OVERVIEW OF THE SPANISH NATURAL GAS MARKET IN YEAR 2008 1. CONSUMPTION Provisional figures for 2008 show that total demand for natural gas in Spain has reached 450 TWh, about 38.6 bcm (408 TWh in 2007). These figures indicate an increase of 10.1% over the previous year, 5.8 percentage points more than the increase recorded in 2006 but significantly lower than the growth pace of former years (17.6% growth in 2005, 16% in 2004). Like previous years, in 2008, the growth of gas demand was driven by combined cycle power plants. Power plants consumed 188 TWh worth of natural gas, which means a 32.0% more than previous year (142 TWh). Electrical power demand in Spain reached 264 TWh, 1% higher than 2007, the lower growth rate since 1993. Nevertheless, the incorporation of 706 combined-cycle MW as well as the gradual increase in generation of existing gas-fired units, placed natural gas as the first fuel for power generation producing 32% of the Spanish electricity, followed by coal, after its marked fall to a 16% share (24% in 2007). On the other hand, conventional consumption (commercial, households and industry) has decreased by 1.6% from 266TWh in 2007 to 262TWh in 2008, mainly due to the evolution of the economic activity that has led to a decrease in industrial (outstanding in building relate industries) and commercial demand. As far as household demand is concerned, climate conditions were not a decisive factor in 2008. Other exogenous factors have influenced clearly gas demand. The first one is the rise in coal prices in international markets (connected with the trend of oil) triggering its substitution as fuel in power generation. Furthermore, the lack of rainfall in the first half of the year boosted consumption of natural gas against the production of hydroelectric power, with a fall around 19%. Page 1 of 7
Provisional data regarding natural gas sector, show a steady increase in the number of customers so that this figure had already reached 7.000.000 by the end of 2008. Nowadays, more than 70% of Spanish population lives in towns provided with natural gas supply. 450 TWh 88 TWh 1995 2000 2005 2008 Household&Commercial Industrial Power generation 2. NATURAL GAS SUPPLY IN SPAIN The imports basket of the Spanish gas system keeps mostly the structure and shares of former years, resulting in one of the most diversified countries in the World. 99.7% of the gas marketed in Spain came from imports from 9 countries, with Algeria standing out for another year with a share of 36%, Nigeria (20%), the Gulf Countries (14%), Egypt (12%) and Trinidad and Tobago (11% of the imports of the Spanish gas system) complete the group of the most important countries in the supply structure. Provisional figures of 2008 show that total natural gas imports has increased by 13.5% amounting around 465 TWh (410 GWh in 2007). 72.2% of natural gas reached the national grid through LNG ships and the remaining 27.8% came via gas pipelines. The shipments unloaded from LNG ships continued at high levels and kept our country among the most important LNG destinations in the world. Page 2 of 7
Origin of imports Lybia France1% 0% Norway 6% T&T 11% Argelia 36% Egypt 12% Nigeria 20% Omán 2% Qatar 12% All data stated above have been taken from provisional reports by SEDIGAS, from monthly assessment by the Gas Technical Network Manager (ENAGAS) and from the previews for 2008 by the Electric Technical Network Manager (REE). 3. INVESTMENTS AND NEW INFRASTRUCTURE In the last ten years, the Spanish TSO s have invested more than 10,000 million in new infrastructures, namely: LNG terminals, pipelines and subterranean storages. After the REGANOSA LNG terminal became operative in November 2007, 6 LNG terminals are operative in the Spanish gas system. These plants amount a LNG storage capacity of 2.196.500 m³ and an emission capacity of 6.212.800 m³/h. The storage capacity in LNG terminals has increased in 150.000 m³ since the commissioning of a new LNG tank in the Cartagena plant. Cartagena and Sagunto terminals were upgraded with additional emission capacity reaching 1.350.000m³/h and 1.000.000m³/h respectively. Page 3 of 7
As a significant development of the gas system for the period 2008-2016, it is worth pointing out the future put into service of the LNG terminal located in El Musel (Asturias). Moreover, two new LNG plants are planned in the Canary Islands (Tenerife and Las Palmas de Gran Canaria). The length of the gas network has reached 68,000 km and municipalities with service of natural gas are around 1.375. During 2008 more than 5.000 Km. of new high pressure gas pipes were put into service. Among them, 162 km belong to the so-called cross-axis, which connect the east coast with the peninsula centre. Infrastructure in operation and planned for period 2008-2016 The submarine pipeline to Ibiza and Majorca and MEDGAZ are the main projects in progress: the MEDGAZ deepwater pipeline between Beni-Saf, in the Algerian coast, and Almería, in the Spanish coast, will become operative in the second half of the year. Natural gas will be supplied directly from Algeria, without requiring transit through third countries. Moreover, it is a very cost-effective way of delivering Page 4 of 7
