Slovenia to sign three-year gas contract with Algeria’s Sonatrach

The EU country will buy about 300 million cubic metres of natural gas per year

The Lichterfelde gas-fired power plant in Berlin. Russian gas exports to EU could come to a complete halt next year as the EU moves ahead with sanctions. AP

Slovenia’s gas supplier Geoplin will sign a natural gas supply contract with Algeria’s state-owned energy company Sonatrach on Tuesday, the Slovenian Press Agency (STA) reported.

The three-year contract includes the purchase of about 300 million cubic metres of natural gas per year, which is about a third of Slovenia's current annual consumption, STA said.

The Algerian gas will be transported to Slovenia via a pipeline running through Tunisia and Italy.

Europe is in the midst of its worst energy crisis after Russia, the region’s biggest natural gas supplier, curtailed exports sharply in response to EU sanctions over its military offensive in Ukraine.

Russia supplies most of Slovenia’s natural gas, which accounts for 12 per cent of overall energy mix. The EU member state relies mostly on hydroelectric, thermal and nuclear power sources to meet its electricity requirements.

In 2018, Geoplin signed a five-year natural gas supply contract with Gazprom to import 600 mcm of Russian natural gas per year.

However, Russia’s invasion of Ukraine has forced Slovenia to reconsider its energy policy and seek alternate sources such as liquefied natural gas (LNG).

Algeria, a member of Opec, relies heavily on oil and gas, which accounted for 19 per cent of GDP, 93 per cent of product exports, and 38 per cent of budget revenue between 2016 and 2021, the World Bank said.

Algeria is Africa's biggest gas exporter and supplies about 11 per cent of the natural gas consumed in Europe.

Europe could face a deficit of as much as 30 billion cubic metres of natural gas in 2023 if Russian supplies come to a halt and demand from China recovers, the International Energy Agency said in a report this month.

Gas storage sites in the EU are now 95 per cent full, but the cushion provided by current storage levels, as well as recent lower gas prices and mild temperatures, should not lead to “overly optimistic” conclusions about the future, the agency said.

After hitting record highs in the summer, Europe natural gas prices have dropped in recent weeks due to a mild winter and high gas storage levels.

European gas futures dropped as low as €93.35 ($91.32) per megawatt hour last month, the lowest since mid-June.

Russia has warned it could shut off Europe’s energy supply if a proposed price cap by the Group of Seven countries, known as the G7, is enacted next month.

Energy markets are going to enter another phase of uncertainty once an EU ban on Russian crude comes into effect on December 5. A ban on Russian oil products will commence on February 5.