Morocco's Options After Algeria Ends Gas Supply

RABAT (Reuters) — Morocco says the immediate impact of Algeria ending gas supplies through a pipeline is "insignificant,” but it has not said how it will make up any shortfall while it adopts long-term plans to boost renewables and import LNG.

WHAT WAS THE DEAL AND WHY DID IT END?

Despite years of frosty ties between the two nations, often over the fate of the disputed territory of Western Sahara, they agreed a pipeline deal with Spain in 1996.

The deal led to a 1,300-km (808-mile) pipeline to take gas from Algeria to Spain through Morocco, which took 7% of the gas as a royalty, averaging about 700 million cubic meters a year.

Following a year of worsening relations between Algiers and Rabat before the deal expired on Oct. 31, Algeria said it would supply Spain through a different pipeline and would no longer send gas to Morocco.

With tension still very high over Western Sahara and other issues, there seems little prospect of any rapid improvement in relations.

HOW HARD DOES ALGERIA'S DECISION HIT MOROCCO?

About a tenth of Morocco's electricity production of 38,700 GigaWatthours (GWH) depended on the Algerian gas, used for two power plants in its north that are used only during periods of peak demand.

However, Morocco has in recent years had a power surplus and since 2018, has been exporting electricity to Spain, using two undersea links with a combined capacity of 1,400 MW.

Demand fluctuations in Morocco are mainly connected to industrial output, reduced during the pandemic, a senior official said.

But other power plants could ramp up output if required, the official added. Most Moroccan power capacity comes from coal, fuel oil and renewables.

WHAT ARE ITS OPTIONS NOW IN CASE OF A SHORTAGE?

Morocco's power utility and the state hydrocarbons agency said on Sunday "necessary measures" had been taken to ensure steady electricity supply in anticipation of Algeria's decision, but did not say what these were.

Morocco had "sustainable alternatives in the medium and long term", they added, without giving details.

The senior Moroccan official said Rabat was still talking to Spain about the possibility that it could supply Morocco with gas through the existing pipeline.

Spain, which relies on Algeria for a large part of its energy supply, would not agree to that for now, said two traders.

Morocco has also given import permits to some private gas companies but has not said if it is in talks with any of them to supply fuel for the electricity plants.

WHAT ABOUT THE MEDIUM AND LONG TERM?

Morocco is in the early stages of tendering a floating LNG terminal with eventual capacity of up to 5 billion cubic meters a year.

It recently changed the specifications to add a new possible location for the terminal off Tangier, where it could plug into the now-discontinued Algeria-Spain pipeline.

However, even after the major contracts are awarded, such projects typically take two or three years to complete.

The government has said it wants to gradually replace coal with gas, but other possible suggested projects, including more LNG terminals and a pipeline to Nigeria, are at best years away.

The state hydrocarbons agency has issued on- and offshore exploration licenses in the hope of boosting current output of 100 million cubic meters a year.

Morocco is pushing plans to increase the share of renewables in its energy mix to 52% by 2025 and 64% by 2030, from 36% in 2020, the pro-establishment newspaper Le Matin said last week.

Although lagging on its renewables targets, Morocco has installed major solar and wind projects and plans others. The renewable energy agency MASEN has not responded to Reuters request for comment on its targets and plans.

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