Carlos Losada: Gas during the pandemic
In January, 2020 seemed like a normal year. We did not know that it would test us. The whole world.
Carlos Losada – CEO of MET Energía España
Source: El Economista
Gas trading companies fix most of the quantities in their supply contracts before 1st of January, and they purchase most of the quantity necessary to meet their customers’ demands before 1st of January as well.
For this reason, in January 2020 gas trading companies had already purchased most of the gas that was estimated to be necessary to supply consumers. These purchases are made via long-term supply contracts with significant penalty clauses for non-consumption (‘take or pay’) and arrive to the Spanish regasification plants mainly through the two gas pipelines (Medgaz and Maghreb) from Algeria, but also by ship from Norway, Qatar, Nigeria, Trinidad and Tobago, etc. Delivery by ships is characterized by contracts in which heavy penalties are tied to consumption, but deals are also made each month on the SPOT market.
In March the state of alarm was declared, and in April all non-essential industrial activity was ordered to stop, which caused a 21% drop in consumption between April and June, and an 8% drop over the rest of the year.
Over the period from April to June, trading companies faced the need to find a destination for the natural gas that was arriving in Spain and which customers were not going to consume. 21 percent of the total had to be shipped outside of Spain, while the virus was global, and the pandemic was affecting consumption throughout the world.
The decrease in consumption in the second quarter affected natural gas spot prices, which fell by 40%, meaning that each MWh of gas that arrived in Spain at long-term contract prices (since supply contracts had been concluded before the pandemic) and which could not be delivered to customers, had to be sold on the international spot market with average negative returns of EUR 7mn per each LNG carrier not unloaded in Spain. This impact on profitability has been fully borne by the trading companies, without transferring it to consumers. The invoices issued to the residential, tertiary and industrial sectors were not affected by the quantities that they could not consume due to the measures implemented by the government.
As for MET Energía, in addition to diverting ships out of Spain we implemented several strategies, such as reducing regasification, increasing storage in plants and underground warehouses, and anticipating sales in the wholesale market during the first quarter of the year.
Gas traders implemented measures to protect the health of their workforce, such as teleworking for a longer period than recommended by the government, providing financial aid to families and PCR tests for employees and their family members, as well as supplying masks and other personal hygiene products that were then difficult to access for private individuals.
The management of those months, from April to June, coincided with the full lockdown. The gas trading companies’ staff – in particular the operations and wholesale market teams – managed the situation from their homes, often while their children were also at home due to school closures.
In addition, the impact of the pandemic on consumers affected their finances; many businesses (tourism, services, non-essential industry etc.) had to close, and many could not meet their payments. For this reason, gas traders helped their clients with customized payment plans and extraordinary agreements to allow late payments while having continuous access to natural gas. All this forced gas trading companies to increase their working capital to be able to lend that money to their customers. It also made it necessary to reinforce and adapt debt collection processes, and all this while our staff were working from home.
Our first measure at MET Energía España was aimed at protecting our employees and their families (teleworking as of February, PCR tests for all employees and their families, safe return to the office and important flexibility measures). We did not launch ERTEs (Temporary employment suspension measures) or downsizing either of direct or outsourced staff, and we paid bonuses and raised salaries. Furthermore, the steering committee agreed to lower its own salary by 20%, the only salary cut in the company.
The second measure was the compromise with customers on helping them in these difficult times (through flexibility of consumption and payment obligations for affected customers, implementation of flexible payment solutions for vulnerable groups and SMEs as decreed by the government, etc). We used our financial resources, liquidity and the management of operations, balance, and supply to ease the difficult situation of our clients.
We are facing 2021 with the largest gas supply contracts since the establishment of our company, with margins ensuring that results are in line with our shareholders’ expectations, doubling the number of our clients, the most sophisticated systems and processes, and with the hope necessary to resume the path of growth.