Impact of Spanish LNG exports

Thomson Reuters Point Carbon has asked the question ‘Can Spanish LNG exports loosen Russia’s grip on western Europe energy supply?’

Recent comments suggesting Spain could partly replace Russian gas to Europe however may be somewhat premature, and could actually result in increased energy prices for Europe.

Influencing factors

Due to an oversupply of gas from long-term contract commitments, Spain was able to ‘reload’ 3.8 billion m³ of LNG cargo in 2013 (equivalent to 4% of Russian volumes to Europe) back onto ship for export to Latin America, Asia, and Europe.

With MIDCAT, the new pipeline connection between Spain and France planned to open in 2017, Spain’s export capability to Europe will be enhanced, as pipeline exports are cheaper than LNG reloading. The current limited pipeline connection between Spain and the rest of Western Europe has meant that any extra gas supplies from Spain to Europe had to be exported via reloading. However, given the more attractive prices paid by Asia Pacific or Latin America, there were few Spanish LNG reloadings to Europe in 2013, as European buyers had to pay higher prices than trading hub prices to attract LNG from Spain.

The MIDCAT pipeline may also result in more gas flows from Spain to France and the rest of Europe, providing the price differences between Asian LNG spot prices and European hub prices continue to favour gas exports to Europe via the pipeline. However, the price relationship may change and it could become more economically viable for Spain to reload to Asia Pacific or Latin America than exporting to Europe via pipeline, unless Europe is willing to pay the higher prices required to attract Spanish LNG reloads away from other regions. This in turn could also impact local, domestic energy prices across Europe.

LNG also plays an important role in Spain’s own gas system, helping to balance domestic supply and demand throughout the year, highlighting the need perhaps for flexibility, away from long-term commitments.

Comments

Mai Phan, LNG analyst at Reuters, commented: “If Spain sells gas to Europe via pipeline, it is more likely to be on an ad hoc basis – similar to current LNG reload activity rather than on a long-term basis – and prices will reflect whether Europe is willing to pay the premium required to divert Spanish exports from Asia or Latin America.”

Adapted from press release by Katie Woodward

Read the article online at: https://www.lngindustry.com/liquid-natural-gas/25042014/spanish_lng_exports_and_russia_479/