European Gas Hubs. Florence School of Regulation 4 March 2010

Transcription

1 European Gas Hubs Florence School of Regulation 4 March 2

2 Who we are Independent publishers and analysts of energy markets The original and leading European gas & power price index The first provider of global LNG spot price benchmarks Products Daily gas, power, carbon and coal market reports Weekly LNG report Bi-monthly European gas publication Retail energy price report and analysis European hub trading study Unparalleled historical pricing series

3 How easy are the hubs to trade? ICIS Heren Tradability Index Q4 '9 versus Summer ' Physical trading points NBP TTF NCG Zeebrugge GASPOOL PEG Nord CEGH PSV

4 ICIS Heren Tradability Scores* TTF Contract Within-day Day-ahead Balance-of-month Month-ahead Next quarter Next season Two seasons ahead One year ahead Two years ahead Three years ahead Within-day Day-ahead Balance-of-month Month-ahead Next quarter Next season Two seasons ahead One year ahead Two years ahead Three years ahead Total Width of spread <.5/MWh <.5/MWh <.5/MWh <.5/MWh <.5/MWh <.5/MWh <.5/MWh <.5/MWh <.5/MWh <.5/MWh <.3/MWh <.3/MWh <.3/MWh <.3/MWh <.3/MWh <.3/MWh <.3/MWh <.3/MWh <.3/MWh <.3/MWh Availability 4 *Bid-offer spread typically available every day to all interested counterparties

5 Average GWh/day traded 3,5 3, 2,5 2,,5, 5 Hub operators data Hub volume development excluding NBP January 28-January 2 PSV PEGs TTF GASPOOL NCG Zeebrugge CEGH Jan-8 Feb-8 Mar-8 Apr-8 May-8 Jun-8 Jul-8 Aug-8 Sep-8 Oct-8 Nov-8 Dec-8 Jan-9 Feb-9 Mar-9 Apr-9 May-9 Jun-9 Jul-9 Aug-9 Sep-9 Oct-9 Nov-9 Dec-9 Jan-

6 NBP still dwarfs continental hubs NBP vs TTF volumes (Source: Hub operators) 45, Jan-6 Mar-6 May-6 Jul-6 Sep-6 Nov-6 Jan-7 Mar-7 May-7 Jul-7 Sep-7 Nov-7 Jan-8 Mar-8 May-8 Jul-8 Sep-8 Nov-8 Jan-9 Mar-9 May-9 Jul-9 Sep-9 Nov-9 4, 35, 3, 25, 2, 5,, 5, average GWh/day

7 NBP churn ratio Average NBP yearly churn ratios 2-29 (Source: National Grid)

8 OTC still the main Exchange versus OTC OTC is still the favoured trading method on gas hubs Reasons given by traders: Exchange margins and fees can be prohibitive for small companies OTC is more flexible if you mis-trade. It can be remedied by a broker in 2 minutes. On exchanges it s so complicated they often write off the loss Exchange IT systems not always seamlessly integrated with existing systems leading to risk Many companies like to know who they are dealing with Exchanges are subject to pricing interference from regulators and market designers BUT both types of trade are signs of a healthy market and they would normally develop hand in hand, providing different tools

9 /MWh 2 Hub price convergence Day-ahead Prices (Source: ICIS Heren closing assessments M arch '9 to M arch ') Record UK demand Interconnector maintenance Late German storage injection ` NCG NBP PEG Nord 2 TTF /3/9 /4/9 /5/9 /6/9 /7/9 /8/9 /9/9 //9 //9 /2/9 // /2/ /3/

10 LNG growth in UK supply LNG 2% BBL 7% Winter 8/9 Interconnector % storage 8% BBL 8% Winter 9/ Interconnector 2% storage 8% Norw ay 25% LNG 4% UKCS 57% Norw ay 2% UKCS 47%

11 Hub price convergence the curve Summer ' Price (Source: ICIS Heren closing assessments March '9-March ') /MWh NCG NBP TTF 6. ` /4/9 /5/9 /6/9 /7/9 /8/9 /9/9 //9 //9 /2/9 // /2/ /3/

12 Hub price convergence - Austrian and Italian prices react but keep a premium Front-month prices across Europe October 28-present (Source: ICIS Heren closing assessments) /MWh CEGH PSV EGT TTF Zeebrugge //8 //8 /2/8 //9 /2/9 /3/9 /4/9 /5/9 /6/9 /7/9 /8/9 /9/9 //9 //9 /2/9 // /2/

13 What is stopping trade at the PSV? Control over import pipeline routes by ENI ENI s refusal to embrace hub trading. It delivers on the PSV only when forced to through a gas release programme Prices are set by the regulator for gas release programmes, not by real supply/demand fundamentals Arbitrary regulation such as the import maximisation decree Lack of information metering, stock positions, daily gas flows, available capacity Regulated end-user prices methodology also arbitrarily changed No market-based balancing Storage positions tightly controlled, with retrospective balance given Lack of export capacity

14 November ' Spot versus contract TTF versus German import price (Source: ICIS Heren front month index, BMWi) November '6 January '7 March '7 May '7 July '7 September '7 November '7 January '8 March '8 May '8 July '8 September '8 November '8 January '9 March '9 May '9 July '9 September '9 /MWh TTF month ahead German import price January '6 March '6 May '6 July '6 September '6

15 Oil and gas disconnect oil-gas disconnect Jan Mar Feb May Apr Jun Aug Jul Sep Oct Nov Dec Jan Mar Feb May Apr Jun Aug Jul Sep Oct Nov Dec Jan Mar Feb May Apr Jun Aug Jul Sep Oct Nov Dec Jan Mar Feb May Apr Jun Aug Jul Sep Oct Nov Dec Jan Mar Feb May Apr Jun Aug Jul Sep Oct Nov Dec Jan Mar Feb May Apr Jun Aug Jul Sep Oct Nov Dec Jan Mar Feb May Apr Jun Aug Jul Sep Oct Nov Dec Jan Mar Feb May Apr Dated BFOE NBP Gas BFOE in $/bbl, Gas in p/therm

16 Why European hub trade will grow LNG will be an increasing part of Europe s Supply balance sellers are willing to take hub price risk, they are looking for maximum flexibility and need the option to divert European buyers will accept this, but require gas index pricing - flexible deliveries must be matched by flexible pricing to allow buyers to source replacement supplies at short notice The hub price crash below oil has been sustained enough to bring serious pressure from continental end-users. The effect goes all the way back to the producer. It brings with it the need to hedge these prices. An increasing share of renewables in the supply mix will need greater flexibility of supply from other feedstocks Hubs provide a necessary route to the customer for new entrants without much physical capacity Access to transit, transport and storage is urgently needed for Europe to reap the benefits of the growing wholesale gas trade.

17 Thank you for your attention. Louise Boddy Managing Editor ICIS Heren