Italian Prime Minister, Giorgia Meloni, also landed in Algiers looking for exactly the same thing: gas. According to Financial TimesItaly is one of the European economies most exposed to this crisis, since 44% of its electricity is generated in gas plants. Its big problem is that Qatar, which supplied 33% of Italian LNG, has declared force majeure after the Iranian attacks on its Ras Laffan facilities.
To patch this huge hole, Meloni has appealed to historical diplomacy recalling the “Mattei Plan”, the legendary founder of the Italian energy company ENI, which financed and supported Algerian independence in the 50s and 60s. Accompanied by the current CEO of ENI, Meloni has signed agreements with Sonatrach for the extraction of shale gas and offshore exploration, with the dream of turning Italy into the gas distribution “hub” for northern Europe, as pointed out Euronews.
Does this pose a threat to Spanish supply? In the short term, it seems difficult. As detailed by the British media, the TransMed gas pipeline that connects Algeria with Italy is already operating at maximum capacity. Furthermore, Algerian domestic consumption has grown by 7% in the last year, limiting its physical margin to export additional gas.
And there is another difference, while Spain has done its homework, Italy has stagnated. The installation of new renewable capacity in Italy fell 8.2% last year, leaving it at the mercy of the whims of a hydrocarbon market with skyrocketing prices.
The Mediterranean as a refuge. Ultimately, the Third Gulf War has forced Spain to relocate its energy compass, moving it away from the turbulent waters of the Strait of Hormuz to dock in the safety of the Mediterranean. By strengthening its ties with Algeria and supported by the strength of key companies such as Naturgy, the country has managed to isolate itself from the panic that is currently devouring its European partners.
Leaving complex geopolitical tensions aside, the triumph of this shielding is above all economic. While Europe looks in panic at next winter’s energy bill after suffering increases of 70%, Spain has managed to secure a stable supply, direct by tube and at protected prices. An Algerian “discount” that, today, is worth its weight in gold.
Image | Photo by Helio Dilolwa on Unsplash and instagram
Text image | Semhur
GIPHY App Key not set. Please check settings