Negotiations with Algeria on gas pricing move forward
About a year into the talks, Naturgy has signaled the imminent completion of an agreement with Algeria to review gas contract prices. The Spanish company wants to proceed with caution to prevent leaks that could jeopardize the deal, while both sides have publicly acknowledged that an announcement is near. Sonatrach, the Algerian state-owned firm, claimed last week that the contract price review was finished and a signing was forthcoming. On Thursday, Naturgy president Francisco Reynés indicated that the news was close to breaking.
“We expect favorable news soon regarding price stability. It won’t mean prices revert to what they were before. They will rise, though not to the numbers some forums are proposing,” Reynés said at a forum organized by the CEOE and Cepyme. As a frame of reference, the Eurozone gas price (Dutch TTF) per megawatt-hour stood around 20 euros three years ago and now hovers near 170 euros, illustrating the volatility in the market.
The Spanish gas company still holds a ten-year supply contract with Sonatrach, with a price review clause every three months. Late last year, discussions began for the 2022-2024 period, but the volatility of gas costs, a substantial price surge driven by Russia’s actions, and the ensuing disruption in global markets compelled a cautious approach and a longer negotiation horizon.
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However, informed observers note that price is not the sole issue. The duration of the deal is equally critical. To date, pricing has been set for a fixed period of three years, a structure that appears advantageous to Algeria given the current market dynamics. In a climate of significant instability, Naturgy seeks a balance that protects future consumer interests. Reynés cautioned that returning to the price structure of two years ago would be difficult in the near term.
The extended three-year review window has been cited as a reason for delays in Naturgy’s negotiations compared with other Sonatrach pricing reviews that feature shorter cycles, such as those with Italian energy group Eni. Reynés outlined these dynamics during remarks at the event.
Impact on consumers
The outcome of this deal extends beyond corporate finance. About 20 percent of Spain’s gas consumption comes from this Algerian contract, so higher prices will likely translate into more costly offers for end users. Reynés stressed that the market includes various intermediaries—marketers, distributors, carriers, and generators—who all benefit from high gas prices, while manufacturers bear much of the impact. He also argued that such price dynamics affect the company’s reputation, noting that angering customers and misaligned indexes can erode trust in gas suppliers.
Supply security
There is more at stake than a single contract. Sonatrach is a shareholder in Naturgy, holding a stake of around 4.8 percent, a detail Reynés noted while avoiding a direct boardroom discussion. He emphasized that he attends shareholder meetings and remains actively engaged in price negotiations. Medgaz, the natural gas pipeline linking Algeria and Europe, is equally owned by Naturgy and shares in the pipeline structure reflect the broader partnership.
Reynés warned that negotiating with the same person one meets at Medgaz or at a shareholder gathering happens daily when it comes to pricing. Nevertheless, Naturgy, the Spanish government, and system operator Enagás have consistently affirmed Algeria as a reliable gas partner for decades. Supply has never been at risk, even amid the region’s broader energy volatility.