The obligation target and ten-year contracts are bullish for demand and supply respectively. It is unclear at this stage how cross-border GOs will interact with the obligation scheme or the rules regarding GO eligibility in general. However, the Portuguese market is expected to be relatively small (less than 200 GWh/yr). At prevailing GO prices, the size of the obligation market is expected to be around EUR 4 mil.

 placed an obligation on gas suppliers (who supply greater than 2 TWh/year) to blend at least 1% of biomethane or green hydrogen into their supply mix. The obligation can be fulfilled by the use of renewable gas guarantees of origin, as described under 

 (which has been partially superseded by 

As a corollary to the obligation, ordinance 15/2023 looks to establish a procedure for the state to procure biomethane and green hydrogen, as a 'Wholesale Supplier of Last Resort' (or CURg using the Portuguese acronym). This will have the effect of giving producers who enter into a contract to have price guarantees.

In the ordinance, producers can turn to the CURg to obtain a minimum price for their gas where the regular market price is too low. Currently, the reference prices are 62 and 127 EUR/MWh for biomethane and green hydrogen respectively.

Portuguese reference BM price vs NG benchmarks

Tenders for these agreements should be submitted to the DGEG (General Directorate of Energy and Geology, the administrative body for the national GO schemes) before June 2023, and successful contracts will be valid for ten years.

Effect on the biomethane supply and certificate markets

Note: in the short term, it will likely be biomethane rather than green hydrogen fulfilling the 1% obligation, and the analysis has been conducted to this effect.

, over 22 TWh of gas was used in Portugal in 2021 (not including gas for power and heat). Assuming 80% of this is delivered by suppliers who deliver more than 2 TWh annually – a reasonable estimate, given Galp Energia supplies the majority of 

 – this amounts to just under 18 TWh obligated volumes or 176 GWh of renewable gas.

At the reference price and assuming 100% biomethane, this amounts to around EUR 11 million potential annual liability for the CURg. The existence of these contracts should provide a fallback for potential suppliers looking to invest in biomethane plants.

The impacts on cross-border trade with Portugal are unclear, as there appear to be no explicit rules governing the eligibility of GOs for the scheme, let alone cross-border GOs. However, at 176 GWh this is a relatively small market; for comparison in 2022 more than 2.5 TWh biomethane was transferred across the Denmark/Sweden border - the suggested Portugal market share is less than one-tenth of this. Nevertheless, this is an important first step for biomethane in Portugal, and the blending obligation may be revised upwards from 1% in the near future.

Blending obligations are a powerful tool for promoting green gas uptake, but it is difficult to determine the effect on the certificate markets without knowledge of penalties for non-compliance. Nevertheless, the value of gas GOs can conservatively be estimated based using 

 - approximately 22 EUR/MWh as of 4 Jan 2022. Using previously calculated obligated gas volumes, this puts the total value of GOs for the Portuguese scheme close to EUR 4 million a year.

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Our community offers access to webinars, discussions and updates from industry leading experts and analysts. 

On 4 January 2023, the Portuguese government released the details of their proposed national obligation scheme for natural gas, 

. Gas suppliers will be obligated to blend 1% renewable gas into their supply, and the government will be offering ten-year supply contracts for biomethane and green hydrogen to facilitate this target. The mechanism for proving renewable gas sourcing will be the cancellation of GOs.

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