We’ve talked a lot about Mibgas, the hub gas in Spain that should have started in 2014 and was delayed a year. Above all, it has been discussed the potential for Spain as explained in our article “The alternative for our energy island”. An article in which Spain is presented as a top league player in European energy markets thanks to gas.
Be informed that Spain has 11,000 kilometers of gas pipelines, with 7 regasification plants which access to more than 6 LNG exporting countries. An access that convert Spain into the sixth LNG importer with a capacity 3 times bigger than the country’s annual consumption, specifically 92 bcm (22 bcm of which by pipeline with Algeria). These characteristics together with the fact that Europe Union is in favor of the energy transition for lower C02 emissions:
– Gas is being designated as the partner of renewables in the energy transition
– France seeks to reduce the use of nuclear energy by 25% by 2050
– In 2014, natural gas was 21.5% of the raw material used in the generation of energy
Spain has the opportunity to be a significant energy supplier. Spain would allow greater security and diversity of supply for Europe. But fir Spain to be the gateway of gas to Europe, two requirements are needed:
– A mature market of liquidity
– An interconnection with France big enough
Have this requirement been met since Mibgas began operating in December 2015?
The Mibgas at the end of 2017
The gas market in Spain has been running for 17 months. In March there were already 51 agents active in the market and 849.7 GWh were negotiated. A volume of negotiated gas that represents only 2.9% of the total national demand. Despite the fact that in October 2017 6.25% of national demand was negotiated in the gas market, figures are weak. This 6.5% peak of gas volume negotiated was circumstantial as gas demand increased (8.1% in year-on-year values), with a leading role in the use of gas to generate electricity and gas imports from European markets, at maximum values in recent years. A very low volume and let price with a significant correlation with Brent. A correlation that put Spain gas price up to 25% more expensive than European countries. A gas price compound as of March 8, 2017 by:
However, on November 10, the government approved an agreement that establishes the obligation for the dominant gas operators, Gas Natural and Endesa, to act as market makers in the Mibgas. This implies that both companies must continuously present purchase and sale offers in the organized gas market. An action that would improve the liquidity of Mibgas, by allowing operators to have at any time a volume of negotiated gas sufficient to cover their needs. A greater liquidity that would increase the fluctuation of prices, that is to say, the volatility of the market, by having continuous negotiations instead of being in separate moments giving staggered prices. At the same time, greater liquidity would reduce the price maximums by having a greater number of bidders.
On November 14, MIBGAS Derivates announced that it will manage the trading of natural gas derivatives (futures) and OMIClear will be the clearing and settlement chamber of the transactions carried out in this organized market. Moreover, OMIP, the market operator appointed to manage MIGAS S.A., had launched natural gas derivative products (futures) in the 24 of november. And we have already term products with monthly physical; the quarterly, semi-annual and annual products.A sign that the gas market in Spain will soon be a mature market, capable of being a benchmark price in southern Europe and allowing Spain to be part of the Europe Union hub to hub structure:
It can be said that the first requirement is already on the way. It only remains to see if the second one also follows.
The Midcat and its new push
The current interconnection between Spain and France is only about 7.2 bcm / year for the Basque Country (Irún) and Navarre (Larrau). A very very low interconnection. An interconnection that will be increased with the project agreed in March 2015 of the Midcat of two phases with a budget of 480 million euros and 3,000 million euros respectively. A project that the European Commission has considered as a priority to complete the European energy market and achieve the Energy Union. The first phase of Midcat, known as STEP, was established last November as the third in the Common Interest for Europe (PCIs) list. A change that occurs at the same time with the “renewed” predisposition of the French Executive in this matter. Brussels has recognized the level of interconnection set for 2020 of 5.8% is insufficient for Spain. Europe aims to raise the interconnection capacity between France and Spain to 15% with Midcat.
The PCIs are 173 projects, of which 53 correspond to gas projects. Gas projects seek to diversify supply and complete the integration of Europe’s energy markets for greater security. Spain could supply up to 10% of gas that Europe imports from Russia. An objective that has taken more force since the conflict of the ex-Soviet republic with Ukraine that has produced interruptions in the Russian supply to Europe in recent years. Greater market integration that will not only improve security but also increase competitiveness. The hub to hub would give greater convergence to gas prices and lower them down between European countries.
Not only has STEP-Midcat improved its position in the PCIs, Brussels has also included as a priority the interconnection project between Spain and Portugal that will be developed in two phases, reaching a final capacity of 139 GWh / d in the Spain-Portugal direction and 126 GWh / d in Portugal-Spain direction.
Unlike the first requirement, the second is half the way, since the start-up of these projects is not before 2020. While we wait for the increase in interconnections to become a large-scale LNG hub, Mibgas can be supported in other activities that would make greater use of gas infrastructures. Migbas could become a small-scale LNG hub for the bunkering.
And more gas according to Navia
In order to advance in the decarbonisation and to end the high idle capacity of the gas infrastructure in Spain, Daniel Navia puts on the table the dream that has been proclaimed by the Spanish GAS Association (Sedigas) since ever. In order to increase the use of regasification plants and storage facilities built in the country – 40% of its potential capacity is not exceeded or at best – and to stimulate the regulated revenues of the system to end the structural deficit, the Energy gas plan passes for promoting the activity of loading and unloading ships. The ministry has reaffirmed its goal of turning Spain into a major logistics center for gas in Europe. In the words of the Secretary of State for Energy, Daniel Navia, in the Annual Assembly 2017 of GasIndustrial, some of the measures would be the supply of ferries with natural gas, or the temporary storage of fuel in transit. For this, the ministry is studying reducing tolls charged to ships that use Spain as an intermediate point in the transportation of gas from producing countries to consumers of this hydrocarbon. It is estimated that this activity could involve the sector annual revenues of 70 million euros.
In summary we have that the future products of the Mibgas are a fact for now but with interconnections such as the Midcat that will be a fact in 2020 and with a plan by the Government to review the regulations to promote the use of gas that we do not know if it will be a fact someday. While the Government reiterated its commitment to the development of natural gas to meet global decarbonisation objectives, it has also declared its commitment to coal. And to the facts we refer to with the Royal Decree draft that the Ministry of Energy sent to the CNMC last November. In it the Government withdraw the closure of plants requested from the month of July 2017.
In this context, although Mibgas is taking steps, reality does not follow. From Magnus CMD we do not see the Mibgas as a substitute yet for the Brent formulas or for products of other European hubs like the TTF until 3 years pass by.
Marta Merodio | Energy Consultant