French and Spanish energy watchdogs have rejected a €442m ($502m) planned project to construct a gas pipeline linking the two countries.
French energy regulator CRE and its Spanish counterpart CNMC took the decision after a joint assessment of the investment request submitted by the respective countries transmission system operators, Teréga and Enagás.
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The regulators concluded that the ‘STEP’ interconnector project does not attract enough commercial interest from the market, is not sufficiently mature and involves high costs.
Another factor that did not work in favour of the project was the fact that current gas interconnection capacity between France and Spain is not fully contracted.
In a joint statement, CRE and CNMC said: “The fact that the project does not create firm capacity is not fully captured in the analysis presented when estimating the level of booked capacity for the interconnector, resulting in a bias to overestimating the benefits of the project, in particular when performing the financial analysis, which is based on revenues from capacity bookings.
“Furthermore, the current level of gas interconnection tariffs in the Virtual Interconnection Point Pyrenees, calculated to reflect the costs of transmission in France and Spain, adds to the lack of commercial interest to contract capacity, and fails to provide converged, competitive and stable prices to Iberian consumers.”
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By GlobalDataLast April, Reuters reported that a report prepared by a consultancy for the European Commission had raised doubts over the viability of the STEP interconnection project.
The 120km STEP pipeline across the Pyrenees was planned as the first part of an EU-supported €3bn Midi-Catalonia (Midcat) pipeline project, which is designed to more than double the amount of gas that can be transported between the two nations.
The reported stated that the project would only be viable if liquefied natural gas (LNG) prices remain significantly higher than pipeline gas prices over a long period.
The total project cost was planned to be shared between Teréga and Enagás.
