Spain’s soaring gas demand shows perils of capping prices

Thomas Gualtieri November 03, 2022

(Bloomberg) – Natural gas use is surging in Spain, offering an insight into the possible unintended consequences of capping fuel prices to shield the country’s households and businesses from the energy crisis.

Since Madrid imposed a price limit on gas burned for electricity generation, demand for the fuel has surged at plants that benefit from the lower costs under the program. Spain’s gas consumption for power production in October was almost 80% higher than a year earlier, according to Enagas SA, the country’s gas network operator.

While the price cap has kept Spain’s power costs lower than in other countries, the increased demand for the fuel runs counter to Europe’s efforts to conserve supplies since Russia cut flows.

It’s a situation underlined by the International Energy Agency, which warned Thursday that the continent faces a gas shortage next year unless governments take “immediate action” to reduce demand.

An extension of Spain’s mechanism to the rest of the continent is being considered, but its implementation won’t be easy.

The European Commission said last month that an introduction of a continent-wide price-cap program would need to be paired with measures aimed at avoiding a boost in demand.

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