There are no significant natural gas reserves in the Iberian Peninsula. Spain only produced 5.6 billion cubic feet (Bcf) of natural gas in 2005, mostly from a single offshore field, Poseidon, operated by Repsol-YPF. Portugal does not have any commercial natural gas production, though there have been repeated exploration attempts in its offshore basins.

In 2005, Spain consumed 1.1 Tcf of natural gas. Natural gas consumption in the country has risen dramatically since the 1980s, and Spain has one of the fastest-growing natural gas markets in the world. Between 1994 and 2004, Spain's natural gas consumption tripled, driven mostly by the large-scale introduction of gas-fired power plants. The Portuguese natural gas sector has also grown considerably over the past few years. Consumption was nearly non-existent prior to 1997, but in 2004, consumption of natural gas reached 152 Bcf. The increase in natural gas consumption can be attributed to the construction of import infrastructure, including pipeline links with North Africa and liquefied natural gas terminals.

The largest natural gas supplier in Spain is Gas Natural (GN), the result of a 1992 merger between Catalana de Gas, Gas Madrid, and the gas infrastructure assets of Repsol Butano. Gas de Portugal (GdP), a wholly-owned subsidiary of Galp Energia, dominates Portugal's natural gas sector. GdP directly controls natural gas importation, transportation, and supply, while it indirectly controls distribution through its stakes in Portugal's six regional distribution companies.

Enagas operates most of Spain's domestic natural gas transportation system. Enagas controls 4,500 miles of pipelines in Spain, consisting of six main trunk lines that connect Spain's liquefied natural gas (LNG) and pipeline import terminals with the country's interior. As mentioned above, GdP owns and operates Portugal’s natural gas transmission system.

Spain imports natural gas through two international pipelines. The Trans-Pyrenean pipeline, linking Calahorra, Spain to Lacq, France, began operations in 1993. This pipeline has a capacity of 330 million cubic feet per day (MMcf/d), allowing Spain to import natural gas from Norway via France. The second import pipeline is the 1,000-mile, 1.1-Bcf/d Maghreb-Europe Gas (MEG, also called Pedro Duran Farell). MEG, completed in 1996, connects Algeria's Hassi R'mel gas field with Cordoba, Spain, via Morocco.

In July 2001, a consortium led by Spain's Cepsa (20 percent) and Algeria's Sonatrach (20 percent) agreed to build the Medgaz natural gas pipeline, a second link between Algeria and Europe. The 120-mile, $1.3 billion Medgaz would link Beni Saf, Algeria to Almeria, Spain, with an eventual extension to France. In September 2002, the consortium completed a study of the line's feasibility, but delays have pushed back initial construction on the project. If completed, Medgaz would have an initial capacity of 770 MMcf/d. In 2007, a dispute between Sonatrach, the Algerian state energy company, and the Spanish government regarding Sonatrach’s ability to sell natural gas from Medgaz in Spain threatened to derail the project.

In June 2006, France's Total inaugurated the Euskadour pipeline linking the LNG terminal in Bilbao, Spain to Lussagnet, France. The system will allow Spain to re-export natural gas to the north. The 19-mile pipeline, running along the Bay of Biscay, has an initial capacity of 48 MMcf/d.

Portugal has two pipeline connections with Spain: Tarifa (1.08 Bcf/d) and Tuy (40.6 MMcf/d).

Spain is one of Europe's largest LNG importers. Enagas operates three LNG receiving terminals in Spain: Barcelona (2.5 Bcf/d), Cartagena (1.4 Bcf/d), and Huelva (1.7 Bcf/d). The Bahia de Bizakaia Group, a consortium of BP, Repsol-YPF, Iberdrola, and Ente Vasco de la Energia (EVE), operates an LNG terminal at Bilbao, with a capacity of 1.2 MMcf/d. The Sagunto LNG terminal, owned by a consortium of Union Fenosa, Iberdrola, and Endesa, has a capacity of 1.2 Bcf/d. In May 2007, the El Ferrol LNG terminal in northwest Spain received its first commercial shipment. The plant currently has a sendout capacity of 350 MMcf/d.

In October 2003, Portugal completed its first LNG terminal in Sines, with an output capacity of 530 MMcf/d of natural gas. The Sines terminal, operated by Galp Energia subsidiary Galp Atlantico, allows Portugal to seek greater independence of its natural gas supply, which is dependent on Spain's natural gas network to process and transport natural gas to the country.

There are three LNG regasification terminals proposed for Spain that are in various stages of the planning process. Engas is the proposed operator for a new facility in El Musel, in the Asturias region of Spain. Construction on the project could begin by 2009. In 2005, Compania Transportista de Gas Canarias (GasCan) completed an environmental impact assessment for its proposed LNG terminal on Tenerife, in the Canary Islands. That project would have an initial capacity of 33.9 MMcf/d and would mostly fuel a nearby power plant. GasCan also proposed building another LNG terminal in the Canary Islands, on Grand Canaria.