Regulators Reject France-Spain Gas Interconnect

PARIS (Reuters) - French energy regulator CRE and its Spanish counterpart CNMC have rejected a project by France and Spain's grid operators to build a gas pipeline across the Pyrenees, CRE said in a statement.

The French regulator said the $502 million (442 million euro) "STEP" interconnector project did not respond to market needs and was not sufficiently mature to get a go-ahead from regulators.

Reuters reported in April that a report prepared for the European Commission had questioned the viability of STEP, which would have been the first part of an EU-backed 3 billion euro Midi-Catalonia (Midcat) pipeline project to more than double gas transport capacity between the two nations.

Gas pipeline operators typically earn a government-set fixed return on their investments, which can only be charged to consumers if regulators consider the investment necessary.

CRE said current gas exchange capacity between Spain and France was 225 gigawatt-hour per day.

In July 2018, French grid operator Terega - owned by Italy's Snam - and Spanish operator Enagas submitted a project to boost that by 180 GWh in the France to Spain direction and by 230 GWh in the Spain to France direction.

The project had strong support from European Union Climate Commissioner Miguel Arias Canete, a Spanish national, who considers the pipeline would reduce Europe's reliance on imported Russian gas.

Enagas operates a large network of LNG regasification plants on the Spanish coast that could help import more gas from other countries such as Algeria, Qatar and the United States.

But the project has faced opposition from French energy regulator CRE, who said shortly after the proposal that Midcat would push up consumer prices without improving security.

Industry experts have questioned the need for another interconnector, arguing that existing cross-Pyrenees pipelines are already underutilized, even during periods of high demand.

Friends of the Earth said in a statement that STEP was a climate-damaging pipeline project and that its rejection by regulators calls into question other EU-supported gas projects.

"Gas is a dangerous fossil fuel which emits significant amounts of greenhouse gases... we can't keep sinking taxpayer billions into more fossil fuels," FEE's Antoine Simon said.

(Reporting by Geert De Clercq Editing by Mathieu Rosemain)

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