Geopolitical Tensions on Europe’s Southwestern Flank Threaten to Exacerbate EU’s Natural Gas Shortages

The Spanish government has reversed its long-held position of neutrality regarding  Western Sahara despite the risk of alienating the EU’s third largest provider of natural gas, Algeria.

For the first time in 42 years Spain has decided to support Moroccan claims to sovereignty over Spain’s former colony, Western Sahara. In the process it risks alienating its largest natural gas provider, Algeria, which fiercely opposes Morocco’s territorial claims.

On Friday, Spain’s foreign minister, José Manuel Albares, called a proposal launched by Rabat in 2007 to grant Western Sahara limited autonomy “the most serious, realistic and credible” initiative for resolving a decades-long dispute over the vast Saharan territory. This threatens to open up a whole new geopolitical can of worms at the worst possible time for Europe’s energy-starved markets.

A Sea Change in Policy

For decades Spain, like most countries, had supported the idea of holding a referendum to resolve the territorial integrity of Western Sahara — which was agreed as part of the 1991 ceasefire and is also strongly supported by Algiers. As such, this represents a sea change in policy.

But Spain is caught between a rock and a hard place in its relations with the neighboring North African countries of Morocco and Algeria. On the one hand, it depends on Algeria for almost half of the natural gas it consumes. However, Algeria — like the United Nations — supports the right of the Sahrawi people to self-determination. On the other hand, Morocco, which took over the lion’s share of Western Sahara after Spain relinquished the colony in 1975, controls a key gateway for African migrants trying to reach Europe via Spain.

Like Erodgan’s Turkey, Morocco is not afraid of using that power as leverage. In May 2021, Rabat withdrew all of its border guards from a breakwater separating the Moroccan city of Fnideq with Ceuta, one of two Spanish enclaves in northern Morocco, after Moroccan intelligence had discovered that Braham Gali, the secretary general of the Sahrawi nationalist movement, the Polisario Front, had been treated in a Spanish hospital after contracting COVID-19. Within just a few hours some 1,500 African migrants crossed the water into Ceuta, according to Spanish authorities. Rabat also recalled its ambassador to Spain in protest.

Spain’s foreign minister, José Manuel Albares, suggested on Friday that working with Morocco to tackle migration from sub-Saharan Africa was more important that Spain’s energy dependence on Algeria. “We want to strengthen cooperation in the management of migration flows in the Mediterranean and the Atlantic,” Albares said.

Algiers responded to the announcement by recalling its ambassador from Madrid while Rabat reinstated its own. Algeria supports independence for the Sahrawi people and has long hosted the leaders of the Polisario Front on its soil. The Algerian government wants a referendum on independence to be held to determine the region’s fate. But the possibility of that happening has faded in recent years as the impasse drags on and Morocco has taken a more belligerent stance, as The Africa Report noted in an article in January:

After the 1991 ceasefire agreements were signed between Morocco and the Polisario – which provided for the organisation of a referendum on the Saharawis’ self-determination, under the auspices of the UN and establishment of the Minurso – the two parties have gradually decided to favour the status quo rather than risk making concessions. “None of the solutions proposed by this international body [have] been accompanied by a willingness to put pressure on the various actors in the Sahara conflict,” says Brahim Oumansour, a consultant in geopolitics and international relations. “The United Nations has engaged in voluntary negotiations without success, as the kingdom and Polisario’s opposing stances have hindered any progress.”

However, since its return to the AU in 2017, the kingdom has changed its diplomatic tactics and engaged in the strategy of fait accompli, stating that Moroccan sovereignty over the Sahara is non-negotiable. This is evidenced by its military recapture operations in the Sahara, which have enabled it to gradually expand its security belt and push back the Polisario bases. Its policy of opening foreign consular offices in Laayoune and Dakhla, has managed to convince a little more than 10 countries – including many African states, the United Arab Emirates (UAE), Bahrain and Jordan – to do the same. The latest manifestation of this firmness was King Mohammed VI’s speech, in which the sovereign ruled out any trade agreement that did not include the Sahara, on 6 November.

Interesting Timing

Morocco’s claims were bolstered in 2020 when U.S. President Donald Trump recognized Moroccan sovereignty over Western Sahara after Morocco mended ties with Israel. The Biden Administration has so far stuck to this policy.

Interestingly, Trump’s intervention came at a time that Russia, one of Algeria’s longest-standing allies, was itself showing a keen interest in forging closer ties with Morocco. Rabat was reportedly interested in buying the S400 system from Russia and there was even talk of codeveloping a liquified natural gas (LNG) terminal 120 kilometers south of Casablanca to receive Russian gas. But according to Middle East Monitor, the Moroccan government baulked at the idea over fears the US would impose sanctions.

