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Algeria-Spain: Medgaz bank-rolled by Sonatrach

THE Medgaz gas pipeline – the third linking Algeria to Europe – was given the final go-ahead in December, but only after Algeria's Sonatrach had picked up unwanted shares and had agreed to become the largest buyer of gas through the line. Two original participants in the group, BP and Total, dropped out at the last moment and have not contracted gas.

The final investment decision, taken following the receipt of regulatory approvals, was accompanied by another sharp increase in the cost of the project. Medgaz said in December that investments will total Euro0.9bn ($1.17bn), including past costs since the company was set up in 2001. Towards the end of last year, the firm had raised its estimate of the cost to "more than Euro0.70bn", from the earlier Euro0.63bn (PE 11/06 p38).

Sonatrach – not mentioned previously as a possible buyer – has signed to take 2.88bn cubic metres a year (cm/y) through the pipeline and has raised its interest in Medgaz from 20% to 36%. Spain's Iberdrola also raised its holding, from 12% to 20%. Together, the two participants have taken up the 12% interests of the departing firms. The contract volumes agreed are now in proportion to shareholdings (see Table 1).

First gas is due to flow through the pipeline in the middle of 2009. The route, from Béni Saf on the Algerian coast to Perdigal beach on Spain's Almería coast, will avoid transits of Algeria's neighbouring states and make the pipeline the first direct link between the two countries. Medgaz points out that this will "considerably enhance security of supply". The company hopes southern Spain will develop as a gas hub.

The offshore crossing, of 210 km, will involve pipelaying in up to 2,160 metres of water. Gas will be delivered to the Medgaz compressor station, to be constructed at Béni Saf, by a pipeline from the Hassi R'Mel field. In Spain, Medgaz will connect to the Enagas-operated Almería-Albacete pipeline, from which it could flow throughout the country and north into France.

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