Middle East Conflict Drives Up Energy Prices: Sector Braces for Impact

Gas Supply to Spain: Contingent on US Actions

The security of Spain’s gas supply is currently assured, but remains contingent on the absence of concrete actions taken by the United States against Spain, according to Julio César Nieto, president of the Association of Independent Energy Marketers (ACIE). The energy sector is maintaining a “prudent” stance amid rising energy prices fueled by the ongoing conflict in the Middle East and recent statements from Donald Trump, echoing concerns from 2022 when Russia’s invasion of Ukraine triggered an energy crisis.

Price Volatility and Current Market Conditions

Currently, gas prices have doubled, while electricity prices have quadrupled. Although, the ACIE believes the sector can “weather the storm” and is awaiting further developments to determine if the situation will be prolonged. Nieto emphasized the importance of the government having advanced measures prepared, similar to those considered during the 2022 crisis, including potentially opposing another ‘Iberian mechanism’ – a reference to price-capping measures – while also advocating for decisions that do not negatively impact market competition.

Impact on Energy Commercialization

The war is primarily impacting the price of gas, which has more than doubled from €30/MWh to over €50/MWh. Electricity prices have increased fourfold. However, the extent to which these price increases are passed on to consumers depends on their individual contract types. Customers on the PVPC (regulated tariff) will be directly affected, while those in the free market may not see immediate changes.

A Wait-and-See Approach

The sector is currently adopting a wait-and-see approach, drawing lessons from the 2022 experience. Nieto suggests that, unlike the deliberate decision by the EU to reduce reliance on Russian gas, the current situation is different. The conflict between Iran, the US and Israel is impacting global gas markets, affecting countries like China and India. The key concern is whether the supply of gas, currently sourced primarily from the US and Algeria (with approximately 4% from Qatar), will be disrupted.

US Actions and Supply Guarantees

The guarantee of gas supply hinges on continued imports from the US and Algeria, specifically contingent on the absence of “concrete actions against Spain.” This concern arises from potential repercussions related to the use of the Rota base, and the possibility of the US halting gas exports to Spain.

Commercialization Challenges and Contract Revisions

Some energy retailers are reportedly considering revising their contracts with industrial customers due to the rising costs. Nieto indicated that commercializers generally aim to maintain customer relationships and absorb costs where possible, but prolonged high prices could lead to contract adjustments. He expressed surprise at any commercializers actively seeking recent contracts in the current environment.

Recovery Timeline and Government Measures

If the conflict were to end, a full recovery to pre-crisis prices would not be immediate. Similar to the post-pandemic supply chain disruptions, restoring gas infrastructure, securing shipments of LNG (Liquefied Natural Gas), and re-establishing normal market conditions would take time.

Nieto stressed the need for the government to have contingency measures prepared, particularly if the geopolitical situation persists and demand remains high during the summer months. These measures should be equitable and avoid harming independent energy marketers, who were negatively impacted by previous interventions during the Ukraine crisis.

The Role of the Regulated Tariff (TUR)

The ACIE advocates for limiting access to the regulated gas tariff (TUR) to vulnerable consumers only, rather than extending it to the general population. This aligns with a call for measures that are fair and do not distort market competition. Past fiscal measures, such as price caps, were criticized for potentially hindering the activities of independent commercializers. Alternative measures suggested include fiscal support, lowering the threshold for vulnerable consumer status, reducing tariffs and charges, or providing direct financial assistance to eligible households.

The situation remains fluid, and the Spanish energy sector is closely monitoring geopolitical developments and potential US actions to ensure a stable gas supply.