According to Reuters’ article published on October 19, 2022, Iberian wholesale market gas prices fell below a threshold set for gas-fired power plants in May for the first time on Wednesday after Spain's national grid operator warned it may reject LNG shipments due to overcapacity.
Prices extended steep declines as the platform that manages the Iberian market, dubbed Mibgas, set a price of 31.77 euros ($31.05) per megawatt-hour (MWh) for the day-ahead contract, compared to 41.49 euros in the auction held on Tuesday.
It's the first day that the EU-approved Iberian mechanism to decouple the price of electricity from the price of natural gas will not be used since it was adopted in May and allowed Spain and Portugal to subsidise the price of producing electricity from gas when it rises above 40 euros/MWh.
The price decline comes after Spain's Enagas <ENAG.MC> warned on Monday it may have to reject shipments of liquefied natural gas (LNG) because its six terminals are almost full.
Portugal's Environment Ministry has been saying for several weeks that storage tanks at its terminal in Sines are full.
Dozens of ships carrying liquefied natural gas (LNG) are circling off the coasts of Spain and other countries in Europe, unable to secure slots to unload because of a lack of regasification capacity, with plants that convert the fuel back to gas operating at full capacity.
Those terminals don't have enough pipeline infrastructure to ship the gas held in storage to other parts of Europe.
"The sharp drop in price is due to the fact that Iberia is 'loaded' with gas and no longer has storage capacity in its terminals, and also there is no consumption of gas for heating houses as the temperatures are above normal," said Ricardo Marques of Informacao de Mercados Financeiros consultants.
The decline in prices could be shortlived, however. Portugal faces possible disruption caused by flooding in Nigeria, which supplies about half of the country's LNG, Economy Minister Antonio Costa e Silva told RTP television.
"There are alternatives...but 2023 is going to be a completely extraordinary year in energy because Europe will live without Russian gas," he said. "We are already experiencing an authentic gas hunt."
Low levels of rainfall in Iberia could further stymie hydroelectric production and mount pressure on electricity suppliers to produce their energy using gas.
The Iberian peninsula's neighbours don't stand to profit because the bottlenecks mean the cheaper gas can't reach them.
The leaders of France, Germany, Spain and Portugal are scheduled to meet this week to try to reach an agreement on the MidCat pipeline that could carry gas - and later hydrogen - from Iberia to central Europe. France has so far objected to the new interconnection.
The fall in gas prices is welcome news for Spanish and Portuguese consumers who may see lower gas bills, and for the budgets of their governments, although other EU countries are unlikely to see immediate benefits.
