Spain worries about gas with pipeline to shut as winter nears

Will Spain have enough gas to heat homes this winter and at what price? Those questions are troubling Spanish authorities as a key pipeline is due to shut this weekend.

Flames of a lit burner of a gas stove

Algeria on Sunday is planning to halt shipments through the Gaz-Maghreb-Europe (GME) pipeline, which has been carrying almost 10 billion cubic metres (bcm) per year.

The pipeline, which traverses Morocco before crossing the Mediterranean at the Strait of Gibraltar, is a victim of the crisis in relations between Algeria and Morocco.

With Algeria having severed diplomatic ties with Morocco in August, a renewal of the pipeline contract that expires on Sunday is unlikely, threatening one of Spain’s main sources of gas.

With technical constraints limiting alternative sources and the risk of further price increases, Spain “finds itself in a complicated situation” even if “the risk of shortages is limited,” said Gonzalo Escribano, an energy expert at the Elcano think tank in Madrid.

He called the decision “bad news … at a bad moment” for Spain, which depends on Algeria for half of its natural gas needs.

Despite a big push into wind and solar, Spain remains dependent on imported energy.

What will the impact of GME’s closure be on Spain?
Spain’s Ecological Transition Minister Teresa Ribera sought to sound reassuring during a meeting in Algiers earlier this week, speaking of  “arrangements taken to continue to assure, in the best way, deliveries of gas through Medgaz according to a well-determined schedule”.

Medgaz is a second pipeline that runs directly between Algeria and Spain under the Mediterranean.

It can carry eight bcm a year, and planned works could see its capacity reach 10.5 bcm.

Algeria also proposes increasing deliveries of liquefied natural gas (LNG) by sea.

‘Theory and practice’
“On paper, it is enough to ensure the same level of deliveries. But there is theory and practice, and Spain isn’t safe from bad surprises,” said Thierry Bros, a specialist on the geopolitics of energy who teaches at Sciences Po university in Paris.

Work on increasing the capacity of Medgaz is expected to last into December.

“Valves need to be changed, tests conducted … You can’t rule out delays,” Bros said.

But he believes the main problem to be with LNG, which is transported by special ships that keep the gas very cold so it remains condensed in liquid form. 

“It could be complicated to find such ships, especially at the moment when there is strong demand for gas in Asia” and shipowners prefer the most profitable routes, Bros said.

And given that Spain has limited storage capacity but plenty of LNG gas terminals, the risk is less about a shortage than the price paid.

“The country will manage to cope” with potential supply problems, “but that will have an impact on the price”, said Escribano, noting that gas transported by ship is more expensive than that by pipelines.

In recent months natural gas and LNG prices have soared as the global economy gears back up.

In addition to homes linked to the gas network for heating and cooking, Spain is also reliant on gas-fired power plants and electricity prices have already shot higher.

Soaring energy prices are weighing on Spanish consumers who have already been battered by the coronavirus pandemic, and the government has already moved to temporarily lower electricity taxes.

In one sign the situation is concerning, Spain has recently reached out to its other LNG suppliers — the United States, Russia and Qatar — in order to ensure deliveries, according to a source close to the discussions.

Meanwhile, local operators are also making preparations to receive additional supplies.

Enagas, which operates four LNG terminals and the national gas grid, has opened up extra slots for ships.

“We are doing everything possible to contribute to the security of gas supplies,” its president, Antonio Llarden, said earlier this week.

Meanwhile the Spanish government is emphasising the preparations that are being made.

“We’ve increased the level of reserves” and “the capacity to receive LNG ships”, Ribera said in a radio interview on Friday.

Ribera said she believes the risk of electricity blackouts this winter to be “very limited”.

READ ALSO: Energy costs push Spain’s inflation to 29-year high

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Could the Norwegian government introduce a cap on energy prices? 

Due to soaring prices, the Norwegian government is mulling over several solutions, including a potential price cap for electricity and limiting energy exports abroad. 

Could the Norwegian government introduce a cap on energy prices? 

High energy exports in the last 12 months, low filling levels in Norwegian reservoirs and an uncertain energy situation around Europe have led to soaring electricity prices in southern Norway. 

Last year the government introduced a scheme whereby it covers 80 percent of consumers’ energy bills where the price rose above 70 øre/kWh. The portion of the bill under 70 øre is paid in full by households. The portion the government covers will increase to 90 percent in October. 

Critics have argued that the current scheme still leaves households struggling with their bills. As a result, Norway’s government has said it is mulling its options to curb energy bills.

Norway primarily depends on hydroelectric dams to help it meet its energy needs. Still, reservoirs in southern Norway have been at the lowest level for ten years, public broadcaster NRK reports. 

Low reservoir filling over the past year has conceded with record exports with higher prices on the continent, making sending power abroad an enticing proposition.

Recently, exports have fallen significantly, and the government is considering introducing a limit to reduce the possibility of energy rationing being introduced this winter. 

“Restrictions on the export of electricity to Europe may be one of the measures that is needed,” Elisabeth Sæther, state secretary at the Ministry of Oil and Energy, told NRK. 

Earlier this week, Prime Minister Jonas Gahr Støre ruled out completely shutting off exports to the continent. 

“It is a dangerous thought and will not serve us well. It could give us more expensive power and lack of power in given situations. We will hardly be able to import power when we need it without contributing to other countries when they need it. There is a reciprocity in this,” he told the newspaper Aftenposten earlier in the week. 

Sæther also told NRK that the government was weighing up putting a maximum price on energy but warned that it could have unforeseen consequences. 

“We are afraid that a maximum price means that more water is drawn into the reservoirs, which we need for the winter. It is a serious situation. We must prevent ourselves from getting into a situation where we lack enough power this winter,” she told the broadcaster. 

At the end of May, the state-owned Statnett announced that the supply situation in Norway might be under strain – in some scenarios – all the way up to and through the winter, especially if Southern Norway experiences drier than usual weather in the second part of the year.