E Captación de la información
E.1 INTENSIFICACIÓN DEL USO DE FUENTES ADMINISTRATIVAS
Spanish gas market has come to full liberalization in 2003 and is still divided into two segments of market that are regulated and non- regulated market. Due to the lack of any indigenous production of gas within Spain, it relies on other countries for its gas needs. It has limited pipeline connectivity with other European countries, but it ranks third all over the world for LNG consumption. Maximum percentage of gas is consumed by power production to comply with the Kyoto protocol, since there is not enough Hydro production, wind production and Nuclear power plant in the country to cover the electricity needs. In the following chapter we have studied Spanish gas market in terms of its present status; market structure, market functioning, gas demand and supply.
4.1) Overview of the Spanish gas market
Gas consumption and forecast
In Spain, gas was mostly used for industrial purposes and domestic consumption, but with the increased installation of CCGT power plants, which are marginal unit in Spain, gas consumption for power production has increased tremendously in previous years.
Figure 4.1.1; Gas consumption by different sector
Source: Spanish wholesale market, CNE Spain
Gas consumption in Spain for 2007 was 408 TWh; 86% of this total gas consumption was used for power generation and industrial sector.
Figure 4.1.2; Gas consumption in 2007 for different sector
2007 Gas consumption by different sector
35% 2% 12% 51% Power Generation Raw Material Residential Industrial
It has been projected by ENAGAS (Spanish gas Operator and transporter) that gas consumption by different sector will grow with a CAGR1* of 5 % till 2015.
Figure 4.1.3; Natural gas demand and forecast till 2016
Source: ENAGASSpain
Gas Import
Spain due to the lack of indigenous production of gas is completely dependent on imports. It is connected with a small capacity pipeline with France and has limited gas pipeline interconnections with other non-EU countries. Most of the gas demand needs is fulfilled by LNG supplies. LNG supplies account for 68.41% of total supplies and provide flexibility service for seasonal load demand, which was lacking earlier due to small percentage of underground storage (2 bcm) in Spain and increase security of supply. According to EU policy, to diversify supply sources to further increase security of supply, Spain imports gas from many countries either through pipelines or LNG cargo.
Figure 4.1.4; Natural gas supply per country
Natural Gas Supply per country
10.29% 24.31% 6.44% 14.29% 6.53% 2.24% 34.40% 0.26% 1.24% Egypt Nigeria
Trinidad & Tobago Gulf Countries Norway Libya Algeria National Other Source: Ministry of Economy, Spain
--- 1* Compound annual growth rate (CAGR) is a business or investment specific term for the geometric mean growth rate on an annualized basis. It describes the growth over a period of time for some elements of business.
Spain today has operational regasification capacity of 49.5 bcm, which is the highest in Europe ap6.
Sufficient amount of entry and exit capacity ap7 of LNG terminals, allows the Spanish gas market to be
accessible by international market player. The following table shows the different entry capacity of the Spanish gas network.
Source :Enagas
4.2) Market Structure
Traditional structure of Spanish gas system was linear but with the complete process of liberalization in 2003, third party access (TPA) was allowed to bring competition in the market. This allowed market players to access network of transmission, distribution, LNG and underground storage by paying regulated tariffs. This facilitated wholesale market whether qualified consumer (Industrial & Electrical Utilities) and retailers can purchase gas from producers and retailers directly and have access to storage facility and pipeline capacity by paying regulated tariffs. These regulated tariffs are fixed by government and is the same for the entire national territory depending upon volume, supply pressure and form of consumption.
Transportation system which was earlier based on point to point system was changed to Entry-exit system, which facilitated creation of single virtual balancing point (CDG) for the Spanish gas transport system. It also helped new LNG players to easily get LNG entry capacity on the system without reveling before gas trading where the gas has to go.
