This article fromThe world is not the first to predict the end of the contract which has linked Algeria, Morocco and Spain for a quarter of a century and which expires in October 2021.
Since the outbreak of the diplomatic crisis between Rabat and Madrid, several Algerian and Spanish press organizations have argued that Morocco would use the non-renewal of the gas contract as retaliation against its Iberian neighbor. When others argued that it is Algeria which is no longer in favor of this deal which entered into force in 1996 and by which Sonatrach supplies more than 10 billion m3 of gas to Spain and Portugal via this pipeline 1,300 km long (including 540 km passing through Moroccan territory).
On May 20, El Confidencial, another Spanish press organ, wrote that Madrid and Algiers had already anticipated this Moroccan coup, by negotiating a deal that would divert supplies passing through Morocco, using the Medgaz gas pipeline, which directly links Beni Saf in Algeria at the port of Almeria in Andalusia. A gas pipeline which currently supplies 60% of Spain’s gas needs, and whose capacities have been increased, according to the Algerian press, to allow Algeria to pass the 10 billion m3 that pass through it, until there, by the Maghreb Europe Gas Pipeline.
“Negotiations are still ongoing”, according to a Moroccan source
Faced with this recurring information, Morocco has not reacted for the moment. And does not intend to react via the media, as the Minister of Energy and Mines Aziz Rabbah tells us.
« We do not respond to press rumors. And we can’t stop her from writing what she wants. If we wanted to respond, we would have published a press release to clarify things, “says the minister, who refuses to comment on the subject, telling us that” this kind of business cannot be treated by interposed media ».
A high profile source in the energy industry responded with a brief denial when we asked her about a breach of contract or negotiations.
But a reliable source, very close to the file, agreed to speak to us by demanding the OFF. His speech and his statements refute all that has been published recently around this subject, and formally deny the information published by El Mundo.
“What has been written in the press for a few weeks is not true. The discussions around the renewal of the contract continue and continue in a normal way. Negotiations focus in particular on technical and commercial aspect of the contract. We cannot stop a contract of this kind overnight, “says our source, while explaining that” economic interests go beyond the temporary conflicts that there may be between the different parties “.
The experience of the past 25 years proves him right. Relations between Morocco and Algeria have always been tense and complicated. And diplomatic crises with Spain, Morocco has known several in this quarter century. The most emblematic being that of Leila islet, which almost led to a war between Rabat and Madrid in 2002. But none of these crises or tensions has called this commercial contract into question …
What has changed for Morocco to decide today to put the brakes on a Maghreb-Europe deal that has always worked? “Nothing”, our source tells us, who does not understand “these media maneuvers “, Which according to him” will in any case have no impact or influence on the negotiations. “
“We are in purely commercial negotiations, between customers, buyers and owners of the infrastructure. I do not think that these maneuvers can influence anything ”, estimates our source.
We would like to point out that our source does not say if the contract will be renewed or not. But simply affirms that the negotiations are still in progress and that Morocco is not in a logic of reprisals or of trade war against Spain, as advanced by the Iberian or Algerian press on this file. What will these negotiations lead to? Only the future will tell us.
As a reminder, the deal between the three parties provides for the supply of Spain for a quantity of 10 million m2 of gas per year produced by Sonatrach, via this gas pipeline which passes through Morocco. In return for the right of way, Morocco obtains a royalty in kind and in cash. These 10 billion m3 also supply Portugal and represent nearly 15% of Spain’s gas needs.
Negotiations, two scenarios and one certainty
If the negotiations are still ongoing, we do not yet know the outcome, as in any commercial deal. But two scenarios are on the table: the breach of the contract or its renewal. A renewal that can be done under the same current conditions or under different conditions. And in both cases, Morocco is in a comfortable position, explains our source.
In the event of renewal of the contract, it will be “business as usual”. Gas will continue to flow from Algeria to Spain. And Morocco will continue to obtain its royalty in cash and in kind.
