HIGHLIGHTS
Uncertainty increases around renewal of GME transit agreement, due to expire this Oct
Platts Analytics still expects parties to find an agreement given mutual economic benefits
Sonatrach/Algeria can supply Spain even without GME link in our base-case, but risks arise on LNG export constraints
The current transit agreement for the GME link, which brings gas from Algeria to Spain through Morocco, is due to expire at the end of October. Between 2016 and 2020, Algeria used this route to transport 34.8 Bcm (entry at Tarifa), or 52% of its total exports to Spain.
While the contract is currently under negotiation for renewal, the prospect is clouded by the worsening relationship between Algeria and Morocco due to a dispute over the sovereignty of the Western Sahara. This conflict was on full display Aug. 24, when Algeria cut diplomatic relations with Morocco over what it called Morocco’s “hostile actions.”
Platts Analytics views Algeria’s most recent action as the latest in the ongoing brinkmanship between the two countries, but does not believe it is narrative changing. Accordingly, we believe a deal to maintain flows through Morocco’s portion of the GME pipeline is still the most likely outcome of ongoing tensions.
Sonatrach has said it would be able to supply Spain in case of a non-renewal, and our calculation confirms Sonatrach’s statement. However, there are risks around this strategy, as we highlighted in our in-depth analysis, including frequent outages at key LNG export facilities.
Along with these risks, our view that a deal is reached is underpinned by the fact that both parties will be worse off economically without an agreement.
For Algeria, relying on available LNG export capacity to supply Spain would jeopardize its ability to maximize revenues during a period when fiscal balances are under pressure.
For its part, Morocco would be deprived of the gas it needs to meet domestic demand. This risk for Morocco is material given gas’s baseload role in the country’s power stack and the lack of alternative sources of natural gas supply. More specifically, while Morocco has a relatively small natural gas sector, nearly all of its natural gas supply comes from the GME pipeline.
Morocco’s take from the GME averaged 1.07 Bcm/year over the last five years (excluding 2020 when it fell to 700 million cu m), making up over 95% of total supply, all of which is used in the power sector. Morocco has 10.7 GW of installed power capacity, 35% of which (3.75 GW) is intermittent renewables, which means that coal (4.1 GW) and gas (2.9 GW) are key baseload sources, implying that Algerian gas flows are key to avoiding power shortages.
SOURCE : https://www.spglobal.com/platts/en/market-insights/latest-news/natural-gas/082621-spotlight-gme-pipeline-transit-renewal-at-risk-as-algeria-cuts-diplomatic-ties-with-morocco
