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Spain faces steeper gas bill if Algeria halts supplies: Analyst

A foreign delegation visits on December 14, 2008 the Krechba gas treatment plant, about 1,200 km (746 miles) south of Algiers. The In Salah gas project, a four-year old venture grouping energy majors Sonatrach of Algeria, BP of Britain and Statoil of Norway, is described by its managers as the world's first and largest onshore carbon capture and sequestration scheme. The Organization of Petroleum Exporting Countries (OPEC) is due to meet on December 17, 2008 in the Algerian city of Oran. AFP PHOTO / STR (Photo by STR / AFP) (Photo by STR/AFP via Getty Images)
A foreign delegation visits on December 14, 2008 the Krechba gas treatment plant, about 1,200 km south of Algiers [STR/AFP via Getty Images]

Spain's gas bill is bound to rise sharply if Algeria follows through on its threat to terminate supplies, according to an analyst, Anadolu reports.

Algeria warned this week it would halt supplies if Madrid sold any Algerian gas to other countries, referring to a Spanish plan to export gas to Morocco via a pipeline.

Algeria's relations with neighboring Morocco have sharply deteriorated in recent years due to their festering dispute over the Western Sahara, with Madrid drawing its ire for backing Rabat's autonomy plan for the former Spanish colony.

Algeria deactivated the Maghreb-Europe Gas Pipeline, which carried gas to Spain and Europe via Morocco, on Oct. 31 last year, shifting supplies for Madrid to the direct subsea Medgaz pipeline.

Spain's dependency on Algerian gas can be gauged from the fact that 40% of Madrid's total gas needs last year were met by the North African nation.

READ: Algeria threatens to cut off gas supplies to Spain

This January, Algerian gas exports to Spain stood at 9.8 gigawatt-hours, followed by 9.0 gigawatt-hours in February and 9.5 gigawatt-hours in March, according to the Institute for Energy Economics and Financial Analysis (IEEFA).

Madrid will have other options if Algeria pulls the plug on gas supplies but it will be an expensive proposition, said Ana Maria Jaller-Makarewicz, an analyst for Europe at IEEFA.

She said the main bone of contention between the two is Madrid's plan to export gas to Morocco, so "it all depends on what Spain decides to do."

"If Algeria stops supplies, Spain can meet its demand with LNG imports. But this can push up gas prices in the country because it is much more expensive than getting gas directly from Algeria via the LNG pipeline," Jaller-Makarewicz explained.

Europe's share

Algerian gas is just as important for Europe as it is for Madrid – increasingly so as the European Union tries to wean itself off Russian energy.

Algeria accounted for 8.2% of the EU's gas imports last year, making it the bloc's third-largest supplier after Norway and Russia.

Europe snapped up 83% of Algeria's gas exports, according to data from the Middle East Institute, while the total volume supplied to Europe last year reached 55 billion cubic meters.

According to the IEEFA, Algeria's exports to Europe this January totaled 30.2 gigawatt-hours, 27.8 gigawatt-hours in February and 29.3 gigawatt-hours in March.

READ: Algeria completes oil refinery project

Along with Spain, Italy is the main European importer of Algerian gas.

Algeria was Italy's second-largest supplier last year, providing some 28% of its total requirement, only behind Russia at 38%.

In this context, Jaller-Makarewicz, the IEEFA analyst, said it was unlikely that Algeria will slash gas supplies to Italy via the Trans-Mediterranean Pipeline.

Algeria and Italy have recently been negotiating to ramp up their gas trade, she added, referring to a deal signed by the two in early April as Rome pushes to cut its reliance on Moscow.

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