(UNTITLED)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00287R000600510001-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 5
• Document Creation Date: January 12, 2017
• Document Release Date: June 29, 2011
• Sequence Number: 1
• Publication Date: May 6, 1983
• Content Type: MEMO

Sanitized Copy Approved for Release 2011/06/29: CIA-RDP85T00287R000600510001-1
Central Intelligence Agency
6 May 1983
Spain: A Role in West European Gas Security?
Summary
Lack of a widespread internal gas transmission and
distribution network will limit Spain's ability to absorb
significant new imports of natural gas in the next few years.
Still, a pipeline link with the rest of continental Europe is
technically feasible and would provide Spain with the opportunity
to import Dutch, Norwegian, or Soviet gas. Given Spanish desires
to diversify gas suppliers quickly and Soviet ability to price
gas favorably, however, we believe such a pipeline link would
probably result in greater sales for Moscow in the late 1980s.
The present operating losses of Enagas--the national gas company
--however, may preclude the availability of funds for such a
project.
-25X1
This memorandum was prepared by Energy Issues 25X1
Branch, Office of Global Issues. The information contained
herein is updated to 6 May 1983. Comments may be directed to
Chief, Energy Issues Branch 25X1
Sanitized Copy Approved for Release 2011/06/29: CIA-RDP85T00287R000600510001-1
 Sanitized Copy Approved for Release 2011/06/29: CIA-RDP85T00287R000600510001-1
SUBJECT: Spain: A Role in West European Gas Security?
Distribution:
Orig - Ambassador Galbraith
1 - SA/DDCI
1 - ExDir
1 - DDI
1 - NIO/Econ
1 - D/OGI
1 - Ch/SRD
1 - EIB
1 - Ch/PES
OGI/PS
-
OGI/SRD EIBF
Sanitized Copy Approved for Release 2011/06/29: CIA-RDP85T00287R000600510001-1
 Sanitized Copy Approved for Release 2011/06/29: CIA-RDP85T00287R000600510001-1
Spain: A Role in West European Gas Security?
Spain's Gas Market
Spain's consumption of natural gas--currently some 2 billion
cubic meters (bcm) per year--accounts for less than 3 percent of
the country's total energy use. Gas consumption in Spain has
developed slowly because of the
o lack of a widespread gas transmission and distribution
infrastructure
o absence of large, exploitable domestic reserves, and
o lack of secure gas supplies at competitive prices.
Prospects for future demand are mixed. Madrid is looking to
boost gas use to nearly 8 bcm by 1990, with gas providing 6
percent of Spain's primary energy consumption. In order for such
demand to develop, however, Madrid must make substantial
investments in a gas transmission and distribution system and
secure a stable supply of gas at competitive prices.
At present, all gas consumed in Spain is imported liquefied
natural gas (LNG). Higher shipping costs and the expense of
liquefying and regasifying LNG adversely affect its price
competitiveness compared with oil or pipeline gas. The bulk'of
Spanish gas use, moreover, is consumed in electric utilities and
industry where demand is extremely price sensitive.
As a result of these price factors and the lack of a gas
infrastructure in Spain, senior Spanish government energy
officials have conceded that LNG use will remain low for the next
several years. For gas use to increase significantly, we believe
Spain will have to secure Dutch, Norwegian, or Soviet gas via the
European gas grid and make substantial investments in a gas
transmission and distribution system. The present operating
losses of Enagas--the national gas company--however, may preclude
the availability of funds for such projects.
