Ukraine situation causes rising energy prices via chaos in gas supply

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gas supply

MADRID – The clash between Russia and NATO countries comes at a bad time for Spain. The country is in an energy crisis. Partly because of the problem of Algerian gas supply and the historical lack of control over electricity prices.

Tensions between Russia and NATO countries, to which Spain belongs, may escalate. That would have important consequences for the energy market in the country. The Spanish market is highly dependent on the import of hydrocarbons from abroad. These imports are being strongly affected by the geopolitical problems that are preoccupying Ukraine, which could lead to imminent war.

The effects on the Spanish energy market are diverse. The newspaper Expansión writes that they are produced in a chain. The knock-on effect of this is raising the tensions the country already has over security of gas supply and gas and electricity prices.

The conflict is putting pressure on the gas supply chain to Spain. Russia is one of the main suppliers. An average of three Russian methane tankers per month arrive in Spanish ports. A possible armed conflict with Russia would put pressure on supply. Very bad timing as Spain has not yet fully resolved the closure of one of the gas pipelines with Algeria, the main supplier. Medgaz, the alternative gas pipeline, still does not cover the capacity of the closed supply from Algeria (GME Maghreb-Europe). In addition, Spain is still locked in full price renegotiations with Sonatrach, the Algerian gas monopoly.

Gas price skyrocketed by 21%

When the price of gas skyrockets, another escalation in electricity prices follows, as many power-generating plants in Spain run on gas. For every euro of increase in the gas price, the price of a megawatt-hour on the wholesale electricity market rises by €2. This directly affects the wallets of all citizens. Just between Friday and Tuesday (yesterday) the gas price skyrocketed by 21%, to €86 per megawatt-hour. More than €15, which equates to an impact of €30 on the price of a megawatt-hour on the wholesale electricity market.

Spain is very vulnerable

The price of electricity, which started falling a few weeks ago, is now rising again on its way to an all-time high. The average price for today is 5.6% higher than yesterday and will amount to €236.77 per megawatt-hour (MWh).

It is the second-highest value for one day so far in 2022. This value was only surpassed by €244.67/MWh on January 17, according to data from Omie, the manager of the wholesale market. The high price is despite the Spanish government’s strong commitment to renewable energy as a way to lower prices, which only works if there is sun and wind and Tuesday was a day with little wind and solar energy. A clear example of how vulnerable Spain is. It 

In such circumstances, every gas molecule is extremely important, wherever it comes from. Russia has been one of Spain’s four largest gas suppliers in recent years.

Russia in fourth place for annual gas supply to Spain

Data from Cores and Enagás shows that Russia represents 8% to 10% of the annual deliveries of natural gas to Spain. Cores is the Corporation for Strategic Reserves of Petroleum Products, which ensures that Spain does not run out of stock. Enagás is the operator of the major gas pipelines and regasification plants (where methane tankers unload in ports). 

The largest share is still held by Algeria, with 42%. Russia is in fourth place, but relatively close behind the US (14%) and Nigeria (11%). In 2021, according to the latest data from Enagás, Russia sent a total of 36,119 gigawatt-hours of gas to Spain, about 9%. With that, the country retained the fourth position as the largest supplier, again behind Algeria, the US, and Nigeria.

Another major supplier to Spain is France, but some of it may be Russian-origin gas, which passes through Europe via gas pipelines, one of which is via Ukraine. In September, Russian methane tankers stopped entering Spain for the first time due to the escalation in prices. But shipments resumed in October.

Naturgy, Repsol, Gazprom

There were months when the share of gas from Russia was more than 10%. This shows the relevance of Russian gas. Naturgy is the only Spanish energy company with larger interests in Russia, due to the Yamal deposits in northwestern Siberia. This is where the largest Russian gas reserve is located. Repsol has just left Russia by selling its last remaining assets to Gazprom Neft, the oil arm of the Russian state group Gazprom.

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