If 2020 will be remembered as the year of COVID-19 and restrictions on economic activity, something that we have all had to learn to cope with, 2021 will go down in history as the year when cheap energy came to an end.

At a time when national economies had barely begun to see the light at the end of the tunnel and a gradual return to normality, around the middle of the year natural gas prices began to register an increase, rising to historically high levels in November and December. The response was to search for alternatives to cover the demand for gas, which recovered more strongly than oil, for example, leading to price increases not only in gas for industrial or domestic use, but also in the costs of electric power produced by combined-cycle power plants and in the marginal prices of national electricity markets across the whole of Europe.

As a result, 2021 required efforts to adapt to COVID restrictions in a similar way to the previous year, although the relaxing of some of these restrictions in the second half of the year, together with the experience gained from 2020, allowed for a progressive return to normality, a process that was completed in the first few months of 2022. Although the pandemic continues to spread, and cannot be thought of as over, the lower impact level of the new waves has helped to bring about a return to normality with the chance of a certain degree of continuity.

Over the past two years, the pandemic has had a major impact on the economy. GDP fell by 10.8% in 2020, with a partial recovery of 5.1% in 2021. The forecasts for 2022 do not suggest that pre-crisis levels will be reached until 2023. It can therefore be concluded that four years of economic growth have been lost, not just in Spain but in large parts of the world.

Electric power demand, which fell by 1.7% in 2019, dropped a further 5.1% in 2020. There was only a 2.4% recovery in 2021. The 9% drop in demand for natural gas in 2020 was followed by a rise of 4.3% in 2021, still below the levels prior to the COVID crisis.

Demand for natural gas fell by 9% in 2020, then rose by 4.3% in 2021, still far below the levels prior to the COVID crisis.

The consumption of oil-based products also fell markedly. Although petrol and diesel ended 2021 with figures only slightly lower than those of 2019, consumption of kerosene air fuel failed to reach 50% of the consumption levels recorded in 2019. Sectors linked to travel, tourism, and hotel and catering are, as expected, recovering with considerable delay when compared with other industrial or tertiary sectors.

In any event, a full economic recovery will not occur until at least 2023. Energy demand, including that of the transport sector, will also take until at least 2023 to recover. Furthermore, with the end of the 2021 financial year, energy has become an involuntary protagonist in the war in Ukraine and the economic disputes between Russia and the West. It is still early to assess the impact that these events may end up having on Western economies, and specifically in Spain. Two impacts of this new crisis deserve to be singled out. The first is the reaction of the energy markets immediately following the outbreak of the conflict, with peaks in oil, natural gas and coal prices, although they did begin to fall again in subsequent weeks. The second, as already indicated, is the major rise in price indexes, due to persistently high prices, particularly for gas. In particular, the consumer price index (CPI) has reached levels not seen since the mid-1980s. Clearly, the decisions made by Western governments in the coming months on embargos or sanctions against Russia will determine the extent of any further impacts.

The economic landscape is, therefore, turbulent and full of uncertainty. Despite all these difficulties, in 2021 we achieved most of the targets set. The efforts made to adapt and ensure job stability at the same time have been successful.

The operating result exceeded that of the previous year, even in the current difficult regulatory context. The results show that financial targets were met, and service quality and safety of operation levels were maintained, as a consequence of the company’s focus on permanent internal improvement.

In terms of improving operations, the focus of MRG is on operational excellence, customer service and permanent improvement in management practices. We continue working to attract new customers, helping to replace the most polluting fuels in small-scale industry and in the residential sector with the replacement and modernisation of heating installations, and in the commercial sector with complete heating and hot water solutions in buildings, while also providing lower costs to consumers, making it more attractive to switch.

We continue with our plans to open new gas refuelling stations for vehicles within the areas where we operate, and this is set to continue over the coming years. We continue to maintain security levels in network operations and are making progress on matters of fraud prevention.

Returning to the strategy for the future, it is important to consider the scenario set out previously of uncertainty and high prices, together with the energy transition policy set out in the Integrated Energy and Climate Plans of the EU’s various Member States.

The difficulties of the natural gas market are based on growing demand around the world, chiefly by the growth of the major Asian economies, on the need for gas in Europe to offset the closure of a great many conventional (coal) or nuclear power plants, and on the possible restrictions driven by the policy on sanctions or bans on Russian imports as a consequence of the conflict in Ukraine. Pricing forecasts seem to point to levels that will be above what was normal up to a year ago for at least two or three years before returning to more normal levels. Consequently, there is a need to find alternatives that are acceptable in terms of their feasibility, cost and contribution to environmental targets.

In these circumstances, hydrogen as a clean fuel holds promise in terms of its applications, though its cost has yet lowered to reach that of natural gas, something that seems easier now than in scenarios similar to those of the previous decade, which are unlikely to return. We believe that in a future based on hydrogen, which may be closer than it seemed only a few years ago, transport, distribution and storage infrastructures will be key to hydrogen use becoming widespread. Our networks have the necessary capacity and conditions to provide the service as it is now with this new fuel, and we are working to ensure that our networks are fully compatible within a very short time.

MRG’s networks have the necessary capacity and conditions to provide the service as it is now with this new fuel, and we are working to ensure that our networks are fully compatible within
a very short time

Developing the regulatory aspects of hydrogen is key to that future becoming a reality in a seamless way. Regulatory stability is concerned with ensuring the principle of legal certainty in a specific context, enabling and helping companies to engage in free enterprise and peaceful business activity in the short and long term, make investment decisions, create wealth and employment, and make Spain attractive to investors. Furthermore, real technological changes require serious and permanent attention be paid to regulation in order to be able to respond to problems and new issues, which will undoubtedly arise, to ensure that there are no bottlenecks or regulatory obstacles to new activities that are of benefit to society.

Once all the stakeholders involved understand the importance of committing to hydrogen, the Integrated National Energy and Climate Plan should be reviewed to include this alternative, the long-term economic and environmental value of which there is no doubt.

The importance of conducting analysis on regulatory matters relating to hydrogen is, if anything, even more urgent given Spain’s delay in this regard, when compared with major European economies, in terms of both developing pilot or industrial projects and matters relating to regulatory theory.

Gas, whether that be methane today or hydrogen tomorrow, continues to be irreplaceable in many industrial processes and is an acceptable and attractive alternative for other end uses, insofar as there are no other technologies that can offer the same costs and performances. Gas networks make it possible for users to be efficiently provided with renewable gas in the short and medium term, and hydrogen in the long term. This potential sets gas apart from other fuels and makes it an indispensable complement to electricity.

The gas sector is better equipped to collaborate with the Public Administrations in designing energy policies and in adapting regulation to this ever-nearer future. We continue to insist that the regulation of sectors such as the energy sector, in a new scenario, needs ongoing and fine tuning, the success of which depends, above all, on continuous dialogue with stakeholders.

Finally, I would like to express the company’s gratitude to the shareholders, in particular for their support during what has been such a complicated time over the past year, and for their support in developing this strategic vision, which will form the basis of the successes we hope to achieve in the coming years. And in the same measure, our gratitude extends to the people at MRG, in recognition of their hard work and their dedication in 2021, and for placing their trust in the company in this second decade of its existence.

 

Pedro Mielgo

Presidente