In the meantime tensions between Algeria and Morocco over Western Sahara have intensified. In October 2021, the two countries cut diplomatic ties. On November 1, Algeria, Africa’s largest natural gas exporter, ratcheted tensions further by closing the Maghreb-Europe Gas Pipeline (MGE) which passes through Morocco into Spain and was a major source of natural gas for both countries. For Morocco it was also an important source of money that has now gone, as El País reports:

For Morocco, the MGE pipeline represented a significant source of income: as much as €200 million on a good year and €50 million on a bad one, depending on the volumes passing through. Rabat was also keeping some of that natural gas to generate around a tenth of its own electricity. Its diplomatic spat with Algeria over the disputed territory of Western Sahara could lead Morocco into an energy crisis of its own.

Now Rabat is in talks with Madrid over the possibility of using the MGE pipeline to import gas from Spain, reports Bloomberg:

Since Morocco doesn’t have any terminals to handle LNG itself, it wants to send cargoes to Spain, where the fuel can be regasified and then piped across the Mediterranean to Morocco.

Prices for piped gas and LNG in Europe have soared in the past year amid a supply crunch and rising tension with Russia over Ukraine. Still, Spain, which holds nearly a third of European LNG regasification capacity, has only a small pipeline connecting it with the rest of the continent. Its import terminals are also under-utilized, meaning they may have capacity to take in gas for Morocco.

Tight Supplies

Algeria’s decision in November to stop pumping gas through the Moroccan pipeline means that Spain can only receive gas through the Medgaz gas pipeline, which links Algeria and Spain by sea. Medgaz currently has an annual capacity of 10.6 billion cubic meters, up from 8 billion last year. But that was not enough to meet the demand for natural gas in Spain and Portugal, meaning Algeria had to export more gas to Spain by ship, which is a lot more expensive.

But even that was not enough. According to the Spanish newspaper La Información, even though shipments of LNG from Algeria to Spain surged 387% in November 2021 (on a year by year basis), the trend did not last. In the first two months of 2022 Spain received no further LNG shipments from Algeria. This has opened up a big opportunity for US suppliers, whose exports of LNG to Spain increased so much in February that they accounted for just over a third of Spain’s total natural gas imports — up from an average of 18% over 2021. But there is no way that US shale could replace Russian and Algerian gas.

As such, Spain’s U-turn on Western Sahara could spell trouble not only for its own immediate energy needs but also for the EU’s aspirations of reducing its dependence on Russian gas. In the first half of 2021 Algeria was the third largest provider of natural gas to the bloc, accounting for 11.6% of total imports, according to EU data. The two largest natural gas exporters to the EU were Russia (47%) and Norway (20%).

Now the EU is desperately trying to find alternative sources. At the end of last week Germany struck a long term energy agreement with Qatar that will enable commercial entities from both countries “to re-engage and progress discussions on long term LNG supplies”. But it will come at a cost: shipping LNG is more expensive when transportation, liquefaction and regasification costs are added.

It will also take time for the new agreement to have a notable impact on German supplies of natural gas, for the simple reason that Germany doesn’t have LNG terminals for freighters to feed their cargo into the national pipeline system. But Berlin is determined to change that. In late February, German Chancellor Olaf Scholz announced the construction of two new terminals for liquefied natural gas. The terminals are to be located in Brunsbuttel and Wilhelmshaven in northern Germany.

Yet while Germany cozies up to Qatar, Spain’s government appears to be in the process of alienating its principal supplier of natural gas. What if Algeria cuts off the tap? Although Spain has roughly three months’ worth of gas in storage, other suppliers would have to be found as quickly as possible. It goes without saying that now is not the best time to be looking for a new energy supplier. As El País reported in October, Spain is more dependent on natural gas than many other countries:

Spain does not need the gas just for industry and for heating systems. In fact, nearly a third of all electricity generated in Spain is made by combined-cycle power plants, which use natural gas. These facilities are a key back-up to renewable energy: when there is no sun and wind, the electricity supply falls back largely on burning natural gas and on nuclear plants, whose supply is always steady.

The good news is that for the moment there are no signs that Algiers is thinking about cutting off the gas supply to its biggest customer. For one thing, it needs the money. As an article in the Spanish daily Voz de Galicia points out, there are also important legal issues undergirding Spain’s energy partnership with Algeria. The Medgaz pipeline is majority owned by Algerian state-owned oil company Sonatrach, which has a 51% stake in the project, but its junior partner, with the remaining 49% stake, is the Spanish energy company Naturgy, formerly known as Gas Natural Fenosa (49%). Sonatrach has also signed a number of long-term supply contracts with Naturgy, both in the wholesale and retail business.

The last thing Spain needs right now is a sharp deterioration of its energy crisis. As I reported last week, a nationwide strike by small truck companies and self-employed truckers over soaring gasoline prices has already brought parts of the country’s economy to a grinding halt. Now in its ninth day, the strike is, if anything, growing as large truckers’ associations join the fray. The resulting mayhem has prompted some petrol stations to close and has even elicited warnings from large multinationals such as Danone and Heineken of an imminent rupture of their supply chains in the country.