Morocco-Algeria dispute: a challenge for the kingdom's gas supply

Par ediallo - 5 September, 2021 - 11:05

Relations between Rabat and Algiers have been tense for decades, particularly because of deep differences over the Western Sahara.

They have deteriorated in recent months, culminating in Algeria accusing its neighbor of supporting the independence movement of the predominantly Berber region of Kabylia, which is itself responsible for the fires that have ravaged large areas of forest in Algeria since the beginning of the month.

Tensions are at their highest and may further affect economic activity between the two countries, whose land borders have been closed since 1997.

Moroccan gas supply at risk

After several years of tension, Algeria has decided to break diplomatic relations with the Kingdom of Morocco from Tuesday, August 24, 2021. The announcement was made by Ramtane Lamamra, the Algerian Minister of Foreign Affairs, who accuses the Moroccan leadership of carrying out "hostile actions" against his country.

This situation will jeopardize the regular gas supply to Morocco. Indeed, the Cherifian kingdom is home to an important section of the GME pipeline which transports Algerian gas to the Spanish market.

More than 30% of the natural gas consumed in Spain transits through its soil, through two pipelines: the GME pipeline, and Medgaz which directly connects the Algerian city of Beni Saf and the city of Almeria in Spain. In exchange, Morocco receives its natural gas transit rights and royalties.

Determined not to cooperate with its neighbor, Algeria will undertake, two days after the announcement of the break in relations, to reassure the Spanish authorities that the gas supply will continue, but without passing through Morocco. It is the Algerian Minister of Energy, Mohamed Arkab, who told the Moroccan ambassador to Algeria, Fernando Moràn.

This move clearly means that Algeria will no longer renew its contract to deliver gas to Spain via Morocco. The agreement between the two countries expires on October 31 and everything suggests that the Algerian side was preparing for several months to do without Morocco.

This move clearly means that Algeria will no longer renew its contract to deliver gas to Spain via Morocco. The agreement between the two countries expires on October 31 and everything suggests that the Algerian side was preparing for several months to do without Morocco.

A few weeks ago, Toufik Hakkar, the CEO of Sonatrach, the Algerian state-owned hydrocarbon company at the heart of the dispute and the uncertainties surrounding the renewal of the contract, said that "the company is taking all the necessary measures to act in case of non-renewal of the contract.

And to ensure that even if this happens, "Algeria would be able to supply Spain, but also to meet any additional market demand without any problem.

In July, Sonatrach and its Spanish partner Naturgy, which control 51% and 49% of Medgaz respectively, signed an agreement to expand the transport capacity of the pipeline.

According to the terms of the deal, it should increase by 2 billion cubic meters per year to reach the 10 billion m3/year mark.

The extension, which is expected to cost nearly $ 73 million, should take place "as soon as possible" for an availability of the pipeline in the last quarter of 2021. Thus, the Medgaz pipeline will soon be able to ensure the delivery of Algerian gas to Spain.

In July, Sonatrach and its Spanish partner Naturgy, which control respectively 51% and 49% of Medgaz, signed an agreement to expand the transport capacity of the pipeline.

It should be noted that the volume transported by Algeria represents almost half of Moroccan gas consumption. In 2020, natural gas trade via GME totaled 3.67 billion cubic meters, and Medgaz 5.39 billion cubic meters, according to data from S & P Global Platts.

In addition, the Algerian authorities have indicated that in addition to the growing demand from the Iberian Peninsula, they are prepared to meet the demand from European markets thanks to the flexible production capacities of their LNG plants.

The week before the Algerian decision to cut ties with neighboring Morocco, Amina Benkhadra, director of the Moroccan state-owned hydrocarbons company, said that "Morocco's desire to maintain this export route has been expressed clearly and consistently at all levels for over three years.

We have said this verbally and in writing, publicly and in private discussions, always with the same clarity and consistency. So far, the Algerian authorities have ignored this statement.

What alternatives for Morocco?

Faced with Algeria's refusal to continue its gas cooperation, Morocco will, on August 30, start preparations to launch the second phase of the front-end engineering design (FEED) of the Nigeria-Morocco gas pipeline, a titanic project that should bring Nigerian gas to the kingdom and then to Europe.

According to information relayed by The Desk, the Moroccan public company of hydrocarbons (ONHYM), has requested financing from the Islamic Development Bank (IDB) for this second phase of FEED. We learn that OPEC will intervene as a donor in this operation.

The first phase of this study was conducted by the British company Penspen. But this project requires the mobilization of more than 20 billion dollars for a planned length of 5700 km. Moreover, it should enter into production within 24 years, with a realization in stages, since it must transit through 12 countries.

Faced with the short-term urgency of finding new sources of supply, the Nigeria gas pipeline is clearly not an option.

Morocco must work to secure new sources of supply. Clearly, this would be more expensive and involve new investments in gas logistics. There are several options.

In the very short term, the option of liquefied natural gas (LNG) to replace Algerian supply remains available. However, the country does not yet have adequate regasification infrastructure to handle the volumes needed to meet demand once LNG is imported.

A project to build a floating storage and regasification unit in Mohammedia is still under study. It is becoming imperative for Rabat to invest more in gas logistics.

However, the country does not yet have adequate regasification infrastructure to handle the volumes needed to meet demand once LNG is imported.Domestically, several natural gas production projects are being developed in the East and offshore.

The British company Sound Energy is working to install a liquefaction platform for Tendrara gas (TE-5). An off-take agreement for this future production has already been signed with the local company Afriquia Gaz.

This installation should make it possible to satisfy, as early as 2025, about 9% of Morocco's annual gas needs. Afriquia will distribute the fuel in the form of LPG, butane and propane. What about electricity production from natural gas?

Local production remains one of the country's best assets. As things stand, even in this scheme, the withdrawal of Algerian gas supply will result in a significant gap between supply and demand.In any case, the challenges related to gas supply will be significant for Morocco.

Olivier de Souza