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LNG & Gas Sector in Spain

Spain: Gastech 2018 Reveals Promising Spanish Gas and LNG Industry

Spain hosted the Gastech 2018 Exhibition and Conference from September 16 to 20, 2018 in Barcelona. The event brought together companies and specialists in the gas industry from around the world for five days of exhibitions and conferences at the ministerial, strategic, and technical level. Specifically, there were 35,000+ Attendees, 3,500+ Delegates, and 700+ Exhibitors from 90+ Countries.

Key Takeaways:

  • Spain has a unique opportunity to leverage its location, existing LNG import capacity, and underutilized gas-fired power plants to become a global hub for Liquefied Natural Gas (LNG).
  • Lack of interconnections, difficult regulations, low market liquidity, and an underdeveloped spot market are challenges for the future development of Spain as a gas and LNG hub.
  • Natural gas in Spain is mostly used by industry, followed by electricity generation and a smaller amount of residential and commercial use.
  • Supplying LNG to ships for use as fuel presents a significant opportunity in Spain due to its strategic location on global shipping lanes.

Spain’s Significant Capacity for Growth in the Gas and LNG Market

A senior official from a major energy company described the following factors the company predicts will drive significant growth in the Spanish gas and LNG markets, as well as the constraints on Spain’s potential development into a global hub for LNG. Spain’s 62 billion cubic meters per year (bcma) of LNG import capacity (and an additional 7 bcma at the mothballed El Musel terminal) are 30 percent of the EU import capacity and 32 percent of the EU LNG storage capacity. Spain also has 27,000 MW of electrical generation capacity from gas-fired power plants, but with a very low 16 percent utilization rate in 2017. According to the BP World Energy Report, Spain’s gas use in its total primary energy consumption (rather than just for electricity generation) was only 20 percent, compared to 40 percent in Italy and 35 percent in the United Kingdom, with coal supplying 10 percent and oil 47 percent (almost entirely for transportation). This puts Spain in the middle of the EU range of natural gas as a portion of primary energy consumption, despite Spain’s massive LNG import capacity, and demonstrates the significant growth opportunities for the Spanish gas market.

Challenges to Gas in Spain: Interconnectors, Regulations, and Liquidity

Pipeline interconnections remain a significant challenge for gas in Spain, especially the lack of development of the STEP/MidCat pipeline, a lack of consistent European regulations on pipelines, cross-border tariffs with France, and difficulties in the rules on release of non-used capacity of pipelines. The liquidity of the gas market in Spain is also a major challenge, with the MIBGAS Iberian spot market slowly gaining trading volume but still below 10 percent of average gas demand. During the event, a senior industry expert noted that additional liquidity challenges include lack of efficient access to regasification for small vessels, treating each LNG regasification plant as an individual import point instead of as part of a single system, and tariffs for LNG reloads that make reloads less competitive in Spain.

Current Gas Use in Spain Mostly Industrial, Ensuring Long-term Demand

Only around 20 percent of gas in Spain is used to create electricity, with the majority of gas being used in industry and a small percentage in residential and commercial settings. The CEO of Enagás, noted that because 60 percent of Spanish gas demand is for industrial purposes, Enagás does not see gas as simply a “transition fuel”—demand is likely to hold steady over the long-term. Moreover, the International Energy Agency expects industry to account for 40 percent of growth in global gas demand through 2023, mainly in petrochemicals and fertilizers, with residential and commercial use also increasing, but gas use for electricity generation decreasing.

LNG Bunkering in Spain

One major opportunity for Spain is LNG bunkering (fueling of ships with LNG instead of the traditional but highly polluting fuel oil), given Spain’s location near major global shipping lanes on both its Mediterranean and Atlantic coasts and its existing LNG infrastructure. In addition, the Spanish government and port authorities support the development of LNG as a maritime fuel. Both Reganosa and Enagás are developing bunkering facilities in major Spanish ports.

Predictions for Spain’s Gas Future

Spain’s network of LNG import terminals and bunkering potential are not the only positive factors driving growth in the Spanish gas and LNG markets. Spain’s well-diversified gas and LNG supply chain, the ongoing development of the MIBGAS Iberian gas spot market, and increased gas and LNG trading and optimization opportunities within the Spanish market are likely to develop Spain into a hub for both gas and LNG.

Spain’s Overdeveloped Gas Infrastructure Provides Opportunities

Spain is home to a significantly overdeveloped gas infrastructure given its domestic consumption rate, having overbuilt LNG import terminals and gas-fired power plants based on overly optimistic forecasts for growth of the economy before the global financial crisis. However, this costly infrastructure could now provide Spain with an opportunity to become a global gas hub, as previously unanticipated markets like LNG bunkering develop and Spain develops its potential to export energy to its neighbors. Unlocking these opportunities requires some improvements in regulations as well as additional investments in infrastructure to make the Spanish gas market more liquid. The Spanish government’s energy reform plan to promote renewables and dial back nuclear and coal does not focus directly on natural gas but will likely give gas a boost.

For further information on the energy sector including LNG and Gas, please contact Senior Trade Specialist Carmen Adrada, carmen.adrada@trade.gov.

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