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Spain to Reassess Cost-Benefit of Quake-Hit Castor Gas Site

Oct. 10 (Bloomberg) -- Spain will review the costs and benefits of the Castor natural gas storage site that may have caused a series of earthquakes.

When the project, backed by 1.4 billion euros ($1.9 billion) of secured bonds, was approved, it was considered “urgent” to secure Spain’s gas supply for the period 2008 to 2016, Industry Minister Jose Manuel Soria told a parliamentary committee today in Madrid. Lower demand amid a five-year economic slump and overcapacity in infrastructure including regasification plants have changed that equation, he said.

“It is necessary to carry out a new cost-benefit analysis of this installation,” he said.

Soria’s ministry ordered a halt last month on work at the offshore site, owned by ACS SA and Dundee Energy Ltd, following a series of quakes in the surrounding area. The government has commissioned studies into the seismic activity and has said the facility, which was still being tested for suitability as a gas-storage site, will remain idle until the safety of the project can be guaranteed.

Soria said today preliminary studies indicate that the quakes in the area were connected to work at the site, a former oilfield 22 kilometers (14 miles) off eastern Spain. Studies carried out before the project was first approved in 2008 didn’t show there was a risk of temblors, Soria said.

Fitch Ratings put the 1.4 billion euros of bonds on rating watch negative on Oct. 1, saying in the “worst-case scenario” the government may terminate the project. Soria said no such decision can be taken until all the technical reports have been considered.

The government is challenging in court legislation, passed by the previous administration in 2008, that allows for compensation for the operator in the case of closure or suspension of the project, Soria said. The government considers the clause, which sets out compensation even in the case of negligence by the operator, to be “abusive,” and is awaiting a decision from the Supreme Court on the decree, he said.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

To contact the editor responsible for this story: Stephen Foxwell at sfoxwell@bloomberg.net

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