Energy crunch reignites interest in disputed Spain-France gas pipeline

As Europe braces for a challenging winter amid possible energy shortages and soaring consumer bills, parts of the EU are drumming up support for the revival of a shelved gas pipeline project between Spain and France.

Proponents of the 180-kilometer MidCat pipeline, linking Catalonia in northeastern Spain and Occitania in southwestern France, said the project would increase distribution between Spanish gas import terminals and the central European grid as Germany and other nations get shut off from Russian supplies.

German Chancellor Olaf Scholz and Spanish Prime Minister Pedro Sánchez have both voiced their support for expanding the gas pipeline network between Spain and central Europe.

However, their mutual neighbor France has not changed its longstanding opposition to MidCat. French President Emmanuel Macron said in recent press statements that he remains unconvinced of its benefits and is unwilling to back it. As it stands, a French veto is a key obstacle for the pipeline.

Spanish import terminal glut

Spain is already home to 34% of Europe's regasification capacity and 44% of its liquified natural gas storage capacity. However, its overland connection to central Europe is limited to just 8 billion cubic meters per year into France, about 10% of its theoretical reexport capacity.

From Nov. 1, Spanish gas operator Enagás SA will increase flows through the existing gas pipeline between Spain and France by 1.5 Bcm annually, raising export capacity by 18%, Spain's Ministry of Ecological Transition said Sept. 22. If developed, MidCat would add another 7.5 Bcm.

"Finding a way to utilize Spain's spare regasification capacity would at the moment be very much needed across Europe," said Jacopo Casadei, gas analyst at energy research company Energy Aspects.

In 2019, after years of attempted development, it was decided that MidCat was not economical, and funding for new gas infrastructure was also viewed critically given the EU's climate plans. The project lies with Enagás and Teréga SA, whose two largest stakeholders are Snam SpA and Singapore sovereign wealth fund GIC Asset Management Pte. Ltd.

Enagás has written MidCat into its 2030 strategic plan. In its strategy materials, the company describes the project as supportive of the aims of REPowerEU, the European Commission's strategy to end dependence on Russian energy imports. Snam CEO Stefano Venier has also described the pipeline as a possible solution for Europe's gas shortage.

Neither company wanted to comment on the ongoing discussion about the project, while Teréga did not respond to an emailed request.

"We cannot depend on Russia," Spain's Minister of Ecological Transition Teresa Ribera said while visiting a Spanish gas pipeline that she said would bolster the EU's independence. Source: Ministry of Ecological Transition

Real problem at the French-German border

France remains unwilling to pay for a project it does not need itself and believes that it would now take too long to make a difference in the crisis. Estimates over the construction and commissioning timeline vary: Spain said it could be done in eight or nine months, while France spoke of years.

"When Sanchez and Scholz spoke, they were doing so without any European coordination mechanism behind them," said Francesco Sassi, a research fellow specializing in energy geopolitics at Ricerche Industriali ed Energetiche, an Italian consultancy.

Having originally been conceptualized as a route for Algerian gas into France, talks of a revival of MidCat have now resumed "with a very different soul," casting the line as a route for LNG into central Europe, Sassi said in an interview.

France is building its own LNG import terminal in the northern city of Le Havre. Meanwhile, limited interconnections between France and other countries like Germany, Belgium and Switzerland are constraining cross-border trade.

"If you build the MidCat pipeline, that solves a little bit of the problem," Energy Aspects' Casadei said. "But the real problem is, how do you move the gas from France into other countries?"

Constraints in the import capacity for gas coming from France to Germany are on display in a substantial discount of French and Spanish gas price benchmarks compared to the German market, which is linked to the Dutch Title Transfer Facility benchmark.

Way forward as an alternative to Russian gas

Given the lack of political agreement, the only way to push ahead with MidCat would be if the European Commission decided to financially support the project, Sassi said. A decision could unfold over the course of this winter, should the European Commission need to support all options following gas shortages, the researcher added.

While the EU is generally supportive of more connections that would reduce reliance on Russia, the MidCat pipeline, like other gas projects, is not on a list of so-called Projects of Common Interest, which are eligible for EU funding via the bloc's Connecting Europe Facility, a pot of investment support. An alternative way forward could be found within the REPowerEU plan.

"As said in the REPowerEU plan, we think that additional investments to connect LNG import terminals in the Iberian Peninsula and the EU network through hydrogen-ready infrastructure may further contribute to [diversifying] gas supply in the internal market and help tap into the long-term potential for renewable hydrogen," an EU official said via email.

According to Casadei, floating LNG terminals like those now being built in northern Germany and France are more likely to deliver timely relief for the energy crunch.

Existing gas interconnection between Spain and France is already not consistently utilized, the analyst said. "From a market perspective, I'd probably say let's try to solve another problem."

To make the business case stack up, developers would need to be certain that there is concrete interest in booking the line, Casadei added.

Sassi, meanwhile, does not envisage a major rush to book the pipeline if it were built. "It's a very long journey; you would lose a lot of gas in the process," the researcher said.

Its future economics also depend on what happens with Russian gas deliveries and other sources of supply. "You can have changes in the market that can make the pipeline useless," Sassi said.

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