Antonio Llardén – Executive Chairman, Enagás, Spain
Antonio Llardén, executive chairman of Enagás, one of the foremost LNG players in Europe and the Spanish transmissions operator, describes the geostrategic challenges inherent in building a more integrated European energy market.
Could you please start by giving us a quick overview of Enagás’s core business?
“Right now we are in Mexico, Peru and Chile and we also could be active in the USA and Colombia. We chose these five countries because all of them are at different stages of development in terms of exploiting natural gas resources.”
Enagás is a midstream player. Our core business is the transport of natural gas at high pressure, the management of regasification facilities and underground storage. It is the chain of LNG or natural gas but in midstream. The second important issue is that we are operating with a license from the European Union as a Transmission System Operator (TSO), which means basically that, we are independent from all gas operators in general, and must help with the security of supply and competition. The EU monitors us from this point of view.
Another important element to note is that we are a listed company with 95% freefloat. The reasons are however very simple; In the past, Enagás was a subsidiary of Gas Natural and Repsol and when the EU produced the first directive introducing this idea of independence that I just mentioned, they stated that TSOs should be independent from the main operators. The Spanish government therefore introduced a law with an obligation for the company to be put on the stock market and the main shareholders gradually disappeared.
How did this trajectory to becoming a listed company come about?
The process began in 2002 and was achieved in 2008. From then on, Enagás has been a totally independent company, listed on the Spanish Stock Exchange. With this organization, the Spanish government has five percent of the shares. The rest of the shares are in the hands of long-term investors, insurance companies, pension funds and large equity companies such as Fidelity. Approximately one quarter of the shareholders are in Spain, mainly pension funds, one quarter are in London, less than one quarter are in the USA, Canada, and Australia, and the rest are in continental Europe. Among our investors, we can find some sovereign funds.
In Spain, we control the majority of the high-pressure pipelines and regasification facilities. Five years ago, we decided to initiate a period of expansion. In a worldwide market, we took advantage of our knowledge in LNG and our experience to expand internationally to carefully chosen locations: one is Europe and the other one is the Pacific Rim of Latin America. Right now we are in Mexico, Peru and Chile and we also could be active in the USA and Colombia. We chose these five countries because all of them are at different stages of development in terms of exploiting natural gas resources. The US has just begun to export shale gas for example, Chile and Mexico are economies undergoing a major evolution, while Peru has both a booming economy and is already extracting natural gas in Camisea.
Did you meet with the president of Peru when he was in Spain just a few days ago?
Yes I met with the President because of Peru’s evolving economy and especially developing the use of natural gas. From the energy point of view, Peru is in the same situation that Spain was 20 years ago. Spain began to develop natural gas very actively in the 90s and beginning of the 2000s, and because of this experience, we understand the momentums occurring now in Peru, Chile, and partially in Mexico, and can therefore act as a great partner in accompanying their gas market developments.
Enagás also controls Swedegas, the transmission systems operator of Sweden. How did that come about?
More than two years ago, in association with our Belgian counterpart Fluxys, we had the opportunity to acquire 100 percent of the shares of Swedegas. Sweden is of course a large country by size but has a small population; hence Swedegas is a small company. We however spotted an interesting opportunity for Enagás because we wanted to be present in the Nordic countries due to their awareness of sustainability and energy processes. We had experience in using natural gas efficiently and diminishing CO2 emissions, so we thought that Swedegas was a good company with which to work on such matters.
The other big project we are working on right now is the construction and operation of the Transadriatic pipeline between Turkey and the center of Europe, with SNAM, BP, Fluxys, Socar and Axpo. Right now, we have all the permits in terms of land and the pipeline is under construction in Greece and Albania. The idea is initially to transport 10 BCMs from Azerbaijan to the center of Europe, to then double the quantity. The project is keeping pace; there are some challenges like in any other major infrastructure project of this kind, but we are on track and will come onstream in 2020.
What are these main challenges that you are encountering and once the Transadriatic pipeline project is onstream, what will that mean in terms of revolutionizing the European energy sector?
All of the rights, permissions, environmental approvals, and permits needed for the various countries have been produced and are in place. One of the major challenges is that energy infrastructure projects of this kind are very capital intensive and require complex financing schemes; it is a long time before you see a return on your investment hence the financing dimension is not an easy one.
In this particular case, political challenges are in place. We are talking about transporting gas from Azerbaijan, crossing Turkey, Greece, Albania, and Italy. Fortunately, we are doing very well, and it is important to say that this is one of the most important projects supported by the European Commission at the moment.
