TheChek News Flow

Energy commissioner Kadri Simson travels to Algeria today

If there was one area on which EU leaders concurred during last week’s informal summit in Prague, it was a fresh push for the bloc to hold talks with alternative gas suppliers to buy more quantities at lower prices.

One country in the spotlight this week is Algeria, with energy commissioner Kadri Simson heading there today and more talks scheduled for tomorrow. We will examine the stakes and pitfalls in strengthening ties with the north African authoritarian regime.

In Prague, energy ministers will gather again tomorrow and Wednesday for an informal council, with recriminations possibly flaring up again over the distortive impact of national support measures. We will bring you the latest on the commission’s thinking in changes to the bloc’s state aid rule book when it comes to energy-crisis related subsidies.

Separately, France’s electricity grid operator has reassured the UK that it will still be able to provide Britain with power at critical moments despite problems with French nuclear reactors that have forced a reliance on imports.

And in election news, Austria’s president Alexander Van der Bellen is on course to return to office for a second term, according to preliminary results last night. In Germany, elections in the state of Lower Saxony kept the ruling Social Democrats in pole position, a rare boost to the party of chancellor Olaf Scholz.

Courting Algeria

Europe’s urgent search for gas from anywhere other than Vladimir Putin’s regime is pushing it to strengthen ties with a different kind of partner — opaque, authoritarian Algeria, write Barney Jopson in Madrid and Sam Fleming in Brussels.

Kadri Simson, the EU’s energy commissioner, meets her Algerian counterpart in the north African country today as part of a charm offensive whose goal is to cement it as a “long-term strategic partner”, according to one EU official. This will be followed on Tuesday in Algiers by an Algeria-EU energy business forum attended by Simson, Algeria’s energy minister, and a host of company representatives.

Algeria’s status as a natural gas supplier to Europe is nothing new. Its gasfields are already connected to the continent by two pipelines that run to Spain and one going to Italy, as well as by liquefied natural gas tankers that criss-cross the Mediterranean.

Although Spain’s ties with Algeria have been under strain this year, the need to eliminate Russia’s energy leverage has lifted the country’s importance to another level, alongside other gas suppliers such as the US, Norway, Nigeria and Qatar.

The EU is Algeria’s biggest market for gas and Algeria accounts for 10-12 per cent of gas supplies to the EU. But the union sees potential for Algeria to do more to fill the vacuum being left by Russia, even though the bloc’s long-term goal is to diminish its gas consumption.

This year Eni, the Italian energy group, has announced two big new hydrocarbon discoveries in the country. In April, it struck a deal with Sonatrach, Algeria’s state-owned gas company, to increase gas supplies from the country. (The north African state has, meanwhile, become Italy’s number one gas supplier).

“The co-operation is going well on the energy side,” the EU official said.

Just last week, Spain’s gas importer Naturgy announced that it had reached agreement with Sonatrach on a periodic price review for contracts it signed more than 20 years ago. Reflecting record gas prices on the global market, the deal gives Sonatrach a higher price, applicable retroactively, for gas sold in 2022.

“Prices are going to go up,” said Francisco Reynés, Naturgy chief executive, but not by an “exorbitant ” amount.

For Algeria, whose hydrocarbon industry has suffered from a lack of investment, high prices and the growing overseas appetite for gas are welcome. Algeria has been a difficult place for international oil and gas companies to work in and many have stayed away. The companies already there such as Eni and Total are the exception.

This year has also given Spain a sobering reminder that Algeria can be an unpredictable partner for whom price is not the only consideration.

Madrid angered Algiers in March by announcing that it supported a Moroccan plan for the Western Sahara that would give the territory limited autonomy under Moroccan sovereignty. Algeria, Morocco’s neighbour and longtime rival, backs full independence for the region.

In the weeks after Spain’s move, Algeria suspended a 20-year-old friendship treaty with its European neighbour and banned trade in products and services with the country. It did nothing to disrupt gas flows through the Medgaz pipeline that connects Algeria to Almería in Spain, but already in autumn 2021, because of its worsening ties with Rabat, Algeria had stopped sending gas to Spain via the Maghreb-Europe pipeline that runs through Morocco.

As a result, the proportion of Spain’s gas imports from Algeria has declined from a high of more than 50 per cent last year to 20-25 per cent per month since April 2022, according to Enagás, Spain’s gas grid operator.

The EU plays down the damage, given that there is spare capacity in Medgaz and the Transmed pipeline via Tunisia and Sicily to mainland Italy, as well as the potential to send more LNG by sea. “We have not suffered in any way. Algeria is very reliable partner,” the official said.

Chart du jour: Russian counter-strikes

At least 20 people were killed and dozens were injured in the city of Zaporizhzhia which fell under renewed missile attacks from Russia in retaliation to the damage incurred by the 12-mile Crimea bridge on Friday. Here is the FT’s explainer on what might have caused the explosions.

Level playing field?

The European Commission expects energy prices to stay high for at least another year, judging by a draft of its amended state aid framework, writes Andy Bounds in Brussels.

The “temporary crisis framework” allows governments to help companies affected by the Russian invasion of Ukraine in February and is about to be tweaked for a second time since its introduction in March. (The first changes came in July.)

The biggest change this time is to allow governments to subsidise high energy costs for another year, until December 31 2023. That at least doubles the amount of support available.

Lifetime limits become annual limits and some maximum ceilings are increased, according to the proposal, which could still be amended before approval.

The €62,000 and €75,000 caps in the agriculture, and fisheries and aquaculture sectors, respectively, would become €93,000 and €112,500 annual caps.

Companies in other sectors could get up to €2mn annually and the most energy intensive industries receive €50mn a year.

Sectors such as fertiliser, aluminium and paper making have warned that rising fuel bills would put them out of business — and some factories have already stopped production temporarily.

Competition commissioner Margrethe Vestager has heeded some of their concerns. As well as the subsidies for rising power costs, they can now get support for the costs of heating and cooling directly produced from gas and electricity, such as powering furnaces, which accounts for the bulk of their consumption.

Furthermore, a ban on profitable companies claiming would be lifted. The beneficiary could have positive earnings but they would have to have fallen by either 50 or 60 per cent — the number is still being haggled over by officials. “That change is vital,” said one industry figure. “A company would do anything to avoid making losses. They would be bankrupt. So the state aid would come too late.”

State aid could come in many forms, including state guarantees to prevent companies having to sell to meet margin calls demanded by banks. Subsidised loans to help them service commercial debts are another tool.

The timeframe for allowing support to companies to switch to renewable forms of energy is extended by a year as well, from June 2023 to June 2024.

Vestager is aiming to publish the amended framework this month, with pressure growing after Germany announced a much-criticised €200bn plan to help consumers and businesses there.

Poland’s prime minister Mateusz Morawiecki last week accused Berlin of “destroying the single market” as its deeper pockets could help its companies survive while those in poorer countries go to the wall.

“The integrity of the internal market is important to withstand external pressure and to avoid subsidy races, where member states with deeper pockets can outspend neighbours to the detriment of cohesion within the union,” the commission document says.

However, the move to lift the total amount of aid eligible again favours richer countries and will increase the push by some capitals for a single pot of money. “We need a European solution,” said one diplomat.

Expect the debate to continue in the informal — and possibly impolite — meeting of energy ministers in Prague starting tomorrow.