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Algeria Squeezed In Europe’s Gas Market by a Flood of LNG

Algeria Squeezed In Europe’s Gas Market by a Flood of LNG

(Bloomberg) -- Algeria’s natural gas pipeline exports to Europe are getting squeezed by cheaper Russian supplies and a global abundance of the liquefied form of the fuel.

European clients of Sonatrach have “greatly reduced their demand” for conventional gas from Algeria, resulting in a 25% drop the level of sales expected this year, said Ahmed El-Hachemi Mazighi, vice-president of marketing at the state-owned energy company.

Algeria Squeezed In Europe’s Gas Market by a Flood of LNG

Algeria is the third-biggest gas supplier to Europe. Its lower pipeline exports are evidence of how new LNG supplies from the U.S. to Australia and Russia are overwhelming the market and driving prices lower. That’s reduced the competitiveness of the north African country’s pipeline gas contracts, which are mostly tied to oil prices, according to the energy consultant Wood Mackenzie.

To compensate, Sonatrach turned more of its gas into LNG. It’s selling those supplies on the spot market for immediate delivery at a rate about a quarter higher than expected this year, Mazighi said. It’s the first time that spot sales represented 30% of the company’s LNG exports.

“In 2019, the trend was completely reversed due to the warm winter in Europe,” said Mazighi. “2020 is expected to be a difficult year too. If we have a warm winter as last year, we will have to do a lot of spots, too.”

Algeria Squeezed In Europe’s Gas Market by a Flood of LNG

Sonatrach’s LNG sales are set to reach 5 billion cubic meters this year, an “historical record” over the past 20 years, and representing about 60 shipments. More than half of the company’s LNG volumes were sold in Asia.

What analysts say
  • Algerian pipeline-gas prices are about $2.5/mmbtu higher than northwest European prices, according to Wood Mackenzie
    • Lower Algerian pipeline-gas exports have created room to help balance the European LNG market oversupply
  • Cumulative Algerian gas pipeline exports to Italy are down about 1.3 billion cubic meters since Oct. 1, compared with the same period last year, according to a BloombergNEF report
    • Algerian exports to Italy will be down by 3.7 bcm winter-on-winter based on the quantity of capacity booked at Mazara del Vallo, the entry point of Algerian gas to Italy

--With assistance from Chiara Albanese and Anna Shiryaevskaya.

To contact the reporters on this story: Salah Slimani in Cairo at sslimani2@bloomberg.net;Vanessa Dezem in Frankfurt at vdezem@bloomberg.net

To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net, Andrew Reierson

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