With energy prices soaring to unchartered territories throughout Europe, the EU is looking for a plan to shift from its reliance on Russian gas – and the answer could lie on the border of Spain and Portugal.
Since the start of the Russia-Ukraine conflict, the EU has imposed multiple sanctions on Russia, many of which have been focused on its energy sector. This includes banning the exportation of energy industry equipment, technology, and services from Russia to the EU.
The EU has also stated its plans to cut gas imports from Russia by two-thirds within a year.
In addition, throughout the course of the year Russia has closed down major gas pipelines, including the Yamal gas pipeline, and more recently, the Nord Stream 1, citing maintenance for its main reasoning.
Russian President Vladimir Putin has been accused of “weaponising” energy supplies to Europe, and stoking slowdowns of the European economies, increasing the likelihood of a recession.
All these factors have caused the price of gas to soar approximately 450% higher than they were this time last year.
The market is so tight, that when Russia announced that it would restrict its gas supply in July, within a day, the wholesale price of gas in Europe increased by 10%.
Now, the EU has called for an emergency meeting this week, with a potential to look at Spain and Portugal as a viable solution to combat this crisis.
For a long period of time, the Iberian Peninsula was cut off from the huge network of gas pipelines flowing from Russia to the rest of Europe, forcing both Spain and Portugal to look for alternatives.
In doing so, they have become leaders in renewable energy, heavily investing in energy sources such as wind, solar and hydraulic power, so they could import gas from both North and West Africa, the United States and elsewhere.
Both countries were successful in utilising renewable energy and are now in a perfect position to reap the benefits of these long-term investments in liquefied natural gas (LNG).
Currently, there are six LNG plants in Spain – including Europe’s largest, in Barcelona – and one in Portugal, which turn shiploads of supercooled LNG back into natural gas that then powers businesses and homes across the nations.
Spain’s terminals consist of having an extensive mass of pipelines that transport natural gas from Algeria and Nigeria, aswell as being able to hold large quantities of LNG.
Though Spain has the most LNG terminals, Portugal’s terminal in Sines is the most strategically located. Even prior to the war in Ukraine, Patricia Cohen from the New York Times, notes that, Washington D.C., recognised it as a tactically important funnel for energy imports to the rest of Europe.
All in all, Spain and Portugal account for one-third of Europe’s LNG processing capacity.
Now, Spain is hoping to re-launch its initial plans to connect a network of LNG pipelines to the rest of the Europe through France. However, France is not interested.
In 2013, Spain and France agreed to construct a pipeline that would link the north-eastern region of Catalonia in Spain to the South of France, with the aim of connecting Spain and Portugal to the rest of Europe’s gas network.
Six years later it was dropped by regulators in both France and Spain, deeming it expensive and unnecessary.
France remains opposed to revitalising the project, citing that it doesn’t want additional competition between its energy producers and powerful nuclear industry, according to Simone Tagliapietra, a senior at Bruegel, a research-focus group in Brussels.
Ms. Tagliapietra, believed that by building the pipelines, “one of the major energy bottlenecks in Europe,” would be solved, as gas would be able to flow into the rest of Europe.
Spanish Energy Minister Teresa Ribera believes the new interconnection would be operational in eight to nine months, providing a genuine mid-long-term solution to the energy crisis.
By not complying with Spain, France is endangering an opportunity to aid this crisis and has the potential to further contribute to the increase in the price of energy in the future, pending the actions of the war in Ukraine.
However, as European winter is just around the corner, a solution is required almost immediately.
And Spain could have the answer for this as well.
Fusion Fuel, a leader in providing innovative green hydrogen solutions, was offered a US$10mn grant from the Portuguese government to develop a green hydrogen project in Sines.
Such a system would mean that the excess energy produced by wind in Portugal and by the Sun in Spain, could be used to ease the shortages in the rest of the Europe.
Jaime Silva, the chief technology officer at Fusion Fuel, believes it would be easy and quick to install the electricity cables through France that could transfer that energy through to Germany and then to the rest of Europe.
If France does not want to comply with this installation, Mr. Silva urged the ability to sell it to “Germany, to Hungary, to the Czech Republic, to Austria, to Luxembourg, to Belgium, because those countries need energy right now.”
Another potential short-term fix to the crisis it to put a cap on the price of electricity.
In May of this year, the European Commission granted both Spain and Portugal the right of setting a price cap for natural gas used to generate electricity until the end of May 2023. The cap is set at €40/MWh for the first six months, before rising by €5 per month to €70 per month by the end of the year.
In Spain, the difference between the real prices and capped prices of gas is paid through an emergency fund, which is paid for through a special charge on the bills of all electricity users.
In August, the average wholesale price of electricity in Spain was at €154.89/MWh, without including a cost related to the cap, the AEGE group said. This was 67% and 69% lower than the wholesale prices in Germany and France, respectively. For the same month, the compensation charge averaged €152.91/MWh.
Thus, Spain and Portugal have put themselves in a good position to provide immediate and long-term help to Europe’s current energy crisis. Although it is difficult to consolidate a unified energy policy amongst countries, both Spain and Portugal should be mentioned in the conversation in the EU’s emergency energy crisis meeting this week.
