Iberia waits on Europe's LNG sidelines
Spain and Portugal want to become a gateway for Europe’s LNG imports, but cheaper pipeline gas is a formidable competitor
Plans to position Iberia as a liquefied natural gas gateway for Europe hold promise of ending the peninsula's outlier status in the continent's energy markets while also boosting the continent's energy sovereignty. But the ambitions face regional competition, geographic realities and uncertainty over future European gas demand.
At a trilateral summit in Lisbon last week, the leaders of France, Spain and Portugal
spoke of the potential for new gas connections to both reduce Europe's reliance on energy imports and to end bottlenecks keeping the Iberian Peninsula isolated from core regional markets.
"It is essential to develop transport, storage and import [gas] infrastructure that will allow Europe to fully benefit from this energy source,"
the countries' three leaders wrote in a joint declaration. New connections are "a key contribution to security of supply in the European natural gas market".
Spain currently has six regasification terminals, more than any other European country and accounting for
39% of the total LNG regasification capacity in the EU, according to a February report by GlobalData Energy. But there is only one pipeline linking it to France and the rest of Europe.
Spain and Portugal also have seven ports that can take LNG, which is imported from Qatar and increasingly from the United States, while both also import gas from Algeria via a pipeline that became operational in 2011. Portugal's Sines has a deepwater harbor and lies on three main international navigation sea routes - the Cape, Mediterranean and transatlantic.
The proposed artery that could link Iberia to Europe is a 1,250 km cross-Pyrenees pipeline project known as Midi-Catalonia (MidCat) - which would give Spain access to cheaper pipeline natural gas, and provide Europe with more import LNG import potential. But the initial focus is on a shorter first phase know as Step (South Transit East Pyrenees), a 227-km long pipeline crossing the France-Spain border.
After the summit, French President Emmanuel Macron gave mixed signals on the initiative: "We have instructed our regulators to work on the options for new gas pipelines, particularly of a pipeline between France and Spain". However, he added that it would need to be cost effective in a scenario where demand for gas increases as coal power plants are decommissioned.
The French coolness reflects a historic lack of enthusiasm over MidCat domestically. In 2016, French regulator CRE said the pipeline was not needed due to
stable demand and overcapacity, and estimated it would cost $3.6 bn.
A report on Step
written in November 2017 by Poyry, a consultancy, said the project would only be economically viable in a tight LNG market, where there were also disruptions in Algerian supply and other conditions. The report pointed out that existing cross-Pyrenees pipelines are already underutilised, even during periods of high demand, and noted the existence of equally well-connected LNG ports elsewhere in Europe.
"Large liquefaction over-capacity will generate LNG volumes available to Europe at low price", said the consultancy, pointing to figures from the European Network of Transmission System Operators for Gas that show supply to the continent rising to 170 bcm by 2037, from 90 bcm in 2018. In one model assuming the EU hits its 2030 Green Revolution renewable targets, Step loses money from the middle of the 2030s, only around 10 years after its potential commissioning date.
A question of inter-connectivity
But proponents speak of the need for deeper European inter-connectivity on gas to boost the economies on both sides of the Pyrenees.
"The development of additional gas links with the Iberian Peninsula would help to increase the gas trade between North and South Europe," says Michel Boche, director of infrastructure projects of French pipeline operator Terega, which along with Spain's Enagas want to invest in the project. "These links would increase diversification of source of supplies in the Iberian peninsula, improve security of supply, liquidity of the market and competition, offering EU consumers access to the cheapest sources of gas coming to Europe."
He points out that while the Iberian Peninsula is the fifth biggest gas market in the EU, that its interconnection capacities represent only 16% of the average gas demand, one of the lowest ratios in Europe. In contrast the interconnection capacity is 138% for France and 290% in Germany. Winter 2017 and the cold spell in Europe at end of February also saw increased flows from Spain to France, due to low levels of underground storage in Northern Europe, says Boche.
But this doesn't answer questions around the actual strategic value of Iberia's location when it comes to imported LNG, and its viability against the cheaper Russian natural gas flowing into Western Europe through pipelines.
The Poyry report points out that the differences in proximity for Iberia in comparison to Europe's other Atlantic LNG ports to access imports is marginal. For example, France's Montoir-de-Bretagne port is 8,966km from Corpus Christi, in Texas, while Bilbao is 8,969km.
Russian pipeline gas also
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