Until the recent commissioning of an organized gas market in the Iberia peninsula, the only option that companies have had to “negotiate” with suppliers have been based on oil indexed (or derivatives). This type of contract has their origin in unregulated bilateral agreements (OTC market) that suppliers trade with regasification plants and whose reference prices for transactions are not published. Every closed transaction is communicated to ENAGAS, which is the Technical System Operator for Iberia.

This market in contrast to the corresponding European gas markets (Hubs) and the Iberian power market (MIBEL) has important handicaps.

On the one hand, the price lack of transparency makes it difficult to benchmark any purchasing strategies against a clear and unique market value.

On the other hand, paying for a commodity that, despite having a strong correlation with oil, does not follow the same fundamentals and therefore adds risk of being exposed to a market with different price levels than the ones of your direct competitors (linked to local gas hub’s).

grafico_1
This graph shows the evloution prices of an oil indexed formula (Yellow line) against an organized European Hub market (in this case the TTF, red line).

Finally, the market limited access to new competitors as there are no objective, transparent and non-discriminatory terms that facilitates it. Why, so far, major global Gas operators such as Shell, BP, etc. have not had a significant presence in our market yet?

The need to adapt the Iberian gas sector regulation to the new European one, highly development of the local infrastructure and high market competition have made possible the development of a gas hub in Spain. This means that the “buy & sell” of gas in our country is carried out transparently and provides a daily reference gas price (Day Ahead market).

The Royal Decree published in late October last year, includes the creation of an organized gas market in Spain operated by the company OMIE through MIBGAS, which became operational in mid last December.

MIBGAS the image and likeness of their European counterparts has a platform where gas can be negotiated with different delivery products within the Virtual Market Area and other local points of the gas system for different time horizons. All transporters, distributors, traders and direct consumers of gas may sell or buy through these products according to their commitments and needs. Also, according to the network code of balance, the Technical System Operator participates in the organized market (to buy or sell) to take the necessary actions to ensure the viability and balance of gas programs.

Where MIBGAS S.A has assigned the role of the Market Operator, in accordance with Article 65.ter of Law 34/1998 of 7 October on the hydrocarbons sector. (The gas equivalent to OMIE electricity Market Operator)

And ENAGAS GTS, SAU acts as the Technical System Operator according to the twentieth additional provision of Law 34/1998 of 7 October on the hydrocarbons sector. (The gas equivalent of REE power System Operator)

However, like any new market, it still will not be a real alternative to the current oil indexed formulas yet. The MIBGAS so far has taken its first steps and should grow up. To be a real alternative, it must add more operators and more traded volumes. All this will result in a market with more products and more liquidity (a proper futures market as OMIP power one)

To give us an idea, on the Iberian Peninsula market supply and demand is trading around 1 TWh of gas per day. Since the start of MIBGAS operations, so far is trading just over 3,000 MWh per day, which represents only a 0.3% of the total. And, despite being still far from being a representative market, it is already showing signs of price:

Mibgas/mercados

The current list of agents participating in the market is not very extensive, but will be expanded as the Iberian market breaks its current entry barriers. The list of participating agents registered to date are:

1. Agente del Mercado Electrico SAU

2. AXPO IBERIA SLU

3. BP Gas Europe, S.A.U.

4. CEPSA GAS COMERCIALIZADORA, S.A.

5. EDP COMERCIALIZADORA S.A.

6. ENAGAS GTS S.A.U.

7. Endesa Energía, S.A.U

8. ENÉRGYAVM GESTIÓN DE ENERGÍA, SLU

9. Fenie Energía, S.A.

10. GALP GÁS NATURAL, S.A.

11. GAS NATURAL COMERCIALIZADORA, S.A.

12. GDF SUEZ ENERGÍA ESPAÑA, S.L.U.

13. Iberdrola Generación España, S.A.U.

14. Ingenieria y Comercialización del Gas, S.A.

15. MULTIENERGIA VERDE SL

16. NEOELECTRA ENERGIA SLU

17. REMICA COMERCIALIZADORA, S.A.U.

18. Viesgo Generación S.L.

The European Gas Hubs are playing an important role in the transition from oil indexed prices. And the Iberian market was an important missing piece to the way to create a unique continental market. Not so much at the level of local consumption (it’s not the biggest), as a gateway to neighbouring markets and as an interesting alternative to rigid contracts of the Russian market and of which Europe relies heavily.

grafico_3

However, it still has a long way to go. While not yet being a valid alternative for a buyer of gas, the process of transition from an OTC market to a proper local Hub takes time (we talk about a minimum of 2 years).

With MIBGAS, the Iberian market opens door to an interesting growth and improved competitiveness for companies in our market. A great infrastructure (reception, transmission, distribution and storage) and a Hub configuration similar to our neighboring countries gives us all the cards to create a market with great potential. Let’s follow its evolution because sooner or later it will be our reference for decision-making and improving competitiveness.

Alejandro de Roca | Operations Director

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