Sonatrach stands alone against EU pressure after Gazprom concession

Published February 13th, 2003 - 03:00 GMT

The European Union Commission has stepped up pressure on Algeria to reevaluate its position on ‘destination clauses’ contained in natural gas sales contracts. The clause, which prohibits European companies from reselling surplus Algerian gas to third-country firms, is seen as incompatible with the EU’s single market competition rules.

As part of its efforts to back Algeria's state-owned oil and gas company Sonatrach into a corner, the EU Energy Commission announced this week that Gazprom, Russia's largest gas company, has consented to eliminate destination clauses from its future contracts. The move follows on the heels of a similar concession made in December 2002 by another EU energy supplier, Nigeria LNG Ltd, reported Dow Jones .

“Negotiations with Gazprom have been proceeding quickly and it is expected that final agreement will be reached with the Commission in the coming weeks," stated Gilles Gantelet, the spokesperson of commissioner Loyola de Palacio’s who returned from a two-day visit to Algiers last week.

Nonetheless, Sonatrach has so far remained steadfast in its refusal to relax destination clauses, fearing that such a move could bring gas prices down. It did, however, put forward an alternative proposal to establish a profit-sharing arrangement, but this arrangement too is in breach of EU competition rules.

Algeria sits atop 3.7 trillion cubic-meter gas reserves and is currently exporting over 60 billion cubic meters of gas per year. Ranked among the world’s top 10 gas exporters, Algeria supplies one quarter of the European Union (EU)’s gas imports. Gas is pumped through two pipelines: the TransMed link to Italy and the Maghreb-Europe line to Spain and extended to Portugal. — (menareport.com)