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Spain is one of the fastest growing European economies but has very limited domestic energy resources. As a result, Spain is expected to become an increasingly important energy importer.
Note: The information contained in this report is the best available as of March 2003 and is subject to change.
In March 2000, Prime Minister Jose Maria Aznar's center-right Popular Party (PP) was reelected with an absolute majority, obtaining control in both houses of parliament. Aznar has continued his liberalization of Spanish industry. In June 2000, the government passed legislation aimed at eliminating monopolies (state-held or private) in the energy, telecommunications, and services industries. Oil, natural gas, and electricity markets are key targets in Aznar's liberalization program. The Popular Party, which has been in control since 1996, will face elections in the spring of 2004. PP will have to find a new party chief, as Prime Minister Aznar is schedule to step down in 2003.
Continued economic instability in Argentina has adversely affected Spanish companies, which invested 45 billion euros there over the last decade. Five large Spanish companies, including oil company Repsol-YPF and power company Endesa, that alone account for about three-quarters of the trading volume on the Madrid stock exchange, have lost billions of euros because of the default on Argentine government debt and the devaluation of the Argentine peso. Recently, Argentina's economic situation has slightly improved , allowing Repsol-YPF to make up for some of its losses in 2002.
Economic growth and accelerated industrialization associated with EU membership have led to increased Spanish energy demand, up 75% since the mid-1970s. Electricity demand is growing at a particularly rapid rate of 6% per year, necessitating greater investment in this section. Spain is highly dependent on imported oil and natural gas, leaving the country economically vulnerable to world oil price fluctuations. Increased natural gas imports are expected to meet a large share of future energy demand. Spain currently imports 60% of its natural gas from Algeria. With an extensive gas network now in place, Spain's demand for natural gas is expected to increase by 45% by 2010, according to International Energy Agency's forecasts. In order to meet these demands, the Spanish Cabinet approved a 10-year energy plan in September 2002, which focuses on meeting the countries future energy requirements. The plan reflects an increased reliance on natural gas but also revamps the country's basis energy infrastructure, as well as encourages investment in electricity and natural gas distribution networks. According to the plan, natural gas and renewables, which are to account for 33.1% and 28.4% respectively, will be favored, while nuclear, coal and oil would represent smaller percentages. The plan still requires approval from the parliament.
Spain continues to privatize its energy sector, a process which it began in 1994 with the LOSEN Electricity Act. The Electricity Act 54 in 1997 and the Hydrocarbons Act 34 in 1998 accelerated and bolstered the process. The Hydrocarbons Act created the Comisión Nacional de Energía (National Energy Regulatory Commission). The commission is a regulatory body, which is tasked with ensuring the existence of competition in Spain's electricity market and liquid and gaseous hydrocarbons market. These programs place Spain in compliance with EU Directives 96/92/EC and 98/30/EC, which require EU members to privatize their electricity and natural gas markets.
Furthermore, Spain has limited proven domestic oil reserves, 157 million barrels as of January 2003. Its production is therefore marginal. In 1990, Spain was producing 27,000 bbl/d and in 2002, averaged an estimated 6,600 bbl/d, a decrease of over 76%. Spain has five major oil fields: Lora; Casablanca-Montanazo; Rodabello; Chipirón; and Angula-Casablanca. Chipirón produced the most oil in 2002 with 2,978 bbl/d. With limited domestic reserves, the Spanish government has considered other regions and in late 2002, gave Repsol-YPF permission to explore for oil deposits near the Canary Islands.
Until 1993, the Spanish oil industry was state controlled. Today, formerly state held (now private) Repsol still dominates the Spanish oil sector . Repsol acquired the top Argentine oil company, YPF, in 1999, changing the company name to Repsol-YPF. The merged company is responsible for over 50% of Spain's oil production. Worldwide, the company has reserves of 5.6 billion barrels of oil equivalent and and a daily production of about 1 million barrels of oil equivalent per day. The company owns the majority of Spain's refineries, its distribution network (through Compania Logistica de Hidrocarburos, CLH, in which it holds a majority stake), and its gasoline stations (through its trademarks Repsol, Campsa, and Petronor). Divestments in the wake of the merger are working to lessen Repsol-YPF's control in the industry. Economic liberalization plans, which begun in June 2000, also work toward this end; the company reduced its shares in CLH from 62% to 26.45%. Repsol-YPF's profits have been lower for both 2001 and 2002 than the record $2.10-billion profit achieved in 2000 because of exposure to the Argentine economic situation. Repsol-YPF derives 45% of its operating income from Argentina's oil and natural gas fields.