Supply Factors
With only small reserves and no indigenous production at
present, Spain relies on Algeria and Libya to meet its gas
needs. Under existing contracts, Algeria is slated to supply
Spain with 4.5 bcm of LNG per year under a 23 year deal which
began in 1976. Under another contract, Libya is to supply 1.4
bcm per year until 1991. Both contracts are undersubscribed by 25X1
Spain, which imported about 1.5 bcm from Algeria and .7 bcm from
Libya in 1982. 25X1
Sanitized Copy Approved for Release 2011/06/29: CIA-RDP85T00287R000600510001-1
 Sanitized Copy Approved for Release 2011/06/29: CIA-RDP85T00287R000600510001-1
Algiers, however, is currently demanding that Spain lift the
full contract volume of 4.5 bcm per year, accede to a 10 percent
price increase, and pay almost $500 million for gas not imported
under "take or pay" contracts. Because of limited export
capability, any new Algerian shipments would have to be at the
expense of other LNG purchasers such as France or the United
States. Enagas' losses of $59 million last year are largely
attributed to the cost of servicing the Algerian contract. A new
accord is under negotiation, but the Spanish contend an
agreement, if reachable, is many months away. According to US
Embassy reporting, Spain would like to continue importing about
1.5 bcm annually of Algerian gas and is hoping to extract
concessions on quantity and/or the price in return for export
subsidies. Given the fact that Algeria is a major trading
partner of Spain--receiving $1 billion of Spanish exports last
year--we believe some compromise will be forged. 25X1
To reduce its dependence on Algeria and Libya for gas
supplies, Spain has considered importing Dutch, Norwegian, or
Soviet gas via a 100 km pipeline link with the French network,
according to industry sources. In 1981, an agreement between
Spain and France was signed to combine their respective gas
pipelines. Based on US Embassy reporting, however, France has
indicated that Spain must line up gas supplies to be delivered
through the system before the linkage is allowed. Such a linkage
appears technically feasible to industry sources, although no
detailed engineering studies have been done. ou 25X1
With the election of the new Socialist government, some
reports indicate that Spain will renew negotiations with the
Soviet Union for the purchase of gas from the Siberian
pipeline. Socialist Government officials have indicated that an
agreement to purchase 1-2 bcm of Soviet gas annually beginning in
the mid-1980s would support their new national energy plan by:
o Helping to increase the share of gas in Spain's total
energy consumption.
o Securing much needed bargaining leverage in price
negotiations for Algerian LNG.
o Increasing energy security by diversifying supplies and
establishing a link to the European gas grid. 25X1
If Spain expands its internal gas infrastructure and joins
the European gas grid, we believe Soviet gas will get the nod.
Additional Norwegians supplies will not be available until the
mid 1990s at the earliest, and Soviet gas is likely to be more
attractively priced than Dutch gas. The Netherlands will also
probably demand a premium price for additional gas exports.F-----125X1
Sanitized Copy Approved for Release 2011/06/29: CIA-RDP85T00287R000600510001-1
 Sanitized Copy Approved for Release 2011/06/29: CIA-RDP85T00287R000600510001-1 25X1
Spain as a Conduit
In the longer-term, several projects have been proposed
using Spain as a conduit to deliver African gas to Western
Europe:
o The Trans-Sahara Natural Gas Pipeline would link
potential West African producers such as Nigeria and
Cameroon with Spain. Although the Nigerians have
dismissed this project because of potential transit and
security problems, the project could receive renewed
interest in the future if Lagos' again fails to move
ahead with a proposed LNG facility.
o The Trans-Mediterranean Pipeline or Segamo project
would link Algeria and Spain directly. At present,
this project is extremely costly and is faced with the
major technical problem of laying the pipeline at water
depths of 2,160 meters.
o An alternative route for an Algeria to Spain pipeline
would transit Morocco and the straits of Gibraltar.
This project is more cost-effective than the Segamo
project and is now more politically appealing given
what Madrid perceives as a growing political
rapprochement between Algeria and Morocco.
Because of Spain's desire to improve relations with North
African countries and its problems with Algerian LNG supplies,
Madrid is currently soliciting interest in implementing an
African Trans-Mediterranean pipeline scheme, according to US
Embassy reporting. A plan for Spain to serve as a conduit for
delivering Algerian gas to Western Europe, however, is hard to
justify in the medium term given weak West European gas demand
and the fact that we believe Algeria will be unable to meet its
existing gas export commitments to Western Europe and the United
States. Although Algeria and other African and Middle Eastern
countries will have the potential to sharply increase gas exports
to Western Europe in the 1990s--possibly using Spain as a
conduit--European purchasers will have to be willing to pay
prices at least 10 to 15 percent higher than the price of Soviet
gas under recently negotiated contracts. Moreover, Algerian gas
shortfalls during the 1980s will reinforce West European views of
Algeria as an unreliable supplier, and, consequently, gas
purchasers will be less willing to sign new contracts for
Algerian gas during the 1990s. In any case, a pipeline linking
the African continent with the European gas grid already exists
via the Algerian/ Italian pipeline.
Sanitized Copy Approved for Release 2011/06/29: CIA-RDP85T00287R000600510001-1