Home Commodities Germany’s VNG to begin Algerian gas imports under mid-term deal with Sonatrach

Germany’s VNG to begin Algerian gas imports under mid-term deal with Sonatrach

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Highlights

First German company to buy pipeline gas from Algeria

Sonatrach eyes increased cooperation with Germany on energy

EnBW subsidiary VNG formerly major buyer of Russian gas

German gas importer VNG is to begin importing gas from Algeria under a new medium-term deal with state-owned Sonatrach, becoming the first German company to buy Algerian pipeline gas, the companies said late Feb. 8.

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The contract was signed between the companies in Algiers during a German delegation visit led by economy minister Robert Habeck.

The terms of the agreement, including volumes and duration, were not disclosed.

VNG — a subsidiary of German utility EnBW — was formerly a major buyer of Russian gas and was one of the German companies affected by having to buy replacement gas at significant cost in late 2022.

VNG CEO Ulf Heitmuller said Feb. 8 that the purchase of Algerian gas via pipeline to Germany represented an additional diversification of VNG’s purchasing portfolio and made an important contribution to security of supply.

“This contract lays the foundations for a relationship of trust in terms of supply, opens new perspectives and strengthens the German-Algerian energy partnership,” Heitmuller said.

“Algerian gas is an essential product to guarantee energy security,” he said.

Sonatrach CEO Rachid Hachichi said the “historic contract” with VNG strengthened its energy partnership with Europe and marked the start of deliveries of Algerian gas to Germany.

Algeria is a key exporter of gas to Europe, both via pipeline and as LNG. In 2023, Algerian pipeline exports to Italy and Spain totaled 30.4 Bcm, according to data from S&P Global Commodity Insights.


Algeria’s total LNG exports amounted to 13.2 million mt (18.2 Bcm) last year, of which 11.9 million mt went to Europe, the data showed.


Russian gas

VNG — which in 1973 was the first company to import Russian gas into Germany — agreed in 2019 with Gazprom Export to buy up to 3.5 Bcm/year of Russian gas in 2021 and 2022 on top of its existing Russian supply contract.

The contract — VNG’s first direct purchase agreement with Gazprom Export — was in addition to its Russian gas import deal for 6.5 Bcm/year with Gazprom’s former Germany-based trading subsidiary WIEH, which also expired at the end of 2022.

WIEH is now owned by the German state under the SEFE umbrella, but lost access to Russian gas in May 2022.

Lower Russian exports helped drive European gas prices to record highs in the summer of 2022.

Platts, part of S&P Global Commodity Insights, assessed the benchmark Dutch TTF month-ahead price at an all-time high of Eur319.98/MWh on Aug. 26, 2022.

Prices are now lower thanks to healthy storage levels and demand curtailments but remain relatively high, with Platts assessing the TTF month-ahead price Feb. 8 at Eur27.69/MWh.

VNG said last year it was “system-relevant” for security of supply in Germany and structurally relevant for Saxony and eastern Germany, supplying gas to some 400 municipal utilities and industrial operators. In 2022, it met some 20% of Germany’s gas requirements.

Hydrogen cooperation

On future ties, Hachichi said that there was “great potential” to further develop commercial cooperation with German companies and extend it in the future to other areas of the energy value chain such as hydrogen.

Heitmuller also said that VNG planned in the long term to establish a partnership with Sonatrach in the field of hydrogen and to import in the future green hydrogen from Algeria to Germany.

During the German delegation visit to Algeria, the two sides also agreed to establish a “hydrogen taskforce” to support green hydrogen production in the North African country.

Habeck signed a declaration of intent with Algerian energy minister Mohamed Arkab to develop renewable hydrogen production and infrastructure, including a pilot production plant.

Germany wants to tap Algeria for low-cost renewable hydrogen, which it sees as central to meeting its net-zero targets, particularly for hard-to-abate industrial and transport sectors.

The bilateral cooperation aims to support private sector investments in both countries, the German government said in a statement.

Several countries are also planning a “southern H2 corridor” to send renewable hydrogen from Algeria via Tunisia, Italy and Austria to southern Germany, through conversion of existing gas pipelines.

Algeria aims to supply 10% of EU hydrogen demand by 2040.

The German H2Global hydrogen derivative import scheme is also expecting to award first tenders for green ammonia, methanol and e-sustainable aviation fuel around the end of the first quarter.

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