Compania Espanola de Petroleos (Cepsa), established in 1929, is Spain's oldest private oil and gas company. The company has exploration and production activities in Colombia and Algeria and is aiming to expand its operations in Yemen and Iran. It is the second largest oil group in Spain, with a 25% retail market share. BP Oil is also active in Spain. Repsol, Cepsa, and BP Oil account for almost all of the activity in the Spanish oil sector.
According to liberalization legislation passed in June 2000, no single operator may command over 70% of the Spanish natural gas market by 2004. Since June 2000, large industrial consumers have been able to choose suppliers, and as of January 1, 2003, all consumers are able to choose their suppliers. Several additional regulatory measures were taken in 2001. In July, Spain's Economy Ministry published the terms under which GN must auction off one-third of its 580 Bcf per year Algerian pipeline natural gas imports. In September, Spain's Economy Ministry detailed new natural gas sector regulations that include a revised system for calculating pipeline tariffs and procedures for accessing the national grid. Finally, in October, the government ended GN's monopoly of natural gas imports when a contract for Algerian gas imports equivalent to about 25% of Spain's total annual consumption was awarded to Spain's four largest electricity companies (Endesa, Iberdrola, Union Fenosa, and Hidrocantabrico), BP, and Royal Dutch/Shell. This is part of a strategy being pursued by Spanish electricity companies to enter into the natural gas market. As Algeria supplies about 75% of Spain's imports, these companies now control about 19% of the market. These companies have until 2004 to sell the natural gas to their industrial clients.
The expected growth of natural gas consumption and the continued liberalization of the market have attracted outside and domestic companies to invest in the market. Eni, an Italian oil and gas company, purchased last year 50% of Union Fenosa Gas, the gas unit of Spain's electricity company Union Fenosa. Domestically, Endesa plans to increase its share of the natural gas market by integrating its gas and electricity distribution subsidiaries into a new company called Endesa Red. In November 2002, Cepsa signed an agreement with Sonatrach, the Algerian state oil company, to import 35.3 billion cubic feet of natural gas per year, which will be transported via the Medgaz pipeline (please see description below).
Enagás transports natural gas imports to the Iberian Peninsula via gas pipelines connected to international networks (or via methane carriers for liquefied natural gas, discussed below). There are two international gas pipelines in Spain: Lacq-Calahorra in the north and the Pedro Duran Farell pipeline (formerly the Mahgreb-Europe line) in the south. The Lacq-Calahorra gas pipeline is the main Spanish connection to the European network, linking to Norway's North Sea gas sources. The Pedro Duran Farell pipeline, which crosses through Algeria and Morocco and travels under the Strait of Gibraltar, is about 870 miles (1,400 kilometers) long and connects the Algerian deposits with the Spanish gas pipeline network in Córdoba. This pipeline made its first Spanish delivery in 1996. Work is underway to expand the Pedro Duran Farell pipeline's annual capacity from 282.5 Bcf to 388.5 Bcf by adding a compressor station. Completion is expected in late 2003.
There are two new projects underway as well. Spain will have an additional connection with France via Irun in the Basque Country as a new trans-frontier connector is being built with completion expected by the end of 2003. A further extension of the pipeline network coming to and from Irun, France is planned to be ready between 2005 and 2008. It will have 111 miles in Spain and 93 miles in France, and possess an annual capacity of 144.8 Bcf. In July 2001, Cepsa and Sonatrach signed an agreement for the construction of the new Medgaz undersea natural gas pipeline between Algeria and Almeria, Spain. A feasibility study was completed in late 2002, giving the green light for construction. The pipeline would have a length of 137 miles and have a capacity 564.8 Bcf per year. Natural gas would be allotted in proportion to each shareholder's equity ownership. At present, Sonatrach and Cepsa each hold 20%, while BP, Endesa, Eni, Gaz de France, and TotalFinaElf each hold 12%. TotalFinaElf and GdF are expected to take their gas into France, and ENI its share on to Italy.
