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Spain's Naturgy to reduce gas exposure, spending to seek renewables growth

Highlights

62% of 2025 capex allocated to renewables

Target of 24% emissions reduction by 2025

Gas, LNG volumes rebound in second quarter

Spain's Naturgy will reduce its gas exposure over the next five years by continuing to reduce gas procurement commitments and reducing its LNG tanker fleet, according to a strategy presentation July 28.

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The company said it would also look to mothball non-performing gas-fired plants or hybridize them as it shifts its capital expenditure for the next five years to renewables, including renewable gases and hydrogen.

The company has "to move and move quickly" into the transition business, which was not contemplated in its previous five-year plan presented in July 2018, CEO Francisco Reynes said.

The shift to transition projects for 2021-2025 would mean a "progressive downsizing of procurement commitments" in gas and an "ongoing review and optimization of procurement contracts" to transit its exposure from oil to hub indexation Naturgy said.

Following the impact of the coronavirus pandemic in 2020, Naturgy renegotiated a large part of its supply portfolio to reduce some volumes and change the indexation.

In LNG, the company said it would consider downsizing its LNG tanker fleet under time charter, without saying to what scale. Naturgy currently operates 11 tankers.

The new spending plan will also see 62% of capital expenditure, or Eur8.7 billion ($10.3 billion), spent on renewables, with a focus on proven technologies and attractive geographies but also innovation in the biogas and hydrogen business, the company said. The total capex for renewables is around a fourfold increase from its previous plan.

The target is to add 9.4 GW by 2025 to reach 14 GW installed. Of the new total, 5.2 GW would be in the EU, 2.2 GW in Australia, 1.2 GW in the US and 0.7 GW in Chile. Its 24.8 GW pipeline is split roughly into two-thirds PV and one-third wind.

The company said the figures are for organic growth and do not contemplate potential acquisitions.

A further Eur4.1 billion would be spent on networks and their digitalization in order to adapt its infrastructure to play "a key role in the energy transition."

The company also expects to find new investment opportunities backed by EU Next Generation funds during the period.

Renewable gas, hydrogen

Depending on funding, around Eur3 billion could be invested in renewable gases, with a target of producing more than 1 TWh by 2025 in decarbonization projects, mostly in industrial sites in Spain.

The plan also features two hydrogen projects at its closed coal plant sites of La Robla and Meirama.

La Robla could house a 60 MW electrolysis unit, scalable to 200 MW, with an initial 400 MW solar farm supplying it.

The Meirama project could see 50 MW of electrolysis capacity, scalable to 200 MW, initially fed by 150 MW of onshore wind.

Other hydrogen initiatives include a network of hydrogen stations, gas blending into networks, liquid exports to northern Europe and hydrogen blending into turbines and combined heat and power engines, it said.

It would also carry out a review of its thermal generation position and consider mothballing certain non-performing combined gas cycle plants, it said.

The company operates 7.4 GW of CCGT capacity in Spain, equivalent to 30% of Spain's operational capacity.

It would also consider hybridizing alternatives or including plants in pro-active regulatory management such as system back up services that might be rolled out in Spain in the coming years, it added.

Overall, capex in the sector would be reduced by 70% from the previous plan to Eur90 million per year, it said.

Q2 volumes

For the second quarter, the company's gas volumes greatly increased compared to the pandemic-impacted Q2 2020.

Gas supply volume in Spain was 62.2 TWh, up more than sixfold year on year, with volumes sold to third parties reaching 55.3 TWh on the quarter.

International LNG volume was up 46% year on year to 38.8 TWh, while estimated contracted sales for the year were 157 TWh, up from 148 TWh a year ago.

In the power market, generation increased 29% year on year to 3.8 TWh in Q2 with installed capacity unchanged at 8.0 TWh.