Sonatrach and Iberdrola sign gas purchase agreement

16 July 2004
State energy company Sonatrach has signed an agreement with Spanish power generator Iberdrolafor the sale of 1 billion cubic metres a year (bcm/y) of natural gas supplied via the Medgaz subsea pipeline. The agreement follows a letter of intent signed by the two firms in 2002, and will come into effect in 2007-08 when Medgaz is due to come on stream.

Iberdrola, which holds a 12 per cent stake in the pipeline's project company Medgaz, already has a 15-year contract to be supplied with 1 bcm/y of liquefied natural gas (LNG) from Sonatrach. Iberdrola estimates that it will have to boost its total gas supply to 14 bcm/y by 2006 from 9 bcm/y at present if it is to meet its expansion targets (MEED 15:3:02).

The offtake agreement is significant because it is the first to utilise Medgaz - the 200-kilometre subsea pipeline designed to transport gas directly into the European energy market - marking an important step in the project's evolution. With the Spanish government reluctant to give its backing to the project, citing political as well as economic concerns, there have been some doubts about Medgaz's future.

As a result of Madrid's caution, Medgaz has been postponed from its originally 2005 start-up date, with tenders for the pipeline and associated terminals' construction now expected next year.

However, following the Iberdrola agreement, Energy & Mines Minister Chakib Khelil said that a number of other companies are expected to sign offtake contracts via Medgaz in the near future. The firms are understood to include Spain's Repsol, France's Total and its compatriot Gaz de France, and Spain's Cepsa, which signed a letter of intent with Sonatrach in late 2002 to buy 1 bcm/y of gas via the planned pipeline (MEED 3:12:02).

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