Three informed sources told Reuters that Algeria, which cut diplomatic relations with Morocco, will stop supplying natural gas to its neighbor through the Maghreb-Europe gas pipeline starting November 1. This pipeline, with a capacity of 13.5 billion cubic meters per year, connects Algeria to Spain. The sources indicated that Algeria will continue to supply gas to Spain through the Medgaz underwater pipeline, which has an annual capacity of eight billion cubic meters and does not pass through Morocco.
Analysts suggest that technical issues related to Algeria's plans to expand the capacity of the Medgaz pipeline may exacerbate the energy crisis in Spain, as gas bills rise across Europe. Last August, Algeria hinted at the possibility of ending natural gas exports to Morocco in October, which amount to one billion cubic meters that are used to generate about 10% of electricity in the kingdom.
A source from the state-owned Sonatrach oil and gas company in Algeria and two Algerian government sources stated that the supply agreement with Morocco will not be renewed. There was no immediate response from the energy ministries of Algeria and Morocco to Reuters' request for comment. Earlier this month, a senior Moroccan official stated that his country is discussing with Spain the possibility of a reverse flow through the pipeline should Algeria not renew the supply agreement.
Algeria is the largest gas supplier to Spain, covering nearly half of its gas demand through the Maghreb-Europe pipeline. A fourth source, a senior Algerian government official, informed Reuters that if any disruptions occur, the country will use ships to transport liquefied natural gas to Spain. Analysts say this would mean Sonatrach would have to hire more ships, which would further drive up liquefied natural gas prices due to shipping costs more than doubling since earlier this month.
Liquefied natural gas prices have surged in recent months due to a structural shortage in Europe, forecasts of a cold winter, and increased demand. Last month, Sonatrach announced that it would increase the capacity of the Medgaz pipeline to Spain to reach 10.5 billion cubic meters per year by the end of November. Earlier this year, Sonatrach stated that Algeria's supplies to Spain would increase after the completion of a fourth gas compression unit at its Medgaz facilities in the town of Béni Saf, in the west of the country. Sonatrach added that this process could be completed by the end of November.
