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    Spain Gas Consumption Forecast


    May 12, 2022 - Fitch Solutions Sector Intelligence

     

      THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data are solely derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

      Spain Gas Consumption Forecast

      • 12 May 2022
      • Spain
      • Oil & Gas

      Key View: After a strong contraction in gas consumption in 2020 due to the Covid-19 pandemic, gas consumption made a partial comeback in 2021. We expect this will continue going into 2022, but note downside risks to consumption from soaring gas prices, which could derail the recovery in demand in the short-term. Past the pandemic, we expect gas consumption growth to continue over the forecast period as gas power generation increases to replace shut-in coal power plants. However, overall gains will be limited by a lack of new gas-generation capacity and the prospect of cheap electricity imports from France.

      Latest Updates
      • Gas consumption partially recuperated in 2021, by an estimated 5.4%, as the economic recovery saw a progressive return of power demand and demand from the services sector. In November 2021, gas-for-power demand in Spain came in at its highest level since January 2010.

      • We expect the recovery in consumption will endure in 2022, with a forecasted 3% y-o-y increase in gas consumption forecasted for 2022, albeit we note the high gas prices could act as a downside risk to short-term consumption over the coming months. The Russian invasion of Ukraine in early 2022 sent gas prices even higher, which could slow consumption levels in 2022 relative to our current forecasts.

      • Past the Covid-19 pandemic, we remain relatively optimistic about Spain's gas consumption outlook. Economic growth and an associated economic recovery should pull up gas consumption over the forecast period. We forecast consumption will rise from 33.8bcm in 2021, and reach 39.0bcm by the end of our forecast period in 2031.

      Structural Trends

      2020 gas consumption came in at about 32.1bcm, a strong 9.7% decline from 2019 levels of 35.5bcm. Again, this was due to the ongoing Covid-19 pandemic and the associated economic slowdowns and power demand slowdown (from the industrial sector and the overall electricity demand). According to Spain's grid operator Red Electrica de Espana (REE), 2020 industrial power demand dropped 7% y-o-y, while demand from the services sector fell by 10%. Over 2020, overall Spanish power demand is estimated to have fallen by 6%.

      Gas consumption partially recuperated in 2021, by an estimated 5.4%, as the economic recovery saw a progressive return of power demand and demand from the services sector. In November 2021, gas-for-power demand in Spain came in at its highest level since January 2010. We expect the recovery in consumption will endure in 2022, with a forecasted 3% y-o-y increase in gas consumption forecasted for 2022, albeit we note the high gas prices could act as a downside risk to short-term consumption over the coming months. The Russian invasion of Ukraine in early 2022 sent gas prices even higher, which could slow consumption levels in 2022 relative to our current forecasts.

      Past the Covid-19 pandemic, we remain relatively optimistic about Spain's gas consumption outlook. Indeed, prior to the pandemic, Spain's gas consumption has been rebounding strongly after strong decline rates over 2009-2014. We expect gas will retain its role as the dominant and increasing source of feedstock for the power sector. Although adverse economic conditions led to a very strong decrease in gas consumption, from 36.8bcm in 2007 to an estimated 27.20bcm in 2014, consumption has been returning to an uptrend over the past years, with notably a strong 14% y-o-y rise in consumption in 2019, to reach 35.5bcm.

      Gas Consumption On A Slow Uptrend
      Spain - Gas Consumption (2020-2031)

      f = Fitch Solutions forecast. Source: EIA, Fitch Solutions

      Our Country Risk team continues to expect a strong economic recovery in 2022, forecasting real GDP to increase by 5.4% in 2022, after 5.1% y-o-y growth in 2021 (a partial recovery from the 10.8% contraction in 2020). Real GDP growth will then ease from 2023 onwards, as fiscal stimulus is unwound and monetary policy gradually normalises. Economic growth and an associated economic recovery should pull up gas consumption over the forecast period. We forecast consumption will rise from an estimated 33.8bcm in 2021, and reach 39.0bcm by the end of our forecast period in 2031.

      Gas power generation is set for an increase over our forecast period. According to our Power team, coal-fired power generation in Spain will decline over the next decade as EU-level regulations impact the profitability of coal power plants. The decline in coal power supply will lead to an uptick in gas-fired generation owing to robust gas import and distribution infrastructure, and limited progress in the development of new non-hydropower renewables.

      However, our Power team also highlights that the increase in gas generation will be modest when compared with the decline in coal generation. The sector's potential will be capped by the country's access to cheap power imports from France. They also note that with coal, oil and nuclear power generation declining, they expect that the country's gas-fired power industry will be integral in the provision of baseload capacity, remaining prominent in the overall power mix. However, the lack of new gas-fired power projects in the pipeline feeds into our view that the industry will remain stagnant over the next decade, presenting limited opportunity for investment and limiting the scale of increase in gas consumption in the power sector over the coming years.

      However, they do highlight some upside risk to gas power generation, from the fact that Spain's power supply is becoming increasingly susceptible to shortfalls in domestic electricity supply during peak demand. In the absence of sufficient power storage capacity, our Power team notes that this dynamic will support the demand for new combined-cycle gas-fired capacity, offering reliable baseload supply and comparatively low emissions.

      Gas Consumption (Spain 2020-2025)
      Indicator 2020 2021 2022f 2023f 2024f 2025f
      Dry natural gas consumption, bcm 32.1 33.8 34.9 35.2 35.7 36.1
      Dry natural gas consumption, % y-o-y -9.7 5.4 3.0 1.0 1.3 1.3
      f = Fitch Solutions forecast. Source: EIA, Fitch Solutions
      Gas Consumption (Spain 2026-2031)
      Indicator 2026f 2027f 2028f 2029f 2030f 2031f
      Dry natural gas consumption, bcm 36.6 37.1 37.6 38.0 38.5 39.0
      Dry natural gas consumption, % y-o-y 1.3 1.3 1.3 1.3 1.3 1.3
      f = Fitch Solutions forecast. Source: EIA, Fitch Solutions
      This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings.

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