Putin Gives Spain Hope of Breaching French Barrier to Gas Market

Enrique Carrion has been waiting four years for the world’s biggest gas tanker to arrive in Barcelona and Vladimir Putin is offering him hope.

Carrion’s employer Enagas SA (ENG) spent more than 400 million euros ($555 million) on an upgrade that allows the liquefied natural gas terminal he manages in the Spanish city’s port to unload Qatar’s newest carriers. Their plans to pump gas north to Europe’s industrial center were thwarted as the French pipeline operator stalled on giving them a connection.

Now Russia’s aggression in Ukraine, and his threat to disrupt Europe’s gas supply, is shifting the priorities of European leaders, opening up an opportunity for Enagas to make a return on its investment.

“There might be better times ahead,” Carrion said in an April 2 interview at his office looking out over the wharf. “If the French will open the taps.”

The Russian President told European leaders last week he’ll halt gas shipments to Ukraine, which handles about 15 percent of Europe’s own supply, if the country continues to fall behind on payments. Spain’s LNG import industry, the world’s fourth largest in terms of capacity, has the potential to reduce Putin’s leverage.

“The Iberian peninsula could be the landing strip for gas from all over the world to enter the European market,” Enagas Chairman Antonio Llarden said in an interview at the company’s Madrid headquarters.

Hollande Signal

After Putin’s annexation of the Crimean peninsula, EU leaders agreed at a Brussels summit on March 21 to seek to curb their reliance on Russian gas. Encouragingly for the Spanish, even French President Francois Hollande said at the summit that the EU can improve the security of its gas supply by building more interconnections.

As instability spreads to eastern Ukraine, the European Commission, the bloc’s executive, is working on plans due by June to diversify energy sources away from Russia.

Spanish officials want that strategy to prioritize a new pipeline known at the MidCat through the eastern Pyrenees that would allow suppliers to pump almost 15 billion cubic meters of gas a year north in total, equivalent to about 9 percent of the supply coming from Russia. Spain is already Europe’s biggest exporter of LNG.

“We’ll keep pushing for a European gas connection through the MidCat link,” Spanish Prime Minister Mariano Rajoy told Parliament in Madrid on March 19 before attending the summit in Brussels. “It’s a priority for this government and for the whole of Europe.”

Expanding Capacity

Spain already upgraded its main connection with France last year, increasing the capacity of the pipeline at Larrau in the western Pyrenees to 5.2 bcm and adding equipment to pump gas northwards as well as southwards. A second crossing near the Atlantic coast will pump about 2 bcm by 2016, according to Enagas.

The MidCat pipeline -- so called because it will run from the French Midi region into Catalonia -- will add 7.2 bcm.

OAO Gazprom, Russia’s state-controlled gas company, delivered about 163 bcm of natural gas to Europe last year, receiving about $63 billion, according to a March 3 company presentation.

That’s about 30 percent of Europe’s gas supply, said Simon Pirani at the Oxford Institute for Energy Studies. About half of the Russian gas flows into Europe through Ukraine with the rest routed through a pipeline across the Baltic, he said.

EU Priority

The EU offered a boost to Spain’s ambitions last year when it included the MidCat project in a list of 248 priority investments aimed at integrating Europe’s energy markets that can bid for 5.85 billion euros of EU funding.

Even so, GRTgaz, the largest French pipeline operator, doesn’t anticipate the connection being completed until 2020, according to its long-term planning report. Before then, France is planning to improve gas flows between its northern and southern regions and expand its own LNG import capacity.

“France has been blocking these connections for the past 20 years because they don’t want the competition,” said Gonzalo Escribano, director of the energy research program at the Elcano Royal Institute in Madrid, which is funded by the government and companies including Enagas and Banco Santander.

Matthieu Discazeaux, a spokesman for TIGF SA, the company that manages the gas pipeline network in southwestern France, said all plans for expanding links with Spain are on schedule.

In Barcelona, where domestic demand for gas has been cut by a six-year economic slump and a surge in renewable power generating capacity, Enagas’s plant pumped at just 18 percent of its capacity last month. The four 200-foot-high storage tanks that Carrion commissioned in 2011 were less than half full on April 2. The dock stood empty.

“In 2003 when I started, it was one ship after another,” Carrion said. “In March, there were three.”

To contact the reporter on this story: Ben Sills in Madrid at bsills@bloomberg.net

To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net Eddie Buckle

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