The Iberian Peninsula: Creating a competitive European gas market

Manuel Cordoba Mateos's picture
Manuel Cordoba Mateos, LNG Supply, Union Fenosa Gas
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The Iberian Peninsula leads the European regasification capacity with seven plants in operation, six in Spain: Barcelona, Bilbao, Cartagena, Huelva, Mugardos and Sagunto and one plant in Portugal: Sines. This extensive regasification capacity makes it possible to be one of the most diversified LNG markets in the world as well as guaranteeing a strong security of supply.

Recently, these regasification terminals have developed new logistic services for maritime small scale activities, LNG trucking, bunkering of LNG, as well as some being adapted to allow reloading LNG from the tank to the cargo.

In addition to these regasification facilities, the Iberian Peninsula pipeline network is connected to the rest of Europe through two interconnections between Spain and France (Irun and Larrau), and recently, the European Union has allocated funds to support the South Transit East Pyrenees (STEP) project, which aims at creating a third interconnection point between these two countries pushing forward to developing the European internal gas market.

Spanish gas sector in 2017 - Looking back at 2017, the natural gas demand in the Spanish system increased for the third consecutive year since 2008, reaching around 351TWh, representing a growth of around 9% in relation to 2016. The main driver for this increase was the natural gas demand from the power sector with a 27% annual growth while the demand from the industrial sector increased around 7%. This performance is an evidence of the strengthening of the Spanish economic recovery but at the same time, it demonstrates there is still a long way to walk to reach 2008 demand levels of around 450TWh.

Regarding the supplies, in 2017 for the fifth consecutive year, the volume of piped natural gas supplies to Spain (53%) exceeded the volume of LNG supplies (47%). Algeria remains to be the dominant supplier to Spain contributing around the 48% of the total natural gas and LNG appetite.

With respect to LNG supplies, eleven different countries supplied LNG to Spain in 2017, highlighting the contribution of Nigeria, Peru and Qatar as main LNG suppliers. In reference to piped natural gas supplies, Algeria was the main supplier through the two existing interconnections with Spain (Maghreb and Medgaz) representing around the 78% of Spain’s piped natural gas imports while the remaining natural gas imports to Spain went through the two mentioned interconnections with France.

Spanish power sector in 2017 - In 2017 the power generation through combined cycles in Spain reached 38.9TWh representing a contribution of around the 15% of the total Spanish power generation. In comparative terms, the scarce contribution of hydro generation in 2017 (around 48% of annual decrease) was offset thanks to the contributions of both combined cycles power generation which experienced a boost of 32.9% compared to 2016 as well as the contribution of coal power generation with a 22.6% annual increase.

The Spanish power generation mix in 2017 was composed of renewable sources which represented around one-third of the total power generation while the remaining power generation was through non-renewable sources. On the renewables side, wind generation was the dominant source while on the non-renewable side, nuclear, coal and combined cycle technologies had a quite balanced contribution. During 2017, power generation through gas-fired plants was vital to the Spanish system, especially during the month of January with a combination of very low temperatures, little wind and hydro generation and the shutdown of a nuclear power plant. This demonstrates the robustness of natural gas for the security of supply.

The Iberian gas market – MIBGAS - In accordance with the European Union policies to create the European internal gas market through the support of regional gas markets and the interconnection of gas grids, the Organized Iberian Gas Market, MIBGAS, launched a platform in December 2015 for trading different gas products to be delivered at the Virtual Balancing Point and other local points in the Spanish gas system.

During 2017 the natural gas volume traded at the MIGBAS platform was 13.4TWh equivalent to the 3.8% of the Spanish total demand. Although this amount means more than twice the volume traded at MIBGAS during 2016, nowadays liquidity remains to represent the biggest challenge for MIBGAS.

Looking in more detail, in 2017 around half of the traded volume at this platform corresponded to trading operations in the within-day market while the other half of the volume was related to operations in the day-ahead and month-ahead markets. This means there is still much room to develop new forward products to complement the current portfolio. In this sense, it is expected that during 2018 the MIBGAS Derivatives platform starts to operate new monthly, quarterly, seasonal and yearly physical products to complete the price curve in the Iberian natural gas market with the final goal of boosting liquidity.

To sum it up, the Iberian Peninsula has an exceptional geo-strategic location, together with a comprehensive infrastructure, a diversified gas supply and a transparent and developing Iberian gas market. All of these attributes make the Iberian Peninsula a prominent regional gas market in the process of achieving security of supply and creating a competitive European internal gas market.

If you would like to hear more about ntaural gas and LNG developments in the Iberian Peninsula, register for the 2018 Gastech Exhibition and Conference taking place 17-20 September in Barcelona.

Image courtesy of Union Fenosa Gas