Some market participants have expressed skepticism about the need for the proposed 7 Bcm MidCat gas pipeline between Spain and France, given expected LNG supply and the current size of the Spanish network.
The MidCat pipeline project is set to be built through the Catalan Pyrenees by 2020 and connect with France and on to Central European networks.
The aim is to diversify the sources of gas supply in Europe and reduce European dependence on Russian gas. The project is also intended to integrate the Spanish and French gas markets further.
A French trader said Franco-Spanish transit capacity should be enough to receive the LNG surplus expected in the next few years. "Various analyses show that the global LNG surplus will be about 18 Bcm in 2016-17," he pointed out.
"If you consider that 50% or 9 Bcm LNG surplus is going to Europe and that about 18% is destined for Spain according to the ratio of the past two years, this means that we can expect an around 1.6 Bcm LNG surplus in Spain," he said.
"You can see that the 7 Bcm capacity available by the end of the year is enough to send gas up to France."
Gas transport capacity between France and Spain will increase to 7 Bcm by the end of the year from the current 5.4 Bcm, the Spanish, French and Portuguese authorities announced in July.
The trader also said that even in a scenario where the entire global LNG surplus would come to Europe, the capacity on the Franco-Spanish link would still be sufficient.
"If we take out current exports from France to Spain, which are about 4 Bcm, we get 11 Bcm of capacity available from Spain to France," he said.
French gas exports to Spain have already slumped 57% year on year to 344.5 million cu m in September, data from Eclipse Energy, an analytics unit of Platts show.
According to Eclipse data, the baseload, or average volumes coming into Europe including the UK regardless of the surplus, is 22 Bcm/year of gas equivalent.
Eclipse forecasts 46 Bcm will arrive in Europe in gas year 2015, making the European surplus for the gas year 24 Bcm.
Zooming in on Spain, Eclipse says the average LNG baseload is 9 Bcm. In gas year 2015 Eclipse forecasts Spain's LNG arrivals at 14 Bcm, which means the surplus would be 4.2 Bcm. This implies 17% of the global surplus would be delivered to Spain.
WEAK SPANISH INFRASTRUCTURE
However, the volume of LNG sendout to the Spanish grid could be limited by a weak network infrastructure in Spain, sources said.
"The average send out of all LNG terminals in Spain is about 320 GWh/day [10.88 Bcm/year]," which is below the 11 Bcm/year needed to take up all the export capacity from Spain to France, the French trader said.
But it is unlikely that the Spanish network is sized to send the flows from all the terminals to the North: "Can the interconnector network send the gas up from Huelva or from El Ferrol or from Cartagena without issue? I am not sure," he said.
A UK-based gas industry source specializing in EU balancing issues also highlighted Spain's low pipeline capacity in proportion to the country's size causing an issue when flowing gas from south to north.
"The Spanish are scared about swimming in gas by 2020. Their infrastructure is oversized compared with the peninsula's needs, and they know that," another French gas trader said.
"They are right to say that MidCat could reduce European dependence on Russian gas, but from the market point of view, the more LNG arriving in Europe -- with new LNG terminals in Northwest and even in Southeast Europe -- the less the need for pipeline connections," he said.
AUTHORITIES IN FAVOR
A spokeswoman from the European Commission said: "The Commission is encouraging the construction of MidCat by 2020. And generally there is a Connecting Europe Facility budget of almost Eur6 billion 2014-2020) available for this type of project..."
Spanish gas industry association Sedigas and the gas grid operator Snam, largest shareholder in the southern French TIGF gas grid were unable to comment on specific interconnector capacity needs.
However a spokesman from The Public Diplomacy Council of Catalonia said: "The future Iberian Gas Hub will require the strengthening the interconnections of the Iberian Peninsula with the rest of the European natural gas markets, which is why it is essential to promote the project MidCat."
Spain could become a pivotal gas transit hub in the future, with a gas surplus allowing to cover 43 Bcm/year of European supply. This is equivalent to half of the gas volume transiting via Ukraine from Russia, Spanish Energy and Tourism Minister Jose Manuel Soria told a parliamentary committee in April.
