Algerian Sonatrach is considering new formulas to increase gas prices for European buyers – sources

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LONDON – Algeria’s state-owned oil and gas producer Sonatrach is negotiating ways to benefit from major global gas price hikes in its long-term contracts with European buyers, two sources familiar with the matter told Reuters.

Sonatrach is considering several options, including a partial link to spot gas prices in contracts that have always been linked to the price of Brent crude, the sources said.

Concerns over Russia’s gas supply to Europe have driven Dutch TTF gas contracts up more than 80% and 110% respectively so far this year, with the market hitting record highs in March after the Russian invasion of Ukraine. Brent has risen 55% over the same period.

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Algeria’s role as a gas supplier to Italy, Spain and other southern European countries has taken on increased importance due to the conflict in Ukraine and the imposition by Europe sanctions against Moscow.

Russia recently cut supplies to Europe through the Nord Stream 1 gas pipeline to 40% capacity, with politicians warning flows could be halted altogether.

Algeria and other sellers are trying to find ways to recoup lost revenue from long-term contracts based on a single price index.

But the price revisions come at a difficult time for Europe, as countries scramble to fill storage facilities ahead of the winter heating season and draw up contingency plans for the potential disruption of Russian flows.

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“Sonatrach has very strong bargaining power because it has the gas and realizes that Europe needs it,” a source said.

“Buyers now realize they are stuck between a rock and a hard place,” he added.

Reuters has contacted Sonatrach for comment.

A second source said the company was looking to review prices with companies that receive gas through the Medgaz undersea gas pipeline, including Naturgy, Cepsa and Endesa in Spain, Engie in France and Galp in Portugal.

“They play around everything, keeping the Brent formulas, including the TTF formulas. They are asking for an increase similar to the increase in international (gas) prices and the excuse is that the TTF is very expensive,” he said, adding that prices in long-term contracts are usually based on long-term averages rather than daily prices. .

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“They might offer one company all TTF, another all Brent, someone else a blend because they negotiate with everyone. They are skilled negotiators and will try to get as much as they can.

A Naturgy spokesperson said negotiations were ongoing and declined to comment on specifics, adding the company’s relationship with Sonatrach was good. Cepsa declined to comment, while Endesa, Engie and Galp did not immediately respond to requests for comment.

Tamir Druz, managing director of consultancy Capra Energy, said Sonatrach’s Brent-indexed clients had gotten a huge discount from the TTF and other global gas indices, and that price revision provisions in its sale and purchase agreements (SPAs) should enable the company to recover a good part of the lost revenue.

Rising energy demand has relieved Algeria’s public finances after years of declining oil sales that have reduced foreign exchange reserves. The country’s energy revenues are expected to reach $50 billion by the end of 2022, up from $35.4 billion in 2021. (Reporting by Marwa Rashad in London and Isla Binnie in Madrid; Editing by Veronica Brown and David Evans)

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