Editor’s Be aware: This column is a part of a daily collection by business veteran Brad Hitch for NGI’s LNG Perception devoted to addressing the complexities of the worldwide pure gasoline market.
The Spanish market occupies a singular place within the universe of the worldwide pure gasoline market.
The market is tied to the European Union (EU) via widespread regulation, however it’s stranded by a scarcity of infrastructure. In a market dominated by LNG exports, Spanish rules apply the “entry-hub-exit” gasoline transportation mannequin widespread within the EU that requires cost to place gasoline right into a system or take it off.
Whereas it’s not the most important particular person gasoline market in Europe, it has by far the biggest focus of liquefied pure gasoline infrastructure. From the angle of the U.S. gasoline market, due to this fact, Spain might be finest considered extra as an integral a part of the Atlantic Basin LNG market than the European gasoline markets, which have massive interconnectivity with the Netherlands and the Title Switch Facility market.
Late twentieth Century Developments
All through the historical past of its gasoline business, the Iberian Peninsula has functioned as an island from a market perspective; with restricted choices within the type of home manufacturing or European imports it has wanted to go additional afield for pure gasoline.
Pure gasoline consumption in Spain kicked off after the commissioning of the primary LNG terminal in 1969. The Enagas SA regasification terminal in Barcelona was initially supposed to import LNG from Libyan gasoline fields operated by an ExxonMobil predecessor – at the moment a former companion in what’s now Spain’s Naturgy Vitality Group SA – however would in the end serve to import Algerian LNG due to delays within the Libyan challenge.
Spanish gasoline imports didn’t develop quickly for greater than a decade. Though Enagas signed a time period contract with Algeria’s Sonatrach underneath which it was contracted to take 4 million metric tons/12 months from the early Nineteen Seventies, it didn’t come near assembly its obligations.
The oil shock that spurred different European economies to hunt alternate options to petroleum didn’t create the identical response in dictator Franciso Franco’s Spain. There was no political drive to create extra entry to pure gasoline and demand was gradual to select up exterior of the Barcelona municipality.
Vitality coverage began to take a brand new route after democracy was established within the wake of Franco’s dying in 1975. Nonetheless, it will not be till the late Eighties that new investments in gasoline infrastructure helped to spur consumption development.
Spain’s second and third LNG import terminals have been commissioned at Huelva and Cartagena in 1988 and 1999. Pure gasoline consumption, which had taken seven years to develop from 2 billion cubic meters (Bcm) at first of the last decade to three Bcm in 1987, almost doubled to achieve 5.8 Bcm by 1990.
Over the subsequent twenty years, Spain went from being a backwater in European pure gasoline to certainly one of its most dynamic markets. The 2 new terminals created entry to pure gasoline within the southeast and southwest corners of the nation – higher enabling the buildout of a nationwide grid.
Within the latter a part of the Nineties, Spain considerably elevated its gasoline import capability with the completion of the Maghreb-Europe Gasoline Pipeline (MEG). The system, which went into service in late 1996 with 8.6 Bcm of capability, was constructed to export Algerian gasoline to Spain by way of Morocco.
Along with Sonatrach and the Moroccan authorities, Enagas’ companion checklist for the challenge additionally included Transgas of Portugal. Thus, along with making a direct hyperlink to the Hassi R’Mel subject in Algeria, the MEG line additionally inaugurated the primary gasoline imports into Portugal.
With the commissioning of MEG and the inclusion of Portugal, Iberian gasoline consumption had reached almost 18 Bcm/12 months by the flip of the century, thrice what it had been at first of the 1990’s.
Decade of Change
The Spanish gasoline market continued its speedy development trajectory in the course of the first decade of the brand new century, however the implementation of vitality coverage directives coming from the EU had considerably modified the panorama by 2010.
The regulatory modifications being pushed by the EU in the course of the first years of the brand new century have been principally involved with competitors. Though the UK had created gasoline market competitors and established a profitable mannequin for buying and selling, the markets exterior of the UK have been nonetheless dominated by massive incumbent utilities.
Along with issuing directives, the EU introduced antitrust circumstances in opposition to utilities in bigger markets and made asset divestment a situation of sure cross-border mergers. The overarching goal to those rules was to create open competitors inside electrical energy and gasoline wholesale markets that may result in liberalization and selection on the retail degree.
What set Spain aside from the opposite international locations was that its gasoline market was nonetheless at a comparatively new and dynamic stage of growth. Whereas the bigger markets in Northwest Europe had reached a stage of maturity, it was clear inside Spain on the time that there was untapped market potential.
Electrical energy technology from oil merchandise nonetheless represented an unusually massive share of the technology combine, for instance, and displacement of oil (to not point out coal) offered an apparent alternative for development. Spain adopted third-party entry necessities for gasoline and guidelines forcing electrical energy corporations to promote technology capability to new entrants, however a lot of the exercise got here within the type of new infrastructure growth.
Vital gasoline import capability was introduced on-line between 2000 and 2010. New regasification terminals have been constructed at Bilbao, Sagunto and Mugardos and there have been capability expansions undertaken at Huelva and Barcelona. The general Iberian market was additional constructed out as properly, with the primary Portuguese LNG import terminal at Sines commissioned in 2004.
Spain’s second massive pipeline challenge was the Medgaz Pipeline from Algeria. Like MEG, Medgaz was constructed to carry gasoline from Hassi R’Mel in Algeria to the Iberian Peninsula, solely this time deploying an extended subsea Mediterranean part permitting for transit by way of Morocco to be prevented.
The results of all this growth was to permit for Spanish gasoline consumption to achieve 40 Bcm/12 months by 2008, greater than double what it had been in 2000. As anticipated, a lot of this demand improve had come from new gas-fired electrical energy technology, with Spain producing 120 TWh of electrical energy from pure gasoline in 2008 – a six-fold improve from the 20 TWh of gas-fired electrical energy in 2000.
The 12 months 2008 has confirmed to be the highwater mark for Spanish pure gasoline demand to this point. Gasoline consumption dropped 10% year-over-year in 2009 as industrial demand was broken within the wake of the monetary disaster. Demand was additionally impacted by the close to doubling in renewable technology inside 5 years, serving to to trigger gasoline consumption to drop to twenty-eight Bcm/12 months by 2014 – a full 30% decline from the 2008 excessive.
The subsequent column will cowl developments throughout the Iberian market within the years because the monetary disaster. Particularly, it is going to discover how the necessity to cope with extra capability in Spain helped to foster innovation in world LNG spot buying and selling, and the way among the latest market developments might affect LNG buying and selling within the years to come back.
Brad Hitch has spent greater than 23 years working in LNG and pure gasoline buying and selling from London and Houston. He at the moment works as an adviser to new market entrants, and he has held senior buying and selling and origination positions at Barclays, Cheniere Vitality Inc., Enron Corp., Merrill Lynch and Williams.