Boston, MA -- (SBWIRE) -- 08/24/2012 -- BMI View: The pace of economic recovery and renewed growth is critical to Spain's energy market, as it will drive the country's demand for oil and natural gas - virtually all of which is imported. Spain is a key conduit for gas pipelines from Algeria and is a major receiver of LNG, an area where further expansion of capacity is possible once the economic outlook improves. Shale gas could potentially provide improved self-sufficiency, but is unlikely to revolutionise the energy outlook. Meanwhile, Repsol looks set for a tough scrap to win adequate compensation for the Argentine government's privatisation of its YPF unit.

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The main trends and developments we highlight in Spain's oil and gas sector are:

- Spanish major Repsol has initiated legal proceedings under international law against Argentina's government over the seizure of its Argentine unit YPF. The move marks Repsol's first attempt to obtain payment of up to US$10bn through arbitration. The World Bank's International Centre for Settlement of Investment Disputes will resolve the issue should the two sides fail to find a solution within six months. Argentine president Cristina Fernandez in April 2012 announced the planned seizure of a 51% stake in YPF from Repsol, contending that the Spanish company did not invest enough and allowed oil production and exploration to decline.
- Earlier industry estimates had been assuming annual gas consumption growth of 10% for the next few years. This estimate now looks highly optimistic, given Spain's fiscal predicament, the economic outlook and pricing trends. Our forecast for 2012 gas consumption is 35.3bn cubic metres (bcm), rising to a potential 39.1bcm by 2016 and increasing to 44.8bcm by 2021.
- BMI estimates that gross Liquefied Natural Gas (LNG) imports for 2011 came in at 27.8bcm, a figure which we forecast to rise to 29.0bcm in 2016 and to 30.0bcm by 2021. No dramatic progress is therefore expected in terms of the LNG trade during the forecast period.
- Studies carried out by the government of Spain's Basque region have uncovered about 185bcm of shale gas. Officials said that the estimate was based on gas recovered at 13 wells in the Gran Enara field in Alava. Assuming a recovery rate of 15% (slightly lower than in the US), and given successful exploration and appraisal work, the commercialisation of Basque shale gas could see Spain increase its proven gas reserves to 28.0bcm.
- In terms of oil demand, the Spanish market is no longer growing more rapidly than the EU norm, although the trend may recover once the economy is on a firmer footing. Oil consumption is expected to have risen from just over 1mn barrels per day (b/d) in 1990 to around 1.38mn b/d in 2011. We believe demand in 2016 will average 1.43mn b/d, increasing further to 1.49mn b/d by 2021. No meaningful local oil supply is available, meaning crude imports will reach at least 1.40mn b/d by 2016 and 1.47mn b/d by 2021.

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