Gas industry over-capacity explained in a household bill

More than 40% of the average Spanish gas bill stems from the costs of developing and managing the gas system. The paradox is that, within this oversized system some absurd costs, such as maintaining a regassification plant that has never been used and the burden of a deficit derived from having built a lot of infrastructure which is under used. The gas infrastructure over-capacity means that Spain has the second most expensive price for gas in Europe
Sara Acosta

When one of the country's 7.8 million domestic gas consumers (20% of the total demand) turns on the heating, takes a hot shower or washes the dishes, they are paying to keep infrastructure on standby that has never been used, such as the El Musel regassification plant (Gijón), and for the deficit that has burdened the system since 2014 because too much infrastructure was built for the limited use it receives. But customers even pay if they do not use any gas at all. The leading five trading companies by sales volume - Naturgy, Endesa, Iberdrola, Unión Fenosa Gas and Cepsa– normally include in the fixed charge on their bills the costs of the gas and the use of the networks. But they do not show what these categories include. Some, like the one we show here, specify the word "tolls", which is key to understanding that between them, Spain’s consumers are covering the costs of excessive investments; and that because of this Spain has one of the highest gas prices in Europe. The tolls are what is paid for the development and maintenance of the gas system, that is, the infrastructure that either receives this fossil fuel by boat or pipeline from as many as 15 countries in 2018 (three more than in 2017) or that stores it or transports it to homes, businesses and factories. Spain barely produces any of its own gas.

The National Commission on Markets and Competition (CNMC) estimates that on average just over 40% of what homes pay in their bills goes towards covering the costs of the gas system.

What does this average of 40% paid by consumers for the gas system cover?

Things that have little to do with supply are charged. This includes the costs that the State recognises for the system, and that it therefore pays back. The costs are proposed every year by the CNMC and they include payments for regassification companies (Enagás), transport networks (Enagás), distribution networks (Naturgy) and the technical management of the system (Enagás). But they also include:


  • Hibernation of the regassification plant in El Musel (Gijon). This facility has never been put into operation due to excess gas infrastructure, but a decision was made to hibernate it, meaning it is on standby in case it is needed at some point. In a further twist in a bizarre case, the owner and promoter, Enagás, is seeking to legalise it again as it was declared illegal in 2003 for being constructed less than 2,000 metres from a populated area. While a decision is made on what to do with it, its maintenance is paid for every year. This will cost 23.6 euros million this year.

  • Paris Judgement. In 2010, Algerian company Sonatrach demanded a revision of the prices for supplying what was then Gas Natural Fenosa (now Naturgy). The Court of Arbitration of Paris ruled in favour of the Algerian company and set the amount that Gas Natural Fenosa should pay at 1.897 billion dollars, but the company successfully had the debt attributed to the previous company, Enagás. This has meant transferring the debt to consumers; at a cost of approximately € 33 million per year since 2015.

  • Gas system deficit. This goes back to 2014 and is caused by the excess capacity of the infrastructure. In 2012, Mariano Rajoy's Government approved a Royal Decree (RD13/2012) ordering new investments in infrastructure to be halted due to excess facilities that were proving "very expensive". In this decree it was also stated that building new infrastructure could "put the security of the supply to the system at risk", and it made specific reference to the regassification plants, as they need a minimum flow to operate that was difficult to achieve in that year because of the "significant reduction in unloading from ships", as stated in the Official State Gazette. The accumulated deficit in the system will translate to over € 100 million in 2019 alone.

  • Castor gas storage site. This fiasco of a gas storage facility built on the coast of Tarragona, in which the multinational Spanish company ACS has a stake, is on standby. According to the deal with the State prior to construction, the company was not assuming any risks; if anything failed, the company would be compensated at the expense of consumers through their gas bills. When the project was halted in 2013 after hundreds of earth tremors, a debt of € 1.35 billion was taken on by the company (in reality with the banks that financed Castor), which the Government promised to pay in 30 years. The budget for compensation for the gas system for 2019 included the 8.7 million that will have to be paid this year for the maintenance of the unused storage site. However, in January of this year, the campaign, #NoEnMiFactura, promoted by Caso Castor, a citizen's platform, was successful in having the Government, which is responsible for setting the prices for the gas system, eliminate Castor from bills. The same group is now fighting for this money to be returned.

What impact does this underused luxury gas system have on the consumers' gas bill?

As stated by the CNMC in its 2018 report on the gas system, "the final price of gas for the domestic consumer (including taxes) is the fourth most expensive in Europe, mainly because of the higher cost of the tolls for the use of the network. If we consider the prices before tax, the price in Spain is the second most expensive in Europe".


How does the gas industry view the current situation?

In 2018, a total of 33 new municipalities were connected to the natural gas network. These figures come from industry group Sedigas. Currently, a total of 1,792 municipalities are supplied throughout the country, a number that has increased every year since 1985. The body concludes that "there is still large potential for growth", that is to say, keep building more distribution networks.


Does it make sense to continue building gas networks at a time of energy transition?

Right now, consumers pay in their bills for a system that was designed for a demand that has never materialised. There is more capacity than is needed, and even less will be required as more renewables enter into the system, the costs of which have fallen exponentially in the last five years.


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