The Spanish Gas Market: Demand Trends Post Recession and Consequences for the Industry Anouk Honoré NG 55 July 2011 The contents of this paper are the authors’ sole responsibility. They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its members. Copyright © 2011 Oxford Institute for Energy Studies (Registered Charity, No. 286084) This publication may be reproduced in part for educational or non‐profit purposes without special permission from the copyright holder, provided acknowledgment of the source is made. No use of this publication may be made for resale or for any other commercial purpose whatsoever without prior permission in writing from the Oxford Institute for Energy Studies. ISBN 978‐1‐907555‐32‐9 2 PREFACE Until 2008, it was assumed that whatever might happen to gas demand in the rest of Europe, the southern part of the Continent would continue growing strongly – even if not in double digits – for most of the 2010s. Recession reminded all energy researchers that there are greater forces at work which can fundamentally change straight line growth projections. At the same time as countries were suffering economic downturn, carbon reduction measures were also beginning to change the fossil fuel outlook. Both these factors require a substantial reassessment of the Spanish gas demand outlook. Anouk Honoré’s book on European gas demand, published by the OIES at the end of 2010, identified the beginning of this process but the effects were not yet clear. This study on Spain, which uses similar bottom‐up methodology to that set out in her book, takes a closer look at the country which prior to 2008 was generally expected to have the fastest gas growth of all the major European gas markets. The changed outlook for the Spanish gas market has potential lessons for many other European countries, in particular the over‐contracting of gas supplies as a consequence of previously (much higher) demand projections. With a significantly greater proportion of LNG supplies in total gas demand than most other countries, this means that Spanish companies must find markets for surplus LNG for several years before, as for so many other European countries, they need to contract for new supplies at the end of the decade. This paper sets out the complexities of Spanish demand and supply over different time periods showing how European gas stakeholders need to prepare for frequent changes in the supply/demand balance over the next decade. Jonathan Stern Oxford, August, 2011 3 ACKNOWLEDGMENTS My grateful thanks go to my colleagues at the Oxford Institute for Energy Studies for their help and advice, and in particular Jonathan Stern, Howard Rogers, David Robinson and John Elkins for their careful reading, helpful comments and editorial corrections of the draft. A big thank‐you to the sponsors of the Natural Gas Research Programme for their support and constructive comments, in particular Rafael del Río, María Sicilia, José Simon and Pablo Fuentes‐ Cantillana from Iberdrola for their invaluable contributions on the Spanish gas (and power) market. The contents of this paper do not necessarily represent the views of the OIES, our sponsors or of the people I have thanked in these acknowledgments. All the opinions expressed and any remaining errors are my sole responsibility. Comments and/or questions on this study are welcome and can be addressed to the author: Dr Anouk Honoré, Senior Research Fellow, Natural Gas Research Programme, Oxford Institute for Energy Studies, 57 Woodstock Road, Oxford OX2 6FA, United Kingdom Email: [email protected]. Anouk Honoré Oxford, August, 2011 4 TABLE OF CONTENTS PREFACE ...................................................................................................................................................... 3 JONATHAN STERN ........................................................................................................................................ 3 ACKNOWLEDGMENTS .................................................................................................................................. 4 ANOUK HONORÉ .......................................................................................................................................... 4 TABLE OF CONTENTS .................................................................................................................................... 5 LIST OF FIGURES ...................................................................................................................................................... 6 LIST OF TABLES ....................................................................................................................................................... 7 LIST OF MAPS ......................................................................................................................................................... 7 ABBREVIATIONS AND ACRONYMS ................................................................................................................ 8 EXECUTIVE SUMMARY ............................................................................................................................... 10 INTRODUCTION.......................................................................................................................................... 13 I/ DEVELOPMENT OF THE SPANISH NATURAL GAS MARKET ........................................................................ 14 1.1. FROM 5.5% TO 24 % OF THE TOTAL PRIMARY ENERGY SUPPLY IN 20 YEARS ............................................................... 14 • Energy demand mirrors economic growth (or decline) ....................................................................... 14 • In 2009, fossil fuels accounted for 80.3% of TPES ............................................................................... 14 • Sharp increase in natural gas’ share ................................................................................................... 15 1.2. THE FASTEST GROWING GAS MARKET IN EUROPE IN THE 2000S ............................................................................... 15 • Growth by sectors of consumption ...................................................................................................... 16 • Natural gas flows in 2010 ................................................................................................................... 19 1.3. SUSTAINED GROWTH EXPECTED, ESPECIALLY IN THE INDUSTRY AND THE POWER SECTORS .............................................. 22 • Scenario published in 2008 .................................................................................................................. 22 • Scenarios published in 2010 ................................................................................................................ 24 II/ TOWARDS A RADICAL CHANGE IN THE DYNAMICS IN THE 2010S? .......................................................... 27 2.1. LONG AND LASTING IMPACTS OF THE ECONOMIC RECESSION .................................................................................... 27 • Natural gas consumption, economic recession and GDP growth ........................................................ 27 • Industry sector ..................................................................................................................................... 30 • Electricity demand ............................................................................................................................... 31 2.2. A YOUNG MARKET BUT SHOWING SIGNS OF MATURITY ........................................................................................... 32 • Good network coverage ...................................................................................................................... 32 • Efficiency / intensity ............................................................................................................................ 35 • Where is the potential for gas demand growth? ................................................................................ 36 2.3. GROWTH OF RENEWABLE ENERGY IN THE POWER SECTOR ....................................................................................... 38 • Electricity generation .......................................................................................................................... 38 • Prospects for gas demand in the power sector ................................................................................... 46 III/ REPERCUSSIONS FOR THE NATURAL GAS INDUSTRY .............................................................................. 51 3.1. RAPID DEVELOPMENT OF INFRASTRUCTURE TO SUIT DOUBLE DIGIT GROWTH OF GAS DEMAND ........................................ 51 • Import capacity ................................................................................................................................... 51 • Natural gas flows ................................................................................................................................ 53 • Diversity of suppliers ........................................................................................................................... 55 • Annual supply and demand balances .................................................................................................. 56 3.2. COPING WITH GROWING FLUCTUATIONS OF GAS DEMAND .....................................................................................