Algerian state-owned oil firm Sonatrach has signed a €10bn (US$11.96bn) agreement with Spanish electricity firm Iberdrola.

The contract has 20 years duration and establishes Sonatrach as the Spanish firm’s main gas supplier. The two companies also envisioned further cooperation in joint electricity production and investments into conventional and renewable energies.

Sonatrach is making a commitment to increase annual gas sales to Iberdrola in the frame of the Medgaz project by 60%, from 1bn cubic metres to 1.6bn cubic metres.

This agreement comes in the framework of Sonatrach’s strategy to export 85bn cubic metres of gas by 2010.

Gas supplies are due to start arriving at the end of 2008, Iberdrola stated.

The 120-mile Medgaz will link Beni Saf, Algeria to Almeria, Spain, with an eventual extension to France. It will allow an annual supply of 8 billion cubic meters of gas with the option of doubling its capacity at a later time.
The Iberdrola-Sonatrach agreement provides for possible further increases in Sonatrach gas deliveries via LNG tankers.

The relationship between the two companies started with Algerian LNG shipments in October 2001 and was strengthened in 2002 with signing of a contract for tanker-based deliveries.

In strategising on future collaboration, the agreement “also opens a door to joint investments in both natural gas exploration and production (upstream) and liquefaction and transport (midstream), in Algeria as well as in other countries in which Sonatrach operates, mainly in Latin America, Africa and Asia,” Iberdrola states.

Sonatrach is initially to acquire a stake in combined heat and power plants that Iberdrola has begun operating in recent years.

With 16mn customers, Iberdrola is one of Europe’s major power companies with core business realms in the generation, transmission and distribution of electricity and natural gas. The company pursues a strategy of growing involvement into clean and renewable energies.

Iberdrola and the Algerian government are considering joint ventures to build thermal generation plants and renewable wind and solar energy facilities in Algeria and elsewhere.