Spain turns to natural gas reform

After reforming the electric sector, the Minister of Industry is ready to take on natural gas. The goal is to keep the deficit from growing. Even though the sector claims it does not have a structural deficit, it has already massed 645 million euros in debt. Another 200 million could be added to that if Castor storage costs are considered.

The Castor natural gas storage project was a mountain of mistakes. Construction costs on this project went from 500 million to 1.7 billion euros. Independent of how gas demand fluctuates with the weather, it is time to restructure an energy market that has maxed out its capacity

In this sense, José Manuel Soria is preparing cutbacks that are subtle compared to the ones he enacted on the electricity sector, because there is a great risk that natural gas customers would end services if prices are painfully high.

Still, the number of natural gas customers does keep rising every year. The reform will introduce factors from the free market, which is necessary given that the system is inefficient and fixed costs are high. These will not go down if demand contracts. The change is timely for the sector, because Europe is trying to wean itself off Russian natural gas, and Spain has a chance to become a main natural gas supplier for other euro-zone nations.

Rajoy broached the idea during the last European summit, but did not get much traction. We need to overcome pushback from France, who also wants to become a major natural gas supplier for Europe. This race is pushing the government and private industry to reach a swift agreement on natural gas reforms.