Blow to the MidCat: new expert reports prove France right

«The current regulatory framework of the Spanish natural gas industry encourages overinvestment in infrastructures such as MidCat»

Two new reports knock down Spain’s idea of ending the construction of the MidCat. “The current regulatory framework of the Spanish natural gas industry encourages overinvestment in infrastructures such as MidCat and is not compatible with the objectives of the EU’s long-term climate policy,” says Albert Banal-Estañol, senior lecturer in the Department of Economics and Business at Pompeu Fabra University (UPF) and author of the study Towards net zero emissions?: Regulation of infrastructure and investment in the gas sector in Spain.

Banal-Estañol highlights in its analysis that Spanish gas infrastructures, “largely underused”, are the result of erroneous past investments that end up being financed by the consumer. Thus, it warns that “overinvestment” may occur again, this time in new assets justified for renewable gases. He also points out that the potential that green hydrogen can offer in the future is “very uncertain”, which, in his opinion, raises more questions about the need for new investments in gas infrastructure such as MidCat.

In this regard, it considers it necessary to improve the balance of risks between private investors, government and consumers. “If the risk is going to be assumed by the consumer in the future, broader economic and environmental studies should be systematically carried out to avoid disastrous results such as those of El Castor,” he defends, highlighting that, according to data from the National Commission of Markets and Competition (CNMC), for domestic consumers, tolls for the maintenance of facilities and charges meant in 2021, Approximately half the cost of the invoice.

The tenured professor in UPF’s Department of Economics and Business indicates that the regasification plants and cross-border gas pipelines were built based on the demand forecasts of the early 2000s, in which a growing trend of natural gas was predicted. “These investment decisions led to an inflation of the value of regulated assets, which are used to determine operators’ allowable revenues, infrastructure access fees and therefore consumer tariffs,” he argues.

“The expansion of gas consumption never came”

However, he adds, the predicted expansion of gas consumption never materialized. At a time when the EU is committed to decarbonisation, the future of fossil gas and, above all, its impressive infrastructure network is being called into question. The investments that were once backed by the European Commission are for Banal-Tinol a “major political obstacle on the path of net zero emissions”. “LNG plants and gas storage facilities, for example, are at risk of being stranded in the long term,” he warns.

On the other hand, the study Capacity and remuneration still excessive in the Spanish gas sector, prepared by the energy analyst of the Institute of Energy Economics and Financial Analysis (IEEFA) Ana Maria Jaller-Makarewicz, stresses that Enagás, operator of the gas system, has been using the “security and diversity of supply” as an excuse to build or expand regasification plants. gas pipelines and storage.

Spain is the country in the world that has bought the most liquefied gas from Putin this summer

“In recent years, Enagás’ profits have not been driven by consumer demand, but by a regulatory framework that guarantees the company a fixed rate of remuneration for its investments in gas infrastructure, regardless of whether the country needs them or not,” says Jaller-Makarewicz.

In July of this year, Enagás presented its Strategic Plan 2022-2030, which aims to solve the problem of “security of supply and decarbonisation” in Spain and Europe, as well as anticipate the most pressing challenges of the European and global energy market. The system operator plans to invest 2,755 million until the end of the decade, which would increase to 4,800 million when adding the interconnection projects included in the REPowerEU plan.

France excludes Spain from its ‘energy solidarity’ map after rejecting MidCat

‘All investments shall be guaranteed regulated remuneration. Spain has a stable regulatory framework for the period between 2022 and 2026. A new regulatory framework for hydrogen is expected to be in place after 2026, and Enagás is actively working to promote the integration of electricity, gas and hydrogen networks. If the regulatory body approves the framework, the company and its shareholders will receive regulated income guaranteed for investing in infrastructure that suffers from enormous technical and economic uncertainty, while consumers will be forced to assume the risk,” the IEEFA energy analyst.

The analysis thus indicates that, taking into account Spanish gas demand and exports to neighbouring countries, the utilization rate of gas import pipelines and regasification plants between 2015 and 2020 was on average 37%. French President Emmanuel Macron has been arguing that there is no need for new gas interconnections between Spain and France because the current ones are far from saturation even under the current situation caused by Russia’s invasion of Ukraine.

In 2018, a report prepared for the European Commission (EC) was what paralyzed the work of the Midcat by questioning its economic viability due to its high cost, of about 3,000 million euros. Poyry, the consultancy hired by Brussels to oversee the first phase of the project, pointed out that the pipeline would only be profitable under a scenario with a tight LNG market in the face of a hypothetical decline in gas exports from Algeria to Europe.

226 kilometers from MidCat

The Midcat, which had Enagás and the French company Terega as promoters, has thus been paralyzed for years due to its high cost and the low price of Russian supply. There are still 226 kilometers of pipelines to be built from the Catalan town of Hostalric to the French Barbaira and Spain asks that the European Union (EU) bear the expenses.

Currently, Spain has two gas connections by tube with France through the Basque Country and Navarra, which allow it to deliver some 8,000 million cubic meters (bcm) per year, approximately 2% of last year’s European demand. The Midcat could add another 7,000 bcm a year.

For its part, Enagás has regasification plants in Barcelona, Cartagena and Huelva. In addition, it has 50% of the Bahía Bizkaia Gas (BBG) plant in Bilbao and 72.5% of the Saggas terminal in Sagunto. For its part, El Musel (Gijón), which never came to operate since its construction, has recently received the approval of the Government for its implementation. According to the study, they represent almost a third of Europe’s LNG import capacity, but their utilization rates are among the lowest on the continent – between January 2019 and June 2022 it never rose to more than 56% despite the increase in imported volumes due to Russia’s invasion of Ukraine.

Source: The Objective