Algerian state-owned energy company Sonatrach is rescinding a natural gas contract with Spanish firms Gas Natural and Repsol YPF, according to a statement by Spanish market regulator CNMV.


The Spanish firms say they “regret and reject the Algerian decision to appropriate for themselves, and illegitimately” the project at Algeria’s Gassi Touil plant.


In a statement to the regulator they blamed the move on political influence wielded by Algiers over Sonatrach and said they would take the issue to international arbitration where they would seek damages.


Algiers in 2004 granted Repsol YPF and Gas Natural 40% stakes in a joint venture for the Gassi Touil project in 2004 in what was the first contract of its kind tendered to a foreign company in the north African state.


Gas-rich Algeria has, however, for months been unhappy with Spanish views on how much of the gas piped through the major Medgaz gas pipeline Sonatrach could sell directly in Spain.


Sonatrach, as the biggest single Medgaz shareholder, wanted to sell up to 3bn cubic metres (105bn cubic feet) annually but Spain wanted to limit the figure to 1bn cubic metres.


Algeria, which sell some €7bn (US$9bn)-worth of natural gas to Spain annually, and Spain have also sought international arbitration after Sonatrach called for the price of Algerian gas imports to be increased by 20%.


A recent deal with Brussels allowed Sonatrach a share of profits earned by European energy companies for liquefied natural gas contracts and to sell liquefied natural gas in Europe, thus aiding the company’s position as a key supplier to EU states along with Russia and Norway.