Implications of the U.S.-Algerian Liquefied Natural Gas Price Dispute and LNG Imports

In April 1980, Sonatrach, the Algerian national oil and gas company, stopped delivering liquefied natural gas (LNG) to the El Paso Algerian Corporation due to a price dispute. In May 1979, the firms had renegotiated their 1969, 25-year supply contract to provide for LNG at a price based on a negotiated base price and agreed upon escalators. Early in 1980, Algeria demanded that its gas be priced according to a price equivalent to the energy content of Algerian crude oil at the point of export. Because shipping gas in liquid form is more expensive than shipping oil and because the liquid must be regasified, the delivered gas would be higher in price than the price agreed to in May 1979. When the firms could not reach a new agreement, the Department of Energy, with the assistance of the State Department, began negotiating with Algerian officials. Five negotiating sessions have occurred between the United States and Algeria. A settlement has not been reached, because the United States will not accept the Algerian price since they will not agree to a delivered price higher than the cost of alternate fuels in the consuming area.