Spain to import more gas by sea – a difficult operation in the midst of a shipping crisis

As of Monday, Spain has one less source of natural gas – a resource not only needed for industry and for heating systems, but also for combined-cycle power plants, which generate one third of all electricity in the country.

On Sunday, Algeria closed the Maghreb-Europe Gas Pipeline (MGE), which crosses 540 kilometers of Moroccan territory and 45 kilometers of the Mediterranean Sea, before reaching Zahara de los Atunes, in the south of Spain. The decision – triggered by deteriorating relations between Algeria and Morocco – will force Spain to increase the amount of liquified natural gas (or LNG as it is known in the sector) it imports by LNG ships in order to avert the risk of possible shortages. Just a few months ago, the operation would have been relatively easy and, above all, much more affordable. But today, with the world’s leading powers competing for the services of LNG carriers, the process will be more complicated and notably more expensive. Experts who spoke to EL PAÍS, however, strongly reject concerns that there will be power outages this winter.

“The alternative is to negotiate with more ships to bring in the same gas from Algeria, or from America, the Middle East or northern Europe,” said Pedro Mielgo, the former president of the Spanish national grid, Red Eléctrica de España (REE). “But that should not be a problem: 60% of the gas we consume reaches us via this route, so hiring more ships is something that is done continuously.”

Mariano Marzo, a professor of Earth Science at Barcelona University, agreed, but warned that importing gas by tanker is more expensive. By bringing in gas this way and not via a pipeline, Spain has to cover the additional costs of liquifying the gas, transporting it and turning it back into gas. “What’s more, Spain will have to deal with a very competitive international market,” explained Marzo.

“And with the recent bottlenecks, the biggest increase [in cost] will be in transportation,” added José María Yusta, from the University of Zaragoza.

Spain also receives natural gas from a second Algerian pipeline called Medgaz. Algeria has promised to increase capacity at this facility, which currently sends eight billion cubic meters (bcm) of natural gas to the Iberian peninsula a year. But even once the work underway to expand the pipeline is completed – which is expected before the coldest winter months – it will still only be able to transport a maximum of 10,000 bcm. This means there will still be a shortfall of 4,000 bcm that Spain will have to cover by importing natural gas by sea.

The problem is this is the worst possible moment to switch to LNG carriers when it comes to cost. Amid fears of a global energy crisis, several countries have increased their imports of natural gas in case the winter in the northern hemisphere is colder than expected. This has not only increased the cost of gas in Europe – which has quadrupled since the beginning of the year – it has also increased the cost of shipping. Although data varies, depending on energy needs in the market, the price of transporting gas on one of the more than 600 LNG carriers in operation can be up to double.

The situation of the natural gas market is considerably less tense now than at the beginning of October, when the TTF Natural Gas Price Index, the European benchmark, was five times greater than what it was at the beginning of the year. Most experts believe that energy prices for 2021 have hit their limit, even though yearly highs are usually recorded in November and December. This in large part is due to the fact that several countries, including many in Asia, have been frantically stockpiling in the last few months.

No risk of power outages

Rumors of a possible energy shortage, including power outages, have been circulating for several days. But these fears are completely unfounded, according to Enagás, which owns and operates Spain’s gas grid and is one of the biggest LNG transporters in the Iberian peninsula. “There are no objective signs of a situation of lack of gas supplies in the coming months,” the company said in a press release on Sunday.

Mielgo agreed that it is unlikely that there will be shortages of either gas or electricity. “Our energy system has a larger margin in reserve than practically any other European country,” he said.

According to Francisco Valverde, from the consultancy firm Menta Energía, concerns about a possible power outage are “a rumor from people who think the world is going to end.”

“It’s true that the fact of having one pipeline instead of two reduces the flexibility to count on more [natural gas] in moments of greater demand,” explained Yusta. “But I don’t see anywhere the risk of outages or of a crisis of gas supplies in Spain. There is no reason to fall into alarmism: all the precautions have been taken so that nothing happens and it will be difficult for there to be a serious problem.”

Even before the closure of the Maghreb-Europe Gas Pipeline, the number of LNG carriers to Spain had been steadily rising. And this winter the upward trend is forecast to continue: 136 slots on an LNG carrier have been awarded to Spain for the November-March period, according to the latest data from Enagás, a company in which the state has a 5% stake. This is much higher than the 86 that were awarded last year, when demand was still suffering from the impact of the coronavirus pandemic.

Enough reserves for 40 days

According to Enagás, “Spain is in a better situation than other nearby countries.” In the press release issued on Sunday, the company said that Spain has more gas reserves now than in previous years. This is unlike the rest of Europe where the average gas reserves are slightly down compared to the same time in earlier years. Enagás added that Spain has enough in reserve to fully cover the country’s energy needs for 40 days and that regasification plants (which turn LNG back into natural gas) are fully functional.

According to Marzo, to avoid possible supply issues in the future, Spain could take four possible measures: strengthen gas connections in the European system, create an LNG hub in the Iberian peninsula, boost connections with France and consider new solutions for underground storage. The key will be to “back storage technology for renewable energy and the development of biogas [which is considered a renewable energy] and review nuclear policy,” said Marzo.