June 15, 2022

Gas price cap comes into effect in Spain, Portugal

categories : oil and gas

MADRID: An EU-backed cap on the price of natural gas used by power plants in Spain and Portugal came into effect Tuesday to ease the spiraling electricity prices in the two nations. Russia’s invasion of Ukraine has caused gas prices to rise, pushing up already soaring power bills in the two countries which have little electricity interconnection with the rest of Europe. Last week the European Commission agreed to initially cap gas used for power generation at 40 euros per megawatt-hour, with the price limit projected to average out at 50 euros over the coming 12 months.

The Spanish government predicts the measure-which will be in effect until May 31, 2023 – will lead to a reduction in household energy prices of up to 20 percent. Spain’s Energy Minister Teresa Ribera said the cap will “protect” Spanish and Portuguese household in a “turbulent and complicated” energy market due to the war in Ukraine.

The cost of energy has risen sharply in recent months in Spain and Portugal because of European electricity market rules, which force producers to sell their energy at the price of the most expensive technology-currently gas-fired power stations. For months, Madrid and Lisbon have been fighting against this system, which was deemed unsuited to the energy situation on the Iberian Peninsula which have large amounts of renewable power. But several European countries were opposed to a reform, saying they feared the impact on competition within the European Union.

Black Sea natural gas

In another development, Turkey’s president hailed on Monday the start of the construction of an underwater pipeline to tap a Black Sea natural gas field that the government hopes will help wean the country off its dependence on energy imports. President Recep Tayyip Erdogan watched via video link as the first pipeline section was laid and connected to the seabed from the port of Filyos, around 400 kilometers east of Istanbul on the Black Sea coast. He said the Sakarya gas field could produce 10 million cubic meters by the first quarter of 2023.

The Sakarya gas field, 170 kilometers out to sea, was discovered in August 2020. At the time, Erdogan described it as “the largest natural gas field in Turkey’s history”, citing estimated reserves of 320 billion cubic meters. “The Sakarya field will hopefully reach its peak production in 2026,” Erdogan said on Monday. “We will continue our efforts until we can fully ensure our energy security,” he added. Turkey is still highly dependent on imports to cover its energy needs and is paying a high price, especially following Russia’s invasion of Ukraine.

Last year 45 percent of the gas used in Turkey came from Russia, and the rest from Iran and Azerbaijan. Inflation in the country is running at 73.5 percent, a rate not seen since 1998, and the currency is in free fall – making the cost of living hard to bear for most Turks. Turkey’s annual gas consumption has risen from 48 billion cubic meters in 2020 to 60 billion in 2021 and is expected to reach 62-63 billion this year, according to official figures.

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