Spanish free gas balancing tool halved in January

Spain’s AOC natural gas market has started to phase out its bundled linepack tool after cutting the amount of gas available to shippers when the system is out of balance from 1 January.

Available linepack – or gas used to balance the system – was halved from 1 January. The level of free linepack was allocated in proportion to capacity held by shippers. The change is a step towards full compliance with new EU laws on gas balancing by 1 October 2016, when Spain will introduce charges for shippers who are out of balance.

Spanish transmission system operator Enagas will provide information to shippers on market balancing positions from October as well, in line with the new rules.

The gradual phasing out of free linepack was recommended by energy regulator CNMC because shippers will not have complete visibility on their portfolios until October.

Some market participants said an increase in over-the-counter trading over the second half of 2015 was due to shippers preparing their portfolios for the new regime.

Traders have also said the new regime had led to an increase in the value of LNG supplies held at Spanish regasification plants relative to the cost of gas within the AOC itself. Some say the premium AOC gas has over in-tank LNG has fallen from around €1.00/MWh to as much as half this level, despite the fact there has been no increase in demand for LNG reloads. This would be a de facto premium for LNG over AOC gas as the cost of regasifying, storing and entry to the grid is around €1.00/MWh, traders say.

This shift in premiums could reflect the fact that the rapid change of natural gas from a liquid to a gas state has made these stocks more valuable in light of more onerous balancing obligations.

“LNG is a good tool to try to avoid being imbalanced [once] the rules start on 1 January. I imagine that people are trying to put out a bit more LNG,” said one trader active on the hub at the end of December 2015.

Some market experts have long considered the amount of linepack available to shippers using the Spanish system to be overly generous, arguing that the level of flexibility was so high as to negate the need for trading. Despite the 50% reduction, the amount of flexibility available to shippers in Spain remains generous in comparison with other European hubs, one source said.

On Monday there were no reported bids, offers or trades at the AOC, the market’s first working day since the new rule was implemented.

The AOC, which translates as commercial operative storage, will change its name to PVB from October. This translates to virtual balancing point to reflect the balancing changes. robert.songer@icis.com