Focus on Spain
Incumbents and new entrants in Spain’s liberalising gas market are falling out over sharing the spoils of the development of short-term trading, say shippers. Another bone of contention between them is underground storage lying half empty in winter, which the trasport monopoly and owner, Enagás, naturally wants to see used.
What both disagreements have in common is LNG – which is emerging as the key to the development of the Spanish market and the source of several of its outstanding features.
Trading has developed along classic lines in Spain: largely outside regulation and suddenly reaching a critical mass this year. The benefits of daily deals are currently split between shippers but Enagás wants to reclaim control and share in the gains, according to an ndependent shipper.
“We trade gas or LNG in storage every day with other shippers according to a one-page framework agreement,” said the shipper. “Often this is a sale followed by a buy-back between 5 and 15 days later. We nominate the quantity and change of ownership to Enagás on the same day.”
“There is a need for independent shippers like ourselves because sometimes companies in the same business, the generators for instance, don’t like to trade among themselves because it gives away information that might be commercially sensitive. The shippers met on 25th May to discuss trading and storage among other topics. Many felt that Enagás’ positions are based on commercial self-interest, “ he commented.
LNG regasification capacity includes 10 days’ storage at the terminal and swapping this can benefit both parties. Gas is also exchanged, bought and sold on a regular basis. The terms for third party access at the three terminals owned by Enagás have helped the development of the market, say shippers.
“The storage included in capacity bookings has been one of the main things to help the shippers get established and open the market,” said a gas procurement manager at Cepsa, the Spanish oil and gas company controlled by France’s Total.
The largest generator Endesa, which also markets gas, confirmed that trading has recently become a regular feature in Spain. “These are often time swaps,” said a gas executive at Endesa Energia. “They are becoming common and much more valuable so we are expecting an attempt to regularise the methods and procedure.”
Sure enough, Enagás called this month for such exchanges to be regulated and standardised by a new “shipping centre”. There are about a dozen active shippers in Spain, including the main generators
Endesa, Iberdrola and Union Fenosa; majors like BP and Shell and the Spanish oil and gas companies Repsol and Cepsa.
A common thread in trading so far is that it involves LNG in storage or gas from LNG terminals. The new shippers have no choice but to use the four LNG terminals in Spain, as all pipeline import capacity is owned by the incumbent Gas Natural, which has so far remained aloof from trading with its new rivals.
Spain is Europe’s largest LNG importer, 14.67 billion cubic metres in 2003, and the only market where it is the new entrants’ sole supply source. With Portugal’s Sines terminal, the Iberian peninsula has five terminals – more than the rest of Europe combined. Three are being expanded and two more are planned.
LNG is behind another wrangle between the shippers and Enagás, this time over storage. The transporter says that winter supply could be affected “negatively” because no shippers have any gas in underground storage, all of which it owns. The claim was among several affecting the shippers in an update on the market presented in May to the Spanish gas association Cedigas by Enagás president Antonio González-Adalid.
“Currently only Enagás meets legal requirements for strategic storage,” said González-Adalid. “In May only one shipper has booked any capacity for injection into underground storage. More than half the underground capacity is empty.”
Although one shipper has booked a very small amount of injection capacity none has been used. None of the underground storage available for commercial use is currently occupied, a spokesman said. About half the total of 25,000 GWh is taken by strategic and operational storage, the rest has been almost empty since the beginning of January, according to Enagás figures. They show injection bookings falling to nil this December and continuing at zero until 2013.
Enagás’ complaint has been rebuffed by Spain’s number two power and gas utility Iberdrola. “During 2003 the group had stocks equivalent to 46 days of firm supply commitments, exceeding the legal minimum of 35 days,” said Iberdrola. “The company has more than enough stocks to supply its customers this year.”
The group’s 2003 reserves were 69% in LNG tanks, 27% in the transport grid and 4% in LNG tankers. Iberdrola said that, after the transport monopoly Enagás, it was one of the largest investors in gas supply and storage, including LNG tanks at the Bilbao LNG terminal and the terminal due to be built at Sagunto.
Spain’s half-empty underground storage is partly explained by the shippers’ reliance on LNG. But several say that withdrawal rates are too slow. “Last winter a shipper needed his gas from storage but the withdrawal took so long that it was too late,” said one.
Enagás’s figures show that the 2.12 billion cubic metres of commercial underground storage at three sites can be injected at the rate of 8.45 million cubic metres per day and withdrawn at 12.60 million cubic metres per day.
The Spanish government is in the final stages of approving a decree on strategic storage and security of supply. It will confirm that shippers must keep 35 days supply in hand, but will spell out that this can be in LNG terminal storage tanks, tankers booked for delivery, the transport grid as well as underground storage.
The dominant generators, Endesa and Iberdrola, have entered the gas supply sector to supply their own CCGTs and industrial and commercial users. The third power utility, Union Fenosa, has the largest LNG interests among the power utilities with 40% of Egypt’s Damietta LNG liquefaction plant and terminals planned in Spain. Other smaller independents are also making inroads. Incogas, for example, has clients in central and southern Spain, ranging from a 30,000 cubic metres per year contract with a cogeneration plant to local industries buying 2,000 cubic metres per year. Gas sales of about 180 million cubic metres this year are expected to rise by at least 10% in 2005.
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