2013-10-10 11:32:50 - New Energy research report from Business Monitor International is now available from Fast Market Research
Despite being the fifth largest energy consumer in Europe, Spain has limited domestic production of oil and gas and is forced to import around 99% of all hydrocarbons consumed. This has translated into a heavy import bill (an estimated US$68.1bn in 2012) and helped to fuel a trade deficit in the country, with growth weak as it struggles to recover from the financial crisis. The country is a key conduit for gas pipelines from Algeria and is a major receiver of liquefied natural gas - an area where further capacity expansion is possible once the economic outlook improves. Although exploration for shale gas is in its early stages, should it prove commercial, it could help to a make sizeable dent
in Spain's import needs, but is unlikely to revolutionise the energy outlook. Meanwhile, Repsol has started to undergo a strategic shake-up, following the Argentine government's privatisation of its YPF unit.
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The main trends and developments we highlight in Spain's oil & gas sector are:
* A delay to a planned shale gas exploration programme by Repsol underscores the threat local bans on hydraulic fracturing (fracking) pose to shale gas in Spain. Although support continues at the national level, regional bans remain a key downside risk. However, we highlight with Spain heavily dependent on imports and energy bill set to rise under government reforms, the call for greater domestic production could go stronger.
* Spain is forecast to consume 1.30mn b/d in 2013 and we expect demand to average 1.34mn b/d in 2017, increasing further to 1.40mn b/d by 2022. No meaningful local oil supply is available, meaning crude imports will reach at least 1.31mn b/d by 2017 and 1.38mn b/d by 2022, reaching a cost of US$48.3bn by the end of this period.
* According to data released by Enagas, Spain's natural gas imports reached 32.9 terrawatt hours (TWh) in March 2013, down 5.1% year-on-year (y-o-y). The fall in natural gas imports has been attributed to a shortage of liquefied natural gas (LNG) shipments from Egypt and Peru. Spain did not import LNG from either country in March 2013. Gas imports from Egypt and Peru were 1.85TWh and 1.07TWh respectively a year earlier. Combined LNG and pipeline imports from Algeria, Spain's largest supplier of Natural Gas, accounted for 42.9% of Spain's total gas imports in March, up 16.7% from March 2012, comprising 14.9TWh via pipeline and 3.69TWh via LNG shipments, Enagas data showed. However, overall Spanish gas demand in March 2013 fell 4.4% y-o-y, to 30.5TWh.
* Our estimate for gross liquefied natural gas (LNG) imports for 2013 is 25.5bn cubic metres (bcm), a figure we forecast to plateau at 30.0bcm between 2017 and 2022. Steady progress is therefore expected in terms of the LNG trade during our 10-year forecast period.
* Earlier industry estimates had been assuming annual gas consumption growth of 10% for the next few years. This estimate now looks highly optimistic, given Spain's fiscal predicament, the economic outlook and pricing trends. Our assumption for 2013 gas consumption is 32.8bcm, rising to a potential 36.2bcm by 2017 and increasing to 40.5bcm by 2022.
* Studies carried out by the government of Spain's Basque region have uncovered about 185bcm of shale gas. Officials said that the estimate was based on gas recovered at 13 wells in the Gran Enara field in Alava. Assuming a recovery rate of 15% (slightly lower than in the US), and given successful exploration and appraisal work, the commercialisation of Basque shale gas could see Spain increase its proven gas reserves to 28.0bcm. At present, five research permits have been issued for the research and extraction of unconventional gas in the region. The Cantabrian government will submit the final text to the Spanish Parliament for approval as a regional bill. On February 14 2013, the Spanish Congress rejected the ban of fracking, in a decision to 'keep open the door to the exploration of fracking or hydraulic fracturing'.
Spain is expected to require an average of 34.4bcm of imported gas between 2013 and 2017. This is forecast to rise to 40.5bcm in 2022, carrying a cost of US$19.3bn. Our oil import forecast between 2013 and 2017 is an average of 1.29mn b/d. In 2022, we expect oil imports to come in at 1.38mn b/d, representing US$48.3bn of expenditure. At the time of writing, we assumed an OPEC basket oil price for 2012 of US$109.5/bbl, falling to US$103.0/bbl in 2013. The assumptions for 2017 and 2022 are US$97.0 and US$96.0/bbl respectively.
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