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France, Spain and Portugal look to unlock Algeria gas exports

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France, Spain and Portugal will seal an elusive political agreement early next week that is intended to increase exports of Algerian gas into Europe and further challenge Russia’s market dominance.

The deal has been billed as a resolution to a long-running impasse around one of the EU’s most intractable energy bottlenecks: the Pyrenees. In energy terms, Spain and Portugal are in effect an island because French power companies have historically resisted the threat posed by cross-border flows of electricity and gas.

But the EU’s heightened strategic tensions with Russia are pushing policy makers to diversify their supplies. Increasing gas flows across the Pyrenees would help unlock the potential of Algeria. The politically sensitive north African nation has the world’s 10th biggest gas reserves but is using less than half of its pipeline capacity to Europe.

At a dinner in Paris next Tuesday, the French, Spanish and Portuguese energy ministers will agree to a political plan prioritising the strategic importance of the MidCat gas pipeline scheduled to cross the Pyrenees. EU officials said that France would be represented by Ségolène Royal and Spain by José Manuel Soria.

Mr Soria has argued that EU gas imports via Spain could replace half of what Russia sells via Ukraine.

Antonio Llardén, the chairman of Enagas, the operator of Spain’s gas grid, said: “This is an important project for Europe’s energy union, to ensure that gas can flow freely from south to north and east to west. It improves our security of supply and will boost European competitiveness by lowering the cost of gas.

“For the energy union to function we need Midcat — but we also need other projects to be completed, such as the Trans-Adriatic pipeline.”

The deal has been brokered by Miguel Arias Cañete, the EU energy commissioner, who visited Algiers last month in a parallel drive to bring more north African gas into the European energy mix.

Mr Arias Cañete views the relationship with Algeria partly as a quid pro quo.

On the one hand, Europe is pushing Algeria’s state energy company, Sonatrach, to open up to greater foreign investment and drop its insistence on a controlling state shareholding in upstream deals. Brussels also wants Algeria to shift away from long-term contracts to spot prices set at European gas trading hubs.

On the other hand, the EU has acknowledged that Algeria is frustrated with falling demand in big EU markets such as Italy and has been eyeing diversifying to Asia. Mr Arias Cañete is arguing that the MidCat pipeline will open up an alluring share of the western European market to exports from Algeria.

Energy analysts calculate that Algeria exported 25bcm by pipeline in 2013, despite capacity of some 54bcm. The country is already easily Spain’s biggest supplier, accounting for 55 per cent of gas imports.

Spanish leaders have long trumpeted their country’s potential by pointing to the vast gulf between how much gas the country needs for itself — 25.4bcm last year — and to what extent it can utilise its liquefied natural gas facilities, which could produce more than 60bcm a year.

Until now, however, it has been thwarted on the French border. The countries are linked by two pipelines, Larrau and Biriatou, with a combined capacity of 5.36bcm, which is set to rise to 7.1bcm by the end of this year.

Building MidCat, however, would double that capacity to 15.1bcm.

Increased supply from north Africa would form part of a broader shake-up in the EU landscape, with Norway recently overtaking Russia as western Europe’s main supplier.

Despite its vast energy reserves, Algeria’s politics give EU officials grounds for concern. In 2013, Islamic militants attacked the In Amenas gas facility, which Sonatrach operates with Statoil and BP. Forty people were killed. There is also continual uncertainty about the succession to Abdelaziz Bouteflika, the 78-year-old president,- reported http://www.ft.com.

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