Medgaz breakthrough

Spain has bowed to Algeria’s demands for a bigger slice of the Spanish domestic gas market, removing a threat to the construction of the new Medgaz pipeline.

Algeria’s Oil Minister Chakib Khelil said there are no more problems on Medgaz and added:“On July 19 we reached an agreement with the Spanish authorities, who reconsidered their previous decisions.”

The Algerian confirmation follows statements from the Spanish Industry Ministry in July that said Madrid would let Sonatrach sell up to 2 billion cubic metres per year of gas to Spanish consumers, raising its limit from 1 Bcm per year.

Spain also dropped five of the seven conditions imposed on Sonatrach inorder to raise the Algerian company’s stake in Medgaz to 36% from 20%.

The conditions had been recommended by Spain’s National Energy Commission, but the Industry Ministry had the final say.

The two remaining conditions relate to changes in the ownership of Medgaz and Sonatrach’s level of influence within the group, which also includes Spain’s Cepsa, Iberdrola and Endesa and Gaz de France.

Sonatrach’s equity holding in the project was increased following the withdrawal of UK supermajor BP and French giant Total from the Medgaz project in 2006.

The planned 8 Bcm per year pipeline — linking Algeria and Spain — has been proceeding on schedule despite the row over the role of Sonatrach in Spain’s domestic market.

Khelil had threatened to pull Algeria out of the project unless Sonatrach was allowed to sell about 3 Bcm per year of gas in Spain to reflect its equity interest in Medgaz.

Italy’s Saipem, which is building the pipeline, said construction is scheduled for completion in mid-2009. Algeria has been pushing European countries to allow

Sonatrach to play a direct role in the supply of energy to their domestic markets in return for investment in Algeria’s upstream sector.

Khelil said the aim is to benefit from the lucrative downstream gas and electricity markets in Europe.

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