U.S.-Algeria: Gas Pains

Prospects for a substantial improvement in U.S. economic and political relations with Algeria could be jeopardized by a controversy over the prices which American companies have agreed to pay for imports of Algerian liquefied natural gas (LNG).

Federal regulators and U.S. courts may try to block recent agreements between U.S. natural gas carriers and the Algerian state energy concern, Sonatrach, for long-term supplies of LNG. Regional utilities which buy the gas from the carriers complain that it is unmarketable: it costs twice as much as domestic gas and considerably more than gas imported from Canada and Mexico. Besides, the utilities say, demand for natural gas in the U. S. is down, because of the recession and the price disadvantage of gas compared with crude oil, which has been in abundant supply.

For its part, Algeria has been strongly pushing gas exports to offset a decline in income from crude oil; the country is in the middle of a $96 billion five-year development plan, but has had to curb current spending because of reduced oil and gas revenues. Recent gas-supply agreements with France, Belgium and Italy have been linked to Algerian purchases of goods from those countries. While the U.S. agreements are not so linked, American hopes of gaining a bigger market share in Algeria—the main aim of Commerce Secretary Malcolm Baldridge's planned visit there in December—could be clouded if the gas deals fall through.

The first U.S. carrier to reach agreement with Sonatrach, after years of negotiations, was Distrigas of Boston, which supplies 10 percent of the natural gas used in New England. Under the 20-year contract for 40.25 billion cubic feet a year of Algerian LNG, Distrigas will pay $5.47 a thousand cubic feet, an increase of 10.5 percent over its previous contract. But Distrigas buys Algerian gas only for "peak-load" use and its deliveries are geared to the period of winter demand.

The other company to reach agreement with Algeria, Panhandle Eastern of Houston, used the gas for "base-load" purposes, mixing it with other domestic and imported gases in the distribution system of its subsidiary, Trunkline LNG, throughout the Midwest. Panhandle will buy the gas, 165 billion cubic feet a year of it, at $3.92 a thousand cubic feet, f.o.b. Algeria. However, after transportation to Panhandle's terminal at Lake Charles, Louisiana, and regasification there, the gas will enter the Trunkline system at $7.18 a thousand cubic feet—the equivalent, in energy terms, of crude oil at $42 a barrel, compared with the current official OPEC price of $34 a barrel.

A group of Panhandle customers asked the federal government's Economic Regulatory Administration (ERA), which issues import licenses for natural gas, to block the Algerian deal. One Michigan power company said it would have to raise its rates by 10 percent this winter to cover the cost of the gas.

The ERA refused to block the deal, but has scheduled months of public hearings on the whole issue of imported natural gas. ERA chief Rayburn Hanzlik said the Reagan Administration was moving "slowly and very cautiously" on the question of Algerian gas. Meanwhile, another government agency, the Federal Energy Regulatory Commission (FERC) has ordered Panhandle's Trunkline LNG subsidiary to "show cause" why the Algerian imports were "in the public interest." It is FERC which must approve the price of imported gas.