Gazprom’s Agreement with Algeria in Trouble?

It’s been more than one year now since the historic memorandum of understanding was signed between Gazprom and Algeria’s state-owned exporter Sonatrach, an agreement which in theory put 69% of Italy’s natural gas under the control of a sole distributor. On this blog we identified it as one of the more pivotal energy security events in recent memory, and the first formative move to create a creeping natural gas cartel. At the time, EU Energy Commissioner Andris Piebalgs said that “Our worries are the development of the contacts between Russia and Algeria,” which he believed would create a type of cartel. The Gazprom-Sonatrach agreement also made a visible impact on Paolo Scaroni of Eni, who went from warning about the cartel to becoming one of Gazprom’s proxies in Europe shortly following this deal. “If you can’t beat ‘em, join ‘em” seems to be the Italian wildcat’s strategy. Now he’s the proud owner of stolen Yukos assets, which can be held over the company’s head like kompromat. However there’s a lot more at stake with the Algeria arrangement, and it is possible that the executives at Sonatrach may be weary that they are getting a bad deal. Algerian officials have made great efforts to play down this alarming energy alliance with the Russians, and point out that the MoU still has not produced anything concrete. Is the marriage with Gazprom on the rocks? Or is Europe only being told what it hopes to hear?

There are some indications that it is the former, and that despite generous concessions by Moscow to forgive Algeria’s debt and their continuing willingness to economically integrate via massive arms sales. Today the Wall Street Journal interviews Mohamed Meziane, head of Sonatrach, who points out that the Gazprom deal was more about cooperating in LNG technology – something that hasn’t been going so well.With regard to the Gazprom-Sonatrach deal, the ubiquitous Jonathan Stern says “There’s a lot of paranoia in Europe that suppliers will get together and fix prices or markets, but these conspiracy theories rarely have any traction. … Everything is driven by immediate commercial advantage.”I believe that the “commercial logic” argument is patently untrue when you are talking about Gazprom, as evidenced in established patterns of non-commercial and anti-competitive decisions.More convincing to me, as the Journal reports, is that Algeria’s aggressive plans for growth and export of LNG to new markets is bringing it into more direct competition with Russia, rather than the carve up of the markets that may have previously been agreed upon (basically that the Algerians could have Italy, Spain, and part of France, and the rest of Europe belongs to Russia and Norway). Also Gazprom’s joint venture with Eni has them moving into a stronger position in Italy, which certainly is unpalatable to Algiers.Competition is of course the ideal outcome for consumers (and producers I would argue), so let’s hope that Gazprom and Sonatrach continue to compete rather than coordinate.