Figure 4.2.1; Open-access to pipeline transportation in Spain
Entry Capacity of gas network
Regasification Capacity( 6 LNG Terminals) 49 bcm
Interconnection Algeria-Morocco-Spain-Portugal( El Magreb) 12 bcm Under construction Algeria-Spain( Medgaz) 8bcm Interconnection
France( only from France-Spain)
Enagas is responsible for both commercial and monopoly activity in the Spanish gas system, buy NG and LNG gas from different countries. Distribution Company can buy gas and pipeline capacity from Enagas at regulated basis to supply gas to regulated consumers (either residential or large consumers). To increase competition in the market, Enagas also facilitates wholesale gas trading where qualified consumer and marketers can purchase gas on non regulated basis. Large consumers (Industrial and Electrical utilities) who are not prone to risk can purchase gas from retailers at non regulated basis too.
4.2.1) Recommendation
1) System operation is a monopoly activity that must be carryout by ENAGAS. But transmission capacity should not be based on regulated tariff but its primary capacity should be auctioned in the market like British market to bring transparency and generate market signal for investment. Secondary capacity of pipeline should be traded on the spot market like in the Netherlands where it is traded by APX. It will solve the problem of contractual congestion and will increase liquidity in the market.
2) Underground storage should not be available on basis of regulated tariff but it should be brought to spot market with TPA rule as in the British market. It will provide flexibility for small market players to balance their portfolio and avoid imbalance penalties. It will also facilitate trading of short duration product on Spot exchange at OMEL.
3) LNG capacity should also be auctioned like pipeline capacity and secondary capacity should be traded on the exchange.
4) Monopoly and commercial activity of Enagas should be divided into two separate branches of ENAGAS, like the Netherlands, the U.K and the United States did. It will bring more transparency to the gas market
5) Regulated tariff consumer should be removed from the market and residential sector should be completely opened to competition. It will increase the number of market players in the market and will increase trading of gas.
4.3) Market Functioning
Even after the full liberalization of gas sector in 2003, Spanish gas market is divided into two segments; regulated market in which products like re-gasification plant, storage capacity, Pipeline capacity and balancing (tolerance limit) is available at regulated tariff and de-regulated market in which products like supply of gas to qualified consumers and secondary pipeline capacity is available at non regulated tariff.
Figure 4.3.1; Market Functioning in Spanish gas market
Enagas which act as system operator and transmission network manager is responsible for managing and balancing transport network. Regasification plant, storage is also partially owned by Enagas, which is accessible to all qualified consumers on basis of regulated tariff. Enagas allot the capacity in these services for long term contract (approx 1 year) on first come first basis. Distribution business in Spain which supplies gas to regulated consumer on basis of regulated tariff is in the hands of private companies.
In 2007, 88.45% of Natural Gas consumption was supplied through liberalized market and 11.55% through regulated market. Increased trading through liberalized market was due to increase use of gas in power production, which is considered as qualified customer. Gas coming to Spain through El Magreb pipeline from Algeria,75 % goes to Enagas for supplying gas to tariff consumer( mostly residential) and 25 % of gas goes to marketer to sell it to qualified customer.
Spanish gas network has frame of daily balancing with certain tolerance limit for shippers. It helps shippers in neutralizing the penalties imposed by TSO. Access to storage facilities on basis of regulated tariff helps in facilitating different flexibility tools in the market.
Types of Flexibility Requirement Underground storage LNG regasification LNG storage Pipeline Within day Within week Within month Seasonal
Most Important Least Important
4.3.1) Recommendation
1) Spanish market should be integrated into one non-regulated market.
2) Pipeline network, re-gasification and liquefaction capacity could be divided into Separate company to bring more transparency as it is United States and UK.
3) Trading at OTC and bilateral market should be discouraged. For long term products Future financial market should be facilitated and short duration product should be traded on spot exchange. It will bring transparency in the market and reflect real price of gas in Spanish market and developing Spanish market as more liquid market.
4) Secondary- storage, pipeline capacity should be traded in daily balancing market at exchange to provide flexibility and increasing trading of gas in the Spanish market. 5) More flexibility product like combiflex, virtual storage and higher tolerance width should be facilitated in the Spanish market. It will ease shippers to be balanced most of the time.
