Algeria squeezed in Europe’s gas market by a flood of LNG

CAIRO (Bloomberg) - Algeria’s natural gas pipeline exports to Europe are getting squeezed by cheaper Russian supplies and a global abundance of the liquefied form of the fuel.

European clients of Sonatrach have “greatly reduced their demand” for conventional gas from Algeria, resulting in a 25% drop the level of sales expected this year, said Ahmed El-Hachemi Mazighi, vice-president of marketing at the state-owned energy company.

Algeria is the third-biggest gas supplier to Europe. Its lower pipeline exports are evidence of how new LNG supplies from the U.S. to Australia and Russia are overwhelming the market and driving prices lower. That’s reduced the competitiveness of the north African country’s pipeline gas contracts, which are mostly tied to oil prices, according to the energy consultant Wood Mackenzie.

To compensate, Sonatrach turned more of its gas into LNG. It’s selling those supplies on the spot market for immediate delivery at a rate about a quarter higher than expected this year, Mazighi said. It’s the first time that spot sales represented 30% of the company’s LNG exports.

“In 2019, the trend was completely reversed due to the warm winter in Europe,” said Mazighi. “2020 is expected to be a difficult year too. If we have a warm winter as last year, we will have to do a lot of spots, too.”

Sonatrach’s LNG sales are set to reach 5 billion cubic meters this year, an “historical record” over the past 20 years, and representing about 60 shipments. More than half of the company’s LNG volumes were sold in Asia.