Spain and Portugal to deepen gas market integration

01 June 2017, Week 21, Issue 402

Spain and Portugal intend to introduce a common secondary exchange for gas trades in a move that would help improve liquidity for Iberian markets currently dominated by long-term wholesale contracts.

The pair announced their decision following the annual Iberian Summit held from May 29-30 between Spanish Prime Minister Mariano Rajoy and his Portuguese counterpart, Antonio Costa. 

The two-day talks resulted in the leaders calling for a "new impulse" to be injected into economic convergence between EU member states. 

In a joint communique issued following the summit, the governments said: "[Integrated] natural gas systems will benefit consumers in both countries and will allow market access to all participants in an equal footing, in a transparent, objective, and non-discriminatory manner". 

Spain and Portugal already integrated power trades under the Iberian Electricity Market launched in July 2007. A uniform market for secondary gas would allow wholesale trades to be conducted between the two countries on a spot basis without impediment. 

Such a move may help improve the liquidity of gas markets in each country. These are currently dominated by long-term contracts with exporters for LNG and piped gas. 

Neither Spain nor Portugal has access to substantive gas reserves of their own, though there has been talk of tight gas exploration in the former. 

Portugal’s GALP received only 19% of its gas imports from spot markets last year. It purchased around 2.3 bcm under an oil-indexed deal with Algeria’s Sonatrach, and 3.4 bcm via a deal with Nigeria’s LNG. 

Spanish distributor Gas Natural Fenosa also buys under long-term deals which include contracts for around 10 bcm of Algerian gas. 

Portugal’s transmission system operator (TSO), Entidade Reguladora Dos Servicos Energeticos (ERSE), believes that a lack of transparency prevents the Portuguese gas market from allocating resources effectively. 

"Portugal is not a transparent market, in the sense of a market [where] the sum of trading activities with delivery is agreed on a specific delivery point and is concluded using a transparent trading venue," ERSE reported in January. 

In September 2014, ERSE evaluated the options for a synchronised Iberian gas market alongside Spanish market super-regulator Comision Nacional De los Mercados Y La Competencia (CNMC). 

The paper warned that Spain and Portugal must harmonise the allocation and balancing of traded gas to prevent their wholesale markets being distorted by a cross-border exchange. 

One option under consideration is to couple traded gas with cross-border capacity to ensure capacity allocations "follow the market signals", while another would fuse both transmission grids into a single entry point for traded gas.

Edited by

Ryan Stevenson

Managing Editor

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