Another important topic is the new interconnection between Spain and France, or between the Iberian Peninsula and the rest of Europe, to achieve an internal natural gas market. The general name for the project is Midcat, the first stage of which is STEP (South Transit East Pyrenees). The idea is to connect the Spanish and French networks, not in order to just connect France and Spain, but to connect several nations in a much broader perspective: this is about connecting Spain, France, Portugal, Algeria, and Morocco to the rest of Europe. We receive gas from North Africa and distribute it in Spain, Portugal, and eventually will connect with France. We will also receive gas from France, meaning that Spain will be in the center of the spider web.
The idea is to transform Spain from being an energy island to an energy hub. This is not a new idea, however, it has been talked about for many, many years and has been met by a lack of enthusiasm from the French side.
In the past 15 years with France, we have achieved some important goals. The first interconnection between Spain and France was between the Spanish province of Navarra and the area of Lacq in France. This mechanism was running 20 years ago but at the beginning only with a capacity of 2.5 BCMs and only North to South. Right now, we have been able to double the capacity to five BCMs, and from South to North and North to South. The second step will be to finish the Basque Interconnection between Spain and France, with a hike volume of 1.5 BCMs. This is not a lot but from 2.5 BCMs one-directional, we now have seven BCMs which are bidirectional. The third part of this project must be Midcat.
How optimistic are you about Midcat?
I think it is important to have a wider vision. In the last five years, we have made some very important achievements. Midcat means doubling capacity from 7.5 to 15. It is the shortest route between North Africa and Europe, using the infrastructure of Spain and regasification plants.
Right now, we are under the supervision of the European Commission, and there are some studies, but we are waiting for a political decision at first half of 2018 to go forward with this capacity.
To some extent you are in a race against time; Italy could present itself as an alternative hub and there is also competition with the Netherlands.
This interconnection is important for different reasons. The first reason is security of supply. At certain moments, we might need more natural gas. For example last winter, France had a problem because there was a lot of energy demand in the country and they had facilities under maintenance. Spain exported a lot of electricity to France, more than average, and the majority of this electricity was produced by natural gas in Spain. At another moment it could be the contrary. The second reason why interconnection is important is competition. A real and competitive internal market in natural gas means a real European network; a network that is independent from different countries but unique to Europe. This is the ultimate objective of the European commission: more competiveness.
Moving on to LNG, in April you had the first pipe-to-ship LNG bunkering and I am aware that you have been doing a lot to improve flexibility on a small scale and transforming LNG regasification terminals into multimodal terminals. This is really an area where Enagás has huge expertise. Could you please tell us more about this expertise?
For historical and geographical reasons, Spain was an energy island for many years and we had to construct our own gasification facilities because we did not have real interconnection with France or Algeria. That happened later. Paradoxically, now this is a good thing because, as Fatih Birol, executive chairman of the IEA, has stated recently, LNG will be the driver of evolution in the global natural gas market. The new LNG movements in the world will be quite different from what we have now.
The new world of LNG will be one of multiple sources, not always with long term contracts, and with a lot of LNG floating in the world. Facilities will be needed, not only to re-gasify but also to store this LNG for certain periods of time and then recuperate it when needed for other countries. At Enagás, we are quite well prepared to put our facilities at the disposition of the owners of the gas. The second important thing is that we are beginning to see more accurate standards of measurement for CO2 emissions. This means that big ships will be obliged to not use the normal fuel on the coast or near ports but to use LNG. This means that facilities will be needed to put LNG in ships rather than in pipes. We are working closely with Puertos del Estado in Spain with the idea of creating small facilities, using our network of regasification facilities, to be able to produce LNG in every important port in the country. Enagás is not the owner of this gas but we will be the company that can facilitate this process. We are thinking about rolling out the same facilities at a later date in Chile, where we are shareholders of Quintero, an important facility, and also in Mexico.
Russian companies will begin to export LNG between 2018 and 2020 from the Arctic, and they will need to use these kinds of facilities in Spain or elsewhere in order to put the LNG to into ice breaker natural gas tankers. Five years ago, it would have been unthinkable to imagine LNG coming from the North of Russia, but in two or three years we will have it; along with more LNG coming from the USA, Australia and Russia.
What are your five words for the future of Enagás?
The first is safety. It is not a new matter for us but it is the base of our activity
Sustainability: we think the decarbonization process is irreversible. This is our direction and it means that natural gas is a good bridge between the old, fossil-fuel reliant world, and the new world of renewables.
Natural Gas: both LNG and pipelines must play a very important role in the decarbonization process and provide a lower-cost energy because it is abundant and more efficient than other fuels.
Interconnectivity: Europe wants more interconnection in terms of networks of natural gas and LNG to produce a real spider web between Europe and non-EU countries such as Norway, Russia, and the North of Africa, as well as the pipeline with Turkey. Europe must be very interconnected.
Efficiency: Midstream companies such as Enagás need to be very efficient in order to solve all of the economic, environmental, and security of supply challenges that we face. In our industry, it is not possible to say “sorry, we’re closed” in a period of high demand.