6) Balancing frame should be daily like U.K. Advantage of it should be that those who create imbalance should pay for it. Secondly it will encourage investment in LNG storage facility as Underground storage capacity in Spain is limited to 2 bcm.
4.4) Present Status of gas trading
In Spain different market players are active in the market providing different types of service. Following table summarize major market player active in the Spanish market.
Main market players in Spanish gas system
3( Barcelona, Cartagena, Huelva) power owner Enagas 1(Bilbao) power owner BBG
1(Sagunto) power owner SAGGAS LNG operator
1(Mugardos) power owner Reganosa
Storage Operator 2 ( Underground Storage) power owner Enagas Transmission System Operator 89% power owner Enagas
Source: Enagas
Most of the gas trading between this market players and consumers takes place through OTC market at LNG regasification plant and underground storage facilitates.
Figure 4.4.1; Spanish OTC gas market
Uncertainty in the gas market due to large consumption of gas by qualified consumers has increased the volume of gas traded in OTC market. Following graph shows gas consumption vs. trading in OTC market.
Figure 4.4.2; Spanish OTC gas market vs. Consumption
Source: Enagas
It can be clearly depicted that due to high summer temperature in the month of May and June increases the uncertainty in gas market for power production to be used in air conditioning in Spain. This increases volume of gas trading for balancing the system which arises due to this seasonal variation.
To concentrate liquidity and increase transparency in the market, virtual balancing point CDG has been created in 2005. Trading on this virtual balancing point takes place through OTC market know as MS-ATR managed by Enagas. Trading on OTC is done bilaterally on anonymous basis (without revealing the name of the users and party negotiating the gas price). In 2007 volume of gas traded on MS-ATR was 408 TWh which represents 109% of total gas consumption of Spain which is still far behind the volume of gas traded on NBP (United Kingdom).
4.5) Shortcoming of Spanish gas market
1)
LNG import share a major percentage in supply matrix of Spain and price of this gas is strongly influenced by global LNG market i.e. Marginal price of gas in Spain is linked to the price that LNG cargo could obtain in other market such as Henry Hub, NBP or linked to Brent (oil price). But actual price of gas in Spain may or may not be equivalent to marginal price of gas fixed by LNG cargo, which increase the credit risk for the LNG shippers. Having a mature market by trading more gas through spot and future market will bring true price of gas in the market and help LNG cargo to hedge risk for scenario where price of gas is low in Spanish marketCountry Gas Traded 2006( TWh) Trading as % of total demand
U.K 10.242 990% Netherlands 568 143% Belgium 500 263% 282 72% Spain ( 408 TWh in 2007) 109% in 2007
2)
Due to lack of price and volume transparency in the Spanish gas market, shippers are not able to predict the future price of gas in the Spanish LNG market. This bar them to divert their LNG cargo to other importing countries and reduce their risk, which is a barrier for the development of Spanish gas market.3)
LNG shippers also have risk of storage penalties depending on the gas stock levels i.e. their is 5 days of LNG storage free of charge in daily regasification capacity booked but if monthly average LNG stock level is above 8 days of daily contracted capacity(adding stocks in all LNG plants) there is big penalty. Transparency in the market will help shippers to overcome through this problem and give insight to balance their portfolio to avoid risk of paying high storage cost.4)
There has been increased growth in LNG import but from 2006 onwards there has been stagnation in LNG import. If this trend continues there is increased concern over security of supply due to lack of LNG cargo coming to Spain. Increasing transparency in the market will reduce credit risk for LNG shippers and will bring confidence in the market. Figure 4.5.1; Trend in natural gas imports (in GWh) per supply typeSource: Ministry of Economy, Spain
5)
In Spain maximum gas exchange is through LNG terminals. Trading through these LNG terminals is not a regulated activity. Most of this gas is traded on OTC market bilaterally or through marketers and there is enough probability of arbitrage the gas price which is barrier to competition and bar the benefiting reaching to end users.Figure 4.5.2; Gas exchange per infrastructure
Gas exchnage per Infrastructure
91% 7% 2% LNG Terminals( GWh) Transmission Network( GWh) Underground Storage (GWh)