“This is what would make the most sense from an economic point of view,” according to our source. Because Spain, he explains, has no interest in depending on a single source of supply for its gas needs. “The Medgaz Gas Pipeline (directly between Algeria and Spain) can meet Spain’s needs, but it is a matter of security. Having a single source of supply is very risky, in the event of a technical problem, an accident or a change in Algeria’s commercial strategy, as happened in 2020 ”, indicates our source.
In 2020, Algeria had indeed reduced its gas transfers to Spain via Medgaz, without alerting its customer, who was however experiencing one of the biggest cold spells in its history. Algiers having preferred to deal with China and Japan, which offered it more attractive prices than fixed prices negotiated with Madrid.
A pretext then presented by Algiers in the face of Spanish complaints: “problems during the treatment of gas, which led to delays in the supply by pipeline”, as the Spanish press reported at the time. An argument that did not convince Madrid, which has since remained suspicious of Algerian arguments.
For safety, therefore, Spain has no interest in depending 100% on the Medgaz gas pipeline. And will always prefer to have the Maghreb Europe gas pipeline as a backup alternative. This suits the interests of Algeria, Morocco and Spain as well …
There remains the second scenario: that of a failure of negotiations and a breach of the contract for one reason or another, either on the part of Algeria or on the part of Morocco.
Our source is also confident here. “I’m not a diviner, but I don’t think the break will come from Morocco. As for Algeria, it cannot decide on its own to break the contract. Because at the other end of the chain, there are Spanish and Portuguese customers who have no interest in depending on a single source of supply, ”he tells us.
But in the event of a rupture, the disaster scenario described by the Algerian press which predicts a great economic crisis in Morocco because of the loss of the gas royalty, both in money and in gas, will not take place.
On the money side, the royalty received by Morocco did not exceed 500 million dirhams in 2020, according to data from the Moroccan Ministry of Finance, a drop of more than 50% compared to 2019. A drop in revenue due to the fall in the prices of energy products and the drop in demand in Europe induced by the Covid crisis. The largest amount touched by Morocco since the entry into force of this contract was 2.4 billion dirhams. And that was in 2014, at the height of the price of oil and energy products.
In the event of a rupture, Morocco therefore lost between 2.4 billion and 500 million dirhams. A negligible amount in a state budget of more than 228 billion dirhams, excluding loan proceeds.
On the gas royalty side, there too the losses will have no effect on the Moroccan economy, according to our source.
“Morocco’s share of gas from the pipeline is intended exclusively for ONEE for the production of electricity. This quantity is not used to meet the regular consumption of electricity, but intervenes only in the event of peak consumption. Morocco, according to the contract which binds it to Algeria and Spain, is obliged to consume this quantity, at a fixed price. But if that stops tomorrow, several alternatives exist, in particular the supply of liquefied natural gas (LNG) ”, confides our source.
Supplies that can come from several destinations, and sometimes at better prices: “Morocco can source from Asia, but the prices are exorbitant. There are also suppliers in Europe who offer lower prices. Or even in the United States where prices are even cheaper than in Europe, ”she explains.
All this to say that ONEE will not be down. Because it can get its supplies elsewhere according to market conditions, and even in Algeria, as our source reminds us: “Beyond the gas pipeline, ONEE has a direct contract with Sonatrach. It is a contract which engages Algerian society and which cannot stop it as it sees fit. When there are strategic imperatives, we have to multiply the valves, the options… ”, adds our source.
But what about internal gas production, especially that of Sound Energy? Can it represent an alternative for Morocco in the event of an Algerian about-face?
“Not really,” our source tells us. “The only current project is LNG which will supply the local industry from Tendrara. It is a project in the preliminary phase. But whose realization is imminent. It’s just a matter of time, funding, signing contracts… ”.
And the Tendrara gas is not intended to supply ONEE but rather the local industry.
“Initially, the objective is to produce 100 million m3 per year. But it will be used to cover industrial needs, such as those of ceramic producers, ”explains our source.
Tendrara gas therefore does not represent an alternative to Algerian gas, which is not used elsewhere for industry. As for ONEE, it has, according to our source, a range of choices and options that can be activated quickly to remedy any situation …
Conclusion: this story told by the Spanish and Algerian press is ultimately just a storm in a glass of… gas!
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