Spain relies on French gas imports, storage withdrawals amid UK LNG pull

Spain has continued to import from France and withdraw from storage to meet higher power sector demand for gas in the first week of December as strong premiums on the UK's NBP draw available LNG cargoes to that market.

Due to weak renewable generation, demand for gas in the power sector in Spain remained robust at the start of December averaging 40 million cu m/d over Dec 1-4, up from a November average of 25 million cu m/d and more than double the 19.4 million cu m/d seen in December 2023.

Wind speeds are expected to pick up in Spain next week, but the downside for gas demand might limited as colder weather is forecast, one trader based in Spain said.

Spanish wind generation is forecast to increase from 10 GWh on Dec. 6 to 15 GWh on Dec. 9, according to spotrenewables.com. But temperatures are set to fall below the five-year average from Dec. 8, averaging 3 degrees Celsius below norms across the week ending Dec. 15, according to CustomWeather.

Pirineos pulls

In a tight LNG market, Spain has had to rely on pipeline imports from France and storage withdrawals, as the hub struggled to compete against the UK, according to market sources.

Platts, part of S&P Global Commodity Insights, assessed the Spanish PVB day-ahead contract at a 42 euro cent/MWh discount to the NBP and a Eur1.06/MWh premium to the French PEG on Dec. 5.

For the month-ahead it was valued Eur1.25/MWh below its UK equivalent and 33 euro cent/MWh above the French January product.

France's net exports via the Pirineos IP to Spain averaged 5.84 million cu m/d over Dec. 1-4, according to Commodity Insights data, four times higher than the November average. In December 2023, Spain was a net exporter to France, with average net outflows at 0.7 million cu m/d.

Despite the Dec.4 strikes by energy workers in France, exports from France to Spain are set to remain relatively stable. No interruptions have been reported on the French network with France's Elengy and Belgium's Fluxys saying that operations at their LNG terminals have not been impacted.

Withdrawals from Spanish storages have averaged 97 GWh/d over the Dec, 1-4 period, 17% higher on the month and 7% above last year's levels, data from Gas Infrastructure Europe showed.

"The [Spanish] market is relying on imports from the Pirineos and withdrawals from AVB storages. With strong [LNG] pulls from the UK, players were keeping the TVB tanks balanced [in November] because regasification was not worth it," a Spain-based gas trader said.

LNG tanks at Spain's terminals dropped by 4 percentage points to 61% between Nov. 1 and Nov.30, while they reached 50% of capacity on Dec. 5, data from Spain's Enagas showed.

The Spanish TVB (Virtual Balancing Tank) January products were last heard trading at a discount of around 80 euro cent/MWh to the Dutch TTF, which was assessed by Platts at Eur46.535/MWh Dec. 5.

UK LNG market

Given the recent spike in gas-to-power demand across the Mediterranean amid a lack of renewables supply, traders have seen LNG prices in the Iberian region track those seen in Northwest Europe as buyers in Spain try to compete with NWE for cargoes.

Platts assessed the DES Mediterranean marker for January at $14.209/MMBtu on Dec. 5, at parity with the DES NWE marker.

Although the recent strength in demand has led to higher domestic natural gas and LNG prices, traders were still seeing the UK and Italy as the most favorable netback destinations for LNG.

"It's a balance where to take your cargoes but the UK and Italy are where sellers are looking," an LNG trader said.

Another trader added that the low storage capacity in the UK, coupled with the persistent colder weather, has led to the British NBP gas hub price and domestic LNG prices being stronger relative to the Med. As a result, sources have seen the UK bidding higher to pull in supplementary supply from Norway and global LNG cargo volumes.

"They're bidding stronger than the rest of NWE as they need the gas and LNG," another trader said. "They have low storage capacity, so they need to pay up for the LNG."

The UK's gas storages stood at 58.91% full as of Dec. 4, according to the latest Aggregated Gas Storage Inventory data.

The UK started the winter heating season at 57.93% full on Oct. 1. This compares to 73.28% full on Dec. 4, 2023, and 71.39% full on Oct. 1, 2023.

So far in December the UK has imported 350,000 mt, according to Commodity Insights data on Dec. 6. November imports stood at 920,000 mt, or 13 cargoes, the highest since 990,000 mt in February. In November 2023 imports were 1.15 million mt.