Oil companies turn to Spain for 'black gold'

By Sinikka Tarvainen Aug 28, 2006, 11:27 GMT

Madrid - As Europe seeks to reduce dependence on the unstable Middle East's oil reserves, it is not only looking to continents like Africa or Latin America, but also to its own soil to ensure supplies.

Several companies are investigating the possibilities of starting or increasing oil production in Spain, an insignificant producer so far.

'There is oil in Spain,' oil expert Carlos Alvarez told the daily El Pais. 'Not large fields, but small or medium-size deposits' which the high price of oil could now make attractive, he explained.

Investment in the sector rose by 75 per cent to nearly 45 million euros (58 million dollars) last year, according to figures quoted by the daily.

Spain only produced 1.23 million barrels of oil in 2005, down from 1.87 million barrels in 2004. A major producer like Venezuela extracts twice Spain's annual production in just one day.

Domestic production, mainly in the east of the country, accounts for less than 1 per cent of Spain's consumption.

Yet 'we are in a phase of high (oil) prices,' Pedro Miro, director general of the oil company Cepsa, told the daily La Vanguardia. 'From the costs point of view, deposits and wells which did not previously appear viable could be now.'

Spain's second-biggest oil company Cepsa, in which France's Total has a 44 per cent stake, is exploring in the northwestern Pyrenees and thinks it may able able to start drilling there by 2010.

A total of a dozen companies are looking into starting or increasing oil and gas production in Spain, reports said.

The number one giant Repsol YPF, which extracts oil in the eastern Mediterranean and gas in the Gulf of Cadiz, has obtained permission to prospect in various regions including the Canary Islands.

The smaller Basque company Shesa is looking into possible deposits in its northern home region, while Petroleum focuses on the eastern coast off Tarragona.

Prohibitive factors include red tape, the high cost of oil exploration, possible problems with Morocco which could also lay claim to Canaries oil, and above all, opposition from environmentalists.

The eastern Valencia region, for instance, is reluctant to give a green light to Britain's MedOil, because the company's areas of interest include places such as the Albufera nature reserve.

'Exploration work has a brutal impact on the ecosystem,' said Maria Jose Caballero of the environmental organization Greenpeace.