natural gas to Southern Europe and the Iberian Peninsula could become a new European gas hub as long as interconnection capacity with France is enlarged. As a result, security of supply will be considerably enhanced in Southern Europe. The other main infrastructure under construction, the pipeline to Ibiza and Majorca will allow to integrate the Balearic Island into the peninsular gas network, enhancing the reliability of the gas supply. As showed in the image above, other important infrastructures planned for the next years are basically: Axis from the North-West coast to the peninsula center. New pipeline parallel to the existing Ebro axis to duplicate the whole transmission capacity in this axis. Huelva-Almendralejo pipeline, to complete the Ruta de la Plata pipeline, as a new axis to connect the existing regasifaction plan of Huelva to the planned one in El Musel (North coast). Once this new infrastructures are built, the Spanish gas network will be shaped by three basic axis South-North (Ruta de la Plata, Central Axis and Levante Axis), interconnected among them thanks to other three Wets-East axis (Ebro axis, Galicia axis and transversal axis Alcázar-Montesa). All of them will be part of a grid that will enable the network to supply the needs of the peninsula centre from any entry point, reinforcing the flexibility of the system. Finally, with regard to subterranean storage, Escal UGS has been awarded the administrative license to exploit the subterranean storage of Castor during 2008, with a capacity of 1.9 bcm. This storage located in Vinaroz (east coast of Spain) will be the biggest subterranean storage in the Iberian Peninsula. As other outstanding improvements in the subterranean storages, it is important to point out the capacity enlargement of both Yela and Gaviota. Serrablo and Gaviota are the only subterranean storages currently under operation. After the authorization of Yela during 2007 and Castor last year, the Spanish network will have four structures increasing both system reliability and flexibility. Page 5 of 7
Entry capacity to the peninsular network 4. RELEVANT LEGISLATIVE ISSUES The main legislative issues approved during 2008 were: March 14 th, Instruction from the Secretary of Energy establishing the management procedures of the subterranean storages. It sets an assignation procedure according to historical demand and an auction procedure for the surplus capacity, which is foreseen to be increased year by year. As a result, more than 1,5 TWh have been allocated for the period from April 2008 to march 2009. May 30 th, Electricity and Gas sector planning 2007-2016. This document includes information about the forecasts of electricity and gas demand and about the resources needed to meet it. It also sets binding objectives for the construction of new infrastructure during the planning period. October 10th, Order ITC/2857/2008, describing the last resource supply of natural gas that replaced the regulated tariff. September 11th, Order ITC/2607/2008, that establishes the allocation procedure for the transport capacity in the Spain-France connection. Page 6 of 7
November 11th, Instruction from the Energy Director General which sets the annual Winter Plan in order to reinforce the safety of supply. It includes a new procedure on cold spells to minimize the impacts on supply due to steep increases in demand because of extreme weather conditions. 5. MARKET OPENING Hydrocarbons Act 34/98 meant the beginning of the liberalization of the natural gas sector by means of the progressive removal of regulated tariffs for end-users. As a result, all Spanish customers are eligible sin January 1 st 2003. From then onwards, the Government has gone on with the trend to develop the TPA market with the progressive removal of regulated tariffs for end-users. On July 1 st 2008, the last existing tariffs were removed so that nowadays the Spanish Gas Market is fully liberalized. To protect the smaller consumers last resource tariff has been created. The last resource tariff is the maximum price that the last resource suppliers can charge small customers. As from July 1 st 2008, the consumers connected to gas pipelines with a pressure that is equal to or less than 4 bar and an annual consumption of less than 3 GWh can apply for this tariff (14% of the market). From 1 July 2009, the limit will be reduced to 2 GWh and, one year later, to 1 GWh, according to temporary provision five of Act 12/2007, which modifies the Hydrocarbons Act. Due to the liberalization process formerly described and in order to Project consumer s rights and to avoid barriers to competence, Hydrocarbons Act 12/2007 created the Bureau for supplier exchanges. Last August, the Secretary of Energy authorised this Bureau to begin its work, aiming at overseeing the supplier exchanges in accordance with the principles of transparency, objectivity and independence. Page 7 of 7