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Spain's drive to reduce import dependency raises questions over future LNG demand
Published on Global LNG Markets 17 Sep 2010:

The Spanish deputy minister for energy Pedro Marín Uribe will meet the leaders of Endesa, Gas Natural Fenosa, Iberdrola and EDP's Spanish arm HC Energia on Tuesday to discuss the country's future energy mix. The head of Spanish energy regulator CNE, María Teresa Costa Campí, will also attend.

The government aims to increase the share of domestic energy in the national mix, stimulate job creation in green energy, protect some existing jobs in the coal sector and improve the trade balance by making the country less import-dependent.

Earlier this week, one high-ranking bureaucrat at the ministry of economy and energy was quoted in media as saying the country should increase the share of domestically sourced energy in its primary energy mix to one third by 2020.

The share currently stands at around 22.5%, the official said.

So far, the debate has not touched on the future role of gas and LNG imports, although sources at some Spanish utilities say that any concerted move to bolster Spanish coal production is likely to have an indirect impact on LNG demand in the long-term.

"I don't see how these objectives can change domestic or industrial demand, though I see them potentially affecting power sector demand," said one, referring to potential displacement of gas by coal for power generation.

The government is attempting to preserve the country's battered coal mining industry and subsidise generators that use domestically-sourced coal.

The European Commission is currently reviewing the adequacy of these proposals to EU Law.

Spanish power sector demand currently accounts for less than 50% of total gas demand, although the International Energy Agency estimates that by 2015, gas demand for electricity will be equal with residential, commercial and industrial demand.

According to CNE's latest official scenario, which is from 2009, Spanish combined pipeline and LNG demand is slated to rise from the 35Gm3/year recorded in 2009 to just below 40Gm3/year in 2013 in the base-case scenario.

If the Spanish government's initiatives are acted upon, it may have an impact on LNG procurement in the long-term, although the start-up of the 8Gm3/year capacity Medgaz pipeline - now slated for Q4 - is likely to have a much bigger impact on LNG demand.

"The big question is, Are the European members of Medgaz going to divert LNG on long term Algerian contracts once it comes online or will they find a use for both?," said a market source.

The partners of Medgaz are Sonatrach (36%), Cepsa (20%), Iberdrola (20%), Endesa (12%) and GDF SUEZ (12%).

Iberdrola, a 20% stakeholder in Medgaz, appears to have reservations over how much LNG will find a home in Spain. The company earlier this year secured a 10-year diversion to DONG Energy in the Netherlands of 1Gm3/year from 2011 to 2021. Sonatrach apparently has a 1.5Gm3/year LNG supply contract with Iberdrola that runs until 2017.

Endesa and CEPSA, the two other Spanish members of the Medgaz consortium, could follow Iberdrola's lead. Sonatrach has a 1Gm3/year LNG supply contract with Endesa that runs until 2017, and a 1Gm3/year LNG contract with CEPSA that runs until 2014. FR