The European gas market prepares to settle the Moroccan-Spanish dispute

As the American agents in Central Asia said, “Happiness is multiple pipelines.” The Americans were trying to finance and build roads around Russia’s geopolitical lock on the transportation of fossil fuels. This fall the EU may discover how miserable (and expensive) everyday life can be if you don’t have multiple pipelines, in this case to Spain.

Fans of obscure, complex and violent international disputes (like myself) are waiting for the Court of Justice of the European Union to rule on a protest on the extension of the EU association agreement with Morocco to the territory of Western Sahara, or to the south of Morocco, as Moroccans prefer to call it.

The big economic problem boiled down to Morocco’s granting of fishing rights in Western Sahara waters to EU member states, which are particularly important to Spain.

Now the CJEU may be preparing to deliver a first ruling in a two-year case brought by the Polisario Front, a political group demanding independence for Western Sahara. This area was contested after the withdrawal of Spanish troops in 1975. Morocco’s occupation of the region was not recognized as fully legitimate by the EU or the UN, or, until the Trump presidency, by the United States.

At the start of the year, a court spokesperson mentionned a decision would take “several months”. Some proponents of the case say it could arrive in September.

In December 2020, however, the outgoing Trump administration recognized Morocco’s sovereignty as legitimate, as part of an agreement under which Morocco would establish formal diplomatic relations with Israel under the “Abraham Accords”. The Biden team has, with some reluctance, affirmed Trump’s position on Western Sahara.

The effect of this change was to encourage Morocco to redouble its efforts on its assertions of sovereignty. So if, as I expect, the CJEU announces that it recognizes the Polisario as the legitimate representatives of the Saharawi people, you can expect the Moroccan government to blow up a joint.

They just happen to have a painful way of letting the EU, and Spain in particular, know how unhappy they are. Spain imports a substantial part of its natural gas needs from Algeria. The gas passes through two pipelines, one of which was laid underwater directly to Spain. The other Maghreb-Europe pipeline crosses Moroccan territory before crossing the Strait of Gibraltar to connect to the Spanish and Portuguese gas networks.

Small problem: the agreement on the right-of-way of this pipeline expires in October of this year, about a month after the CJEU was able to put a finger in the eye of Morocco. The Moroccans could therefore retaliate by refusing to extend the contract. As to prepare for it, the process of renewing the gas pipeline contract has been extended by the Moroccan side.

Fortunately for Spain, it has made substantial investments in LNG port facilities, which allows it to simply import the same Algerian gas, but at a higher cost. New problem: in mid-June, a technical failure of the Skikda LNG export facility in Algeria led to the closing the installation, probably for an extended period.

But given that Spain is part of Europe, there would surely be enough pipeline links with France to compensate for any Algerian supply shortages, right? Well no. There were plans for additional gas connections with Northern Europe, but they encountered regulatory and green opposition.

In any case, gas storage in Europe is currently quite low, especially since the Russians have been slow to send gas exports through the Ukrainian pipeline network. The prices of natural gas at European import points are therefore already quite high. LNG shipments were abandoned by greedy Asian importers.

All of this means that Spain may have to import LNG bought on the spot market this fall to keep the lights on and the stoves on during the winter. The resulting price spike may be high enough to put Europe’s coal-fired power plants back into service, even with the burden of carbon costs. This is not a good look at a time when Europe is launching its ambitious plans for net zero carbon emissions, thus breaking its dependence on fossil fuels.

It could become even riskier if Morocco unilaterally decides to allow more migrants to cross its borders into Europe. Morocco could also decide to cancel the permits of EU fishing vessels to operate in their definition of Moroccan waters.

I think the European Council, as well as a few member states, will appeal the CJEU’s ruling. But not before coal is burned and expensive gas imported. And any call will likely only buy a year late before it all starts all over again.

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About Kristine McNally


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