(Bloomberg) -- Spain is set to stop receiving natural gas shipments through its main pipeline from November, accelerating the start of a potential energy supply crisis.
Shippers have placed zero orders for capacity, a practice known as “nominations,” for November for the Maghreb-Europe pipeline, which delivers Algerian gas via Morocco, according to data published by gas network operator Enagas SA.
Spanish policymakers and Enagas executives have been scrambling for weeks to find alternative gas supplies amid a diplomatic fallout between Algeria and Morocco. Because of the spat, the two North African nations have so far failed to renew an agreement for the pipeline’s operation, which is set to expire Oct. 31.
The halt of the conduit would leave Spain’s energy industry highly vulnerable ahead of the winter months as Europe contends with a broader energy crisis market by soaring natural gas prices amid a supply crunch. Algeria is the biggest supplier to Spain, with its pipeline gas and liquefied natural gas meeting almost half of demand in the first half of the year, according to Enagas data.
Last month, Spanish Foreign Minister Jose Manuel Albares traveled to Algeria to try to broker a deal. Algeria could still honor its export commitments through another pipeline, called Medgaz, potentially with some LNG cargoes during peak winter demand, the Oxford Institute for Energy Studies said in a report last month. Algerian President Abdelmadjid Tebboune has promised to deliver LNG to Spain if there’s no pipeline agreement.
Medgaz capacity is set to increase before the end of the year, but it’s not clear whether Algeria can reroute Spanish supply through the newly expanded link, according to Jonathan Stern, a research fellow at OIES.
“They say they can -- and theoretically they should be able to -- but we know how things that ‘should’ be possible turn out to be more complicated than was foreseen,” he said.
Scheduled daily flows into Almeria, Spain, where Medgaz terminates, show only marginal increases for November from October, according to the Enagas schedule. The published operational plans are provisional and get updated several times a month.
Meanwhile, Enagas last week boosted the number of LNG slots for the next year, to help increase shipments. LNG is pricier than piped gas, and in many cases shipments have to be acquired in a tight market competing against aggressive rivals such as China, which poses a challenge for Spain.
Enagas has currently 136 slots allocated for LNG purchases for the November-March period, compared with 86 unloaded last year, according to the company.
The gas situation is likely to exacerbate Spain’s wider energy crisis. Like most of Europe, the nation has been hit by a surge in power costs, with prices in the country reaching record levels since before the summer months.
Gas accounts for less than a fifth of Spain’s electricity production. However, because of how the nation’s wholesale power system is set up, when there is high demand, prices tend to be set by the most expensive technology used -- which in this case is gas. Using more expensive gas, such as LNG, is bound to make the problem worse for electricity prices.
Spain has only small gas connections with France, meaning it is effectively cut off from the rest of Europe’s vast network for the fuel.
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