After the shale revolution that boomed the gas market in the U.S.A. and the climate act in China, that intended to rapidly shift from coal to gas in 2017, 2019 was the year that natural gas reshaped the energy mix in Europe.

In Spain, this commodity changed dramatically the energy mix as well as the energy price. The bearish gas market aligned with all the urgency around fighting climate change helped countries to announce several deadlines for coal phase-out and demonstrate that was possible only by market.

Figure 1 – Energy Mix Evolution in Spain. Source: OMIE

Figure 2 – Energy Mix Evolution in 2019 (Spain). Source: OMIE

2019 was also an important year for Spain and for its Iberian gas Hub, the MIBGAS, with results and milestones that attracted the spotlights to this “newborn” market.

The national gas demand was 398 TWh, 14% more Y-o-Y and the use of gas for energy generation increased 80% due to low hydroelectric reserves and the huge fall of coal generation, leading to a fall of 25% in the CO2 emissions.

Evolution in data

Thanks to the great commitment from the market players and strong interest from the government, MIBGAS has been doubling the traded volume every year (Figure 3) rising from a shy 10 TWh in 2016 to more than 56 TWh traded in 2019, accounting for near 15% of the national demand.

Figure 3 – Volume Traded in MIBGAS. Source: MIBGAS

Also, the number of market players continues to increase at an exceptional pace surpassing the 100 players in the market in July of 2019 and coming from a starting point of 16 in December of 2015. The number of market participants is one of the 5 main key indicators to assess the maturity of a market because they are the ones who bring liquidity to the market.

Figure 4 – Evolution of market players in MIBGAS. Source: MIBGAS

As an organized and regulated market, MIBGAS manages the negotiation of products between intra-day and Month-ahead (M+1). The volume traded within these products was 48 TWh in 2019

Since June of 2018, MIBGAS started to present also future prices for M+2 to M+4, Q+1 to Q+4, Summer and winter products and, Cal+1 and Cal+2 prices. This new sets of products allowed MIBGAS to get closer to its siblings across Europe, increasing transparency.


In terms of prices, 2019 was the year that allowed MIBGAS to become competitive against the major European Hubs straightening the spread between them.

The spot market even ended the year as the cheapest price in Europe registering average monthly prices lower than TTF in November and December.

Figure 5 – Spread between MIBGAS and TTF spot markets (D+1). Source: MTECH

Calendar products only started being traded in 2018, marking a 2 €/MWh spread from the TTF and peaking at 2.70 €/MWh in August. However, last year, Cal20 was floating between 1.50 and 2 €/MWh but the excess of natural gas and the increase of LNG imports to Europe led to a significant fall in MIBGAS, decreasing steeply since September and crossing in December which means that, the spread between the two markets was negative making the Cal20 of MIBGAS more competitive than TTF’s.

Figure 6 – Spread between MIBGAS and TTF Cal20. Source: MTECH

Become an LNG Reference

Of course the internal market is still adapting to this new reality and Spain still have several long-term contracts with oil indexed formulas. However, the potential of LNG from countries such as Qatar, the USA and Russia may help Iberia to develop its market at an accelerate pace and become the reference for LNG prices in Europe due to its geographical position and its infrastructures.

Aiming at becoming an LNG reference, MIBGAS started trading LNG spot products, becoming the first organized market worldwide to offer this type of products for liquefied natural gas. Since the first quarter of 2019, it is possible to trade within-day and day-ahead LNG volumes in MIBGAS, improving transparency on this commodity in the 6 regasification plants in Spain.

The goal is to increase liquidity in the market by presenting interesting alternatives to attract more players and, therefore, increase transparency in the market, especially for LNG where, where the market continues to be mostly based in OTC transactions.

The sovereignty of TTF as the biggest reference for gas is more than established, surpassing already the American Henry Hub and the English NBP, but these markets are strongly focused on piped gas. The LNG potential for Iberia is huge and MIBGAS has the golden opportunity to compete directly with the LNG Asian spot reference and become the biggest market for this commodity whilst will play an important role of energy transition to a low carbon society.

But to achieve greatness, infrastructure must be in place to help the Iberian market export important volumes and supply the heart of Europe. The problem is that some setbacks have occurred such has the cancelation of the MIDCAT project last year that would have been crucial to increase the interconnection capacity between Spain and France.

2022/2023 OUTLOOK

The short and mid-term bearish trends in the natural gas market is unquestionable and the global situation led by a significant fall in the demand for this commodity from Asia worsened even more with the impact of coronavirus in Chin, struggling to show signs of improvement in the coming months. However, future gas prices for 2022 and 2023 show increments of more than 2 €/MWh picturing a scenario of rebound and normalisation of the gas market.

Figure 7 – Market evolution Y+1, Y+2, Y+3. Source: MTECH

For Magnus Commodities, this Contango situation suggests a long-term risk management strategy by having indexed contracts for next two/three years in order to secure volumes and manage the commodity risk.

Despite the low liquidity and the lack of more diversity in products, MIBGAS indexed formulas should be evaluated and be considered as an option due to the interesting spreads we are witnessing in the market against the major European hubs. Also, if the Iberian market continues to double the volume traded y-o-y, in 2020, 30% of the Spanish demand should be traded in the local organized market, increasing the liquidity and the attractiveness of the MIBGAS.

At the moment, a full indexation to MIBGAS is somwhat risky due to the low level of liquidity and poor market maturity. Despite that, for future contract negotiations should be considered options like having a portion of the volume indexed to this local Hub or having the possibility to SWAP from an indexed formula to a MIBGAS indexed, especially considering the performance of the spreads in 2019.

It is clear the fast reshape of natural gas in Iberia with contracts moving more and more from the oil indexed formulas to Hubs. Here TTF is the main reference at the moment due to its incredible maturity level and perfect geographic placement, but we can’t help nut notice that MIBGAS has been growing really well and could be a real reference in Europe in a few years.

Jorge Seabra | Energy Consultant

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