Liquefied Natural Gas
Over the last years, a number of companies have been increasing their capacity to export LNG to Spain. Enagás plans to invest in new infrastructure in order to handle increased LNG imports for rising domestic consumption. It aims to expand the capacity of its three regasification terminals from 734 Bcf per year to 1.2 Tcf per year by 2005. Union Fenosa signed a contract with the Egyptian General Petroleum Corporation in July 2000 to purchase LNG from a new liquefaction terminal under construction at Damietta, Egypt. The terminal is expected to come on stream in 2005 with a capacity of 243.5 Bcf per year. Endesa, Union Fenosa and Iberdrola are constructing a new receiving gasification terminal at the Sagunto port in Valencia. The plant, to be completed in winter 2004, will be able to process 194 Bcf per year and will be linked to new combined cycle gas turbine plants being constructed by Fenosa nearby and Iberdrola in Castellon. Some of the natural gas will also transit to other locations.
The Bahia de Bizkaia Gas group, a consortium led by BP and including Repsol-YPF, Iberdrola, and EVE (the Basque Energy Authority) is building a new import facility in conjunction with a new power station in Bilbao, Spain. The regasification facility is expected to begin operations in 2003.
In 2002, Endesa, Union Fenosa, the Tojeiro Group and Algeria's Sonatrach, forming the Reganosa group, began building the El Ferrol LNG import facility. Algerian LNG will supply the new terminal, located in Galicia in northwest Spain, for ten years following the terminal's projected 2004 commissioning. In conjunction with the terminal, which will have an initial capacity ranging from 88 to 123.5 Bcf per year, a new pipeline will be constructed to connect the terminal to power plants located about 60 miles away.
Spanish coal is too expensive to be competitive in a free energy market, with about 80% of the coal costing at least twice international prices to produce, so the Spanish government subsidizes coal production. According to new EU regulations that took effect in July 2002, Spain must lower its coal production by 65% over the next ten years. Also, coal mines that do not improve their economic viability will only be able to receive production subsidies until 2008. Spain is one of three EU countries that will be permitted to continue coal production for reasons of economic security, and hence will continue to receive subsidies for more competitive mines. There is increased pressure on coal, however, as the electricity market privatizes, and as electricity generation will no longer be a captive market for domestic coal. Imports of foreign coal already are on the rise, and electricity generators are looking more to natural gas.
The coal sector now employs only half the number of people it did a decade ago. Most of those employed are in the Asturias region, where the jobs are badly needed. It would be difficult to completely phase out coal mining because of this region's dependence on the industry for employment.
To meet Spain's increased demand for electricity, domestic utility companies have invested in generation capacity and distribution. Red Electrica de España (REE), for instance, invested heavily in the network in 2001, dedicating 78.4 million euros to expanding the electricity network. REE also announced plans in October 2001 to invest between 60.2 and 72.2 million euros to improve the electricity connection with France. Spain's three largest electricity groups - Endesa, Iberdrola, and Union Fenosa - have dedicated 34 billion euros of investments from August 2001 to 2005, with much of that in Latin America and other European countries, but nevertheless including 8 billion euros for new generating plants in Spain.
Endesa is in the process of building a natural-gas-fired, 400 MW, combined-cycle generating turbine (CCGT) plant in Huelva in addition to two other gas-fired 400-MW CCGTs the company already has under construction in Barcelona and Tarragona. Endesa recently completed the construction of a plant with 8,000 MW in Cadiz. Union Fenosa plans to add 5,000 MW of new capacity by 2005, mostly in Spain, of which 2,800 MW would be natural-gas-fired. Piemsa, an affiliate of Petronor, is planning to construct an 800-MW integrated gasification combined-cycle (IGCC) complex at a refinery near Bilbao that will make use of heavy refinery stocks. The plant will be one of the largest and most advanced of its kind in the world.
Spain's electricity market is privatizing ahead of the schedule mandated by the EU. A 1996 EU directive required that at least 26.48% of electricity sales in member countries be open to competition, beginning in February 1999. This requirement increased to about 28% in February 2000 and will grow to 33% in 2003. Spain already has surpassed the 2003 requirement. As of January 1, 2003, domestic customers have been able to choose their electricity supplier. However, customers will most likely experience limited benefit from privatization for the time being, as the Spanish government has mandated that all utilities must charge the same amount per unit, rendering true competition almost nonexistent. Furthermore, the government has mandated that between 2003-2010 prices can rise by a maximum of 2% a year. The actual percentage will be adjusted according to demand, interest rates, the treatment of renewable energy and gas prices.
The Spanish electricity sector is in the midst of restructuring. There are five major utility companies in Spain, in descending order of size: the formerly state held Endesa; Iberdrola; Union Fenosa; Hidrocantabrico; and the newly independent Viesgo. Viesgo's acquisition by Enel of Italy from Endesa was completed in January 2002, and Viesgo has a 5% market share. This is part of Enel's strategy of regaining market share abroad after selling its Elettrogen utility at home to Endesa in 2001.
