Algeria seen as unlikely to use gas as pressure point in Spain row


ALGIERS, March 22 (Reuters) - Algeria is unlikely to seek to use gas supply as a point of pressure in its diplomatic dispute with Spain after Madrid moved closer to Morocco's position on Western Sahara, former Algerian energy executives and officials said.

On Saturday Algiers said it was recalling its ambassador to Madrid for consultations after Spain backed a Moroccan plan for autonomy in Western Sahara that is rejected by the Algeria-backed Polisario Front independence movement. read more

The spat comes as Algeria is aiming to take advantage of higher prices and greater long-term demand for its gas in Europe as a result of the Ukraine crisis, developments that could help reverse years of decline in its energy sector.

State producer Sonatrach has long-term gas supply agreements that make it a major supplier to Spain, and which it could not easily break, though the contracts include regular price reviews.

"Algeria is a reliable country in terms of natural gas supply and intends to remain so," a former Sonatrach executive said.

A second former Sonatrach executive said that although most Algerian gas supply was bound up in long-term contracts, the company aimed to boost its exports to Europe over the coming years.

A source familiar with the company's current thinking reiterated that Sonatrach was committed to fulfilling its deliveries as stipulated in contracts.

As European customers turn away from Russian supply, there may be greater competition for gas from Algeria and Libya, particularly among countries on the Mediterranean.

"They are in a great position, so makes sense to turn the screw on Spain a bit from a commercial standpoint," said a European trader, indicating Algeria was likely to seek higher prices.

On Monday, Sonatrach signed an agreement with Italy's Eni to fast track the development of an oil and gas field at Berkine as part of the Italian company's plans to boost total gas supply in the short and medium term, including from Algeria.

Declining energy sales have been a constant worry for Algeria in recent years, leading to a collapse in state foreign currency reserves by three quarters since 2014.

Sonatrach has itself been in turmoil with frequent changes in leadership and with a lack of foreign investment seen as necessary to raise production capacity despite a new law in 2020 to improve investors' terms.

Until last year, Algeria supplied Spain using two different pipelines, one of which went through Morocco. However, the agreement governing that pipeline's use expired last year and ownership of the line reverted to Morocco.

After Algeria cut off ties with Morocco last summer as their already frosty relationship deteriorated amid escalations in Western Sahara, Algiers said it would not seek to renew that pipeline deal.

It has instead supplied its contracted volume to Spain using the other, direct, pipeline and with liquefied natural gas.

Reporting By Lamine Chikhi, additional reporting by Marwa Rashad, Editing by William Maclean

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