LONDON (ICIS)--After three quarters of record high Algerian pipeline gas flow to Iberia this year, import rates have dropped in the fourth quarter. They are likely to remain low, analysis of initial rates suggests, but Spain looks well supplied at the start of winter.
Spain is served by two subsea pipelines importing Algerian gas. Of these, the Europa-Maghreb Pipeline (EMPL) has been significantly more active this year than at any time in the last decade.
The pipe put 7.75 billion cubic metres (bcm) into Iberia over the year 2018 to 8 October – a figure already in excess of the 7.73bcm full-year figure for 2017, data from Spanish gas transmission system operator (TSO) Enagas shows.
So far in October however, flow rates have averaged around 14 million cubic metres (mcm)/day, or 10mcm/day less than during much of the third quarter of 2018. If this continues, it will put fourth-quarter flows at the lowest they have been in many years, even if annual flows are in line with recent standards.
Flows through the newer Medgaz pipeline, which links Algeria with Spain directly through a subsea pipe beaching at Almeria, have been steady in the six years since it first entered operation.
Looked at as whole, and disregarding October flows since Q4 ’18 is incomplete, imports of Algerian pipeline gas through both pipes over the 1 January and 30 September period hit a record 12.76bcm over the Q1, Q2 and Q3 2018. This is 28% higher than was imported over the same nine-month period in 2017 and more than 5% above the previous record, set in the year to September 2014.
It is unlikely rates will change dramatically this quarter compared to previous years, because shippers will have reduced nominations to supplier Sonatrach with rising oil prices earlier in the year making fourth quarter gas more expensive.
Low power-related demand
The demand outlook will also have played a part in imports. Thanks to a recovery in hydroelectric generation capacity compared with 2017 and increased coal burn, the outlook for gas-fired electricity demand going into Q4 ’18 is muted.
In addition, stock levels at the most important of Spain’s six LNG terminals are expected to max out at above where they were at the same point last year. Spain’s most important terminal, Barcelona, which in recent months has been receiving almost half of all LNG deliveries will be 91% full at the end of November, compared with 50% on the same day in 2017, TSO scheduling data shows. In total, Spain should have 2.08mcm of LNG in store at the end of next month (equivalent to 1.3bcm of natural gas), 22% more than the 1.71mcm a year earlier.
Supply the main unknown
Power demand accounts for only a quarter of Spanish gas demand, so temperature variations or supply issues are likely to have a greater influence over gas demand than power generation in any case.
It is possible that one or both of these could happen over the course of the coming winter. Similar mild outlooks have developed into full-blown gas shortages often in recent years as very cold temperatures have combined with supply interruptions to push up demand and therefore prices. This is because the Iberian market remains cut off from other European hubs, yet joined to the wider global gas markets through its strong dependence on LNG.
Most recently, this happened in January-February this year, although the prices achieved then – January ’18 spiked to €28.85/MWh in early December 2017 – look reasonable by current levels – front-month prices were in excess of €30/MWh at the end of September ’18, ICIS data shows. A strong sell-off in recent days has also revealed the opposite fear – that Spain will be too long this winter at a time when global LNG demand appears to be in retreat.