Spain’s Energy Ambitions Are Looking Like a Pipe Dream

In its new bid to cut its dependence on Russian gas, Europe is looking in all possible directions. More shipments of liquefied natural gas (LNG) are coming from the west—across the Atlantic—as agreed to on March 25 by U.S. President Joe Biden and the European Commission President Ursula von der Leyen. They may also come from the east, after Germany signed a March 20 agreement with Qatar.

The continent, however, is not yet ready to cut off Russia. Not only are the European Union’s links to Russian gas too strong—gas exports from Russia account for around 40 percent of the EU’s supply—but many countries also lack LNG regasification terminals, the infrastructure necessary to store and convert LNG back into its gaseous state. Other than Russia, there are few nearby countries able to fill the EU’s energy gap. Except maybe to the south.

In the wake of Russia’s invasion of Ukraine, Spain is pushing to become a hub that carries natural gas to the rest of Europe. Spain has six LNG regasification terminals that provide 35 percent of the EU’s storage capacity, by far the biggest of any other member state. These terminals also currently operate well below full capacity. Most critical is Spain’s proximity to Algeria, a country with substantial natural gas reserves. Altogether, Madrid has a far more secure supply than other European countries and zero to no dependence on Russian gas.

But Spain’s connections to the rest of Europe are insufficient, best expressed by the running gag that the Iberian Peninsula is an effective island when it comes to energy. The two existing pipelines connecting Spain to Central Europe via France manage to transport only 7 billion cubic meters (bcm) of gas per year, a small fraction compared to the 55 bcm that Russia pumps to Germany alone each year through the Nord Stream 1 pipeline. A project to build a third pipeline connecting Spain with the rest of Europe through the Pyrenees was shelved in 2019 after regulators determined it was too costly.

Spain also recently made a seemingly unrelated foreign-policy decision that could put another dent in its plans to reduce the EU’s dependence on Russian gas. In a letter made public on March 18, Spanish Prime Minister Pedro Sánchez endorsed a Moroccan plan of autonomy for Western Sahara, a clear break with Madrid’s long-established policy that the disputed territory’s status should be decided by a referendum. This is also the United Nation’s official policy. Spain’s stance on the matter is especially important, as the country was Western Sahara’s colonial ruler until 1976. Morocco has occupied the territory ever since, a presence most of the world considers illegal.

Relations between Madrid and Rabat have been frosty since May 2021, when Spain admitted the leader of the Polisario Front, Western Sahara’s independence movement, for hospital treatment after he suffered complications related to COVID-19. In a bitter response, Morocco lifted border controls into Ceuta, one of Spain’s small enclaves in North Africa, allowing some 10,000 migrants to cross the border and effectively creating a humanitarian crisis. By supporting Morocco’s plan for Western Sahara, Madrid hopes to open a new chapter with Rabat.

Algeria has used its natural gas supplies as a pressure point in conflicts before.

The U-turn may have calmed one country, but it has put Spain at odds with another: Algeria, the fiercest supporter of Western Sahara’s independence and Spain’s No. 1 gas supplier. Algiers was caught off guard by the announcement. “It is the second historic betrayal of the Saharawi people by Madrid,” read a statement released by the Algeria government. (The first would be the 1975 Madrid Accords, which allowed Morocco and Mauritania to split Western Sahara after Spain abandoned the colony. Mauritania later signed a treaty with the Polisario Front, leaving Morocco as Western Sahara’s sole ruler.)

As in the case of Russia vis-à-vis Europe, it is highly unlikely that Algeria—where oil and gas account for roughly 95 percent of export revenue—would cut the cord and leave Spain, its second-biggest client after Italy, without supply. This would require breaking lucrative long-term supply agreements. However, these deals factor in regular price revisions. Since the start of the war in Ukraine, Algeria has kept prices fair for all its European customers, Toufik Hakkar, the CEO of Algeria’s national gas company, Sonatrach, told Algeria’s press agency on April 1. “But a recalculation of prices for our Spanish customer is not ruled out,” he added.

Algeria has used its natural gas supplies as a pressure point in conflicts before. Last August, the country severed diplomatic ties with Morocco, and by the end of October had shut off supply through the Maghreb-Europe pipeline—which is capable of carrying yearly gas supplies of 13.5 bcm to Spain by way of Morocco. Algeria made it up to Spain with increased supply over the Medgaz, a pipeline directly connecting both countries with a capacity of 8 bcm, and by shipping LNG to the Iberian Peninsula’s coast. It was not enough, though. Algeria went from supplying up to 60 percent of Spain’s gas supply in 2018 to 43 percent in 2021 and only 23.2 percent in February 2022. For the first time, the United States became Spain’s leading gas provider, pumping almost 33 percent of its supply.

Algeria can also thwart Spain’s dream of becoming a natural gas hub by instead filling the pipelines of its No. 1 client: Italy. The Trans-Mediterranean pipeline, which connects Algeria’s coast and Sicily, transported only 22 bcm of natural gas in 2021 but has a total capacity of around 31 bcm. Italy has never explicitly backed Morocco’s autonomy plan for Western Sahara and supports a solution within the framework of the U.N. It stands to reason that Algeria will now prioritize its relationship with Italy over that with Spain.

Even if Spain manages to mend ties with Algeria and outplay Italy, it would still be an energy island. So Madrid has sought to resurrect the shelved Pyrenees pipeline project, known as Midi-Catalonia, or MidCat.

MidCat caught the eye of the European Commission in 2014 after Russia invaded parts of Ukraine and the EU made its first attempt to reduce its dependency on Russian gas. But by 2019, when French and Spanish regulators conducted their evaluation of the project, Russia was pumping gas through Europe’s pipelines at very low cost. So MidCat was paused.

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Sánchez brought up the project again at the informal European Council meeting held in Versailles, France, in mid-March. France, too, has indicated openness to renewing talks. Once again, the costs of MidCat will determine its fate. Teresa Ribera, the Spanish minister for the ecological transition, recently said her government is reluctant to invest much in the pipeline, as Spanish taxpayers already pay extra costs for the numerous LNG regasification terminals that guarantee Spain’s energy security. That infrastructure could also be used to move green hydrogen—a substance set to become an environmentally friendly alternative to natural gas in the future.

Even if Spain eventually manages to become the key bridge in moving Algerian natural gas to the rest of Europe, it will take time. While Algeria has the world’s third-biggest untapped shale gas reserves, sufficiently harnessing these will be a long process. This year, Algeria could only manage an additional 7 bcm to Europe, according to S&P Global Commodity Insights, a market research firm. This is a tiny fraction of the 155 bcm total that Russia pumped to Europe last year.

If increased LNG imports are to become a short-term substitute for Russian gas, Spain’s ample storage capacity can help the EU build its gas reserves. But the country is still far from being in a position to solve Europe’s energy crisis. Its potential is hampered by insufficient pipeline connections with the rest of the continent. And a new period of icy relations with Algeria is cutting short Spain’s plan to become a natural gas hub for the rest of Europe. Sánchez’s gas ambitions are starting to look like a pipe dream.