In 2001, Energie Baden-Wurttemburg (EnBW), Eletricidade de Portugal (EdP), and Caja de Ahorros de Asturias (Cajastur), a Spanish bank, took joint control of Hidrocantabrico. However, this initial sale came into controversy because the Spanish government threatened to block France's state-owned utility, Electricité de France (EdF), which has a 34.5% share in EnBW, from entering the Spanish electricity market. The Spanish government enacted the Law 55/1999, which includes provisions that make the exercise of voting rights by public entities directly or indirectly taking control of or acquiring 3 percent or more of the equity in Spanish energy companies subject to the prior authorization of Spain's Council on Ministers.
The European Commission, however, approved the bid by EnBW, EDP and Cajastur but insisted on certain conditions being met. The Commission felt that because the operation could have led to the strengthening of collective dominant position of EDF, which jointly controls EnBW, on the Spanish wholesale electricity market, the company had to agree to increase the capacity on the interconnector between France and Spain to about 4,000 MW. This would create the conditions for greater electricity trade volumes to and from Spain and reduce prices for Spanish customers.
REE has been in negotiation with Hidrocantabrico and Viesgo over buying their electricity distribution operations. If REE is able to purchase them, it will become the sole transporter of electricity in Spain and the third largest transmission system operator in Europe. The Spanish government is also supporting having one company control the grid.
In August 2001, Spain and Portugal signed an agreement to form a single electricity market by unifying their electricity networks. The integration is to be completed in 2003. There remain several unresolved obstacles to completing the unified market. One obstacle is that there is minimal separation between transport and distribution activities, which remain monopolies, and production and marketing activities, which are open to competition. Another problem is that in Portugal production is sold to the state-held REN, which transports the electricity, whereas in Spain producers compete to sell electricity, but receive compensation payments for market liberalization called CTCs. The Spanish government in March 2001 reiterated its support for CTCs, but these payments are under investigation by the EU. The opposition PSOE party has called for their end. However, electricity companies have called for an end to tariff privileges enjoyed by several large industrial companies that they believe have made these companies non-competitive internationally. In addition, electricity companies would like to raise their rates, arguing that prices have fallen 17% in the past five years, while inflation for the period has been 14%. In December 2003, a 2% rate increase was authorized for industrial customers.
As electricity demand has increased rapidly in Spain in the past years, domestic supply has not kept up and Spain began importing electricity from Morocco for the first time in December 2001 when cold temperatures created a surge in demand. Union Fenosa and Endesa have signed agreements with Moroccan power company ONE. Spain granted ONE the status of an "external operator" in 1998, giving the company the right to deal directly with Spanish electricity companies or on the Spanish spot market. The power exchange between ONE and Spanish companies is through the Spain-Morocco grid interconnection, which became operational in 1998. Two power connections between Algeria and Spain are also planned, one of which will run along side the Medgaz pipeline.
The Popular Party supports nuclear power, but the PSOE has indicated that it supports a gradual shutdown of Spain's nuclear plants. The government announced in October 2002 that it will allow nuclear power plants across the region to increase their output in order to compensate for the planned shutdowns of the Guadalajara (2006) and the Ante Maria de Gabon (2009) plants.
* The total energy consumption statistic includes petroleum, dry
natural gas, coal, net hydro, nuclear, geothermal, solar, wind, wood and
waste electric power. The renewable energy consumption statistic is based
on International Energy Agency (IEA) data and includes hydropower, solar,
wind, tide, geothermal, solid biomass and animal products, biomass gas and
liquids, industrial and municipal wastes. Sectoral shares of energy
consumption and carbon emissions are also based on IEA data.
Sources for this report include: Asia Africa Intelligence Wire; Dow Jones International News; CIA World Factbook; Economist; Economist Intelligence Unit; Electric Utility Week; Europe Information Service; European Union; Financial Times; Gas Natural; Global Insight; International Energy Agency; National Energy Regulatory Commission(Spain); Petroleum Economist; Power Engineering International; Power News; Red Electrica de España; Repsol-YPF; Reuters; U.S. Census Bureau; U.S. Department of Commerce; U.S. Department of State; U.S. Energy Information Administration; World Gas Intelligence; World Markets Online.
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File last modified: March 14, 2003