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German natural gas trading hubs to phase out conversion fee by 2016

29 Mar 2012 16:19:45 | esgm

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Germany's natural gas hubs NCG and GASPOOL must phase out their fee for converting high-calorific natural gas (H-gas) and low-calorific gas (L-gas) by September 2016, a decision paper published by regulator Bundesnetzagentur (BNetzA) indicated on Thursday.

This means that the conversion fee phase-out will happen more slowly than demanded by market participants who - in a market consultation last year - urged the regulator to speed up the process, which was planned for four years (see ESGM 5 December 2011).

For each hub, BNetzA has set a maximum yearly fee from September 2012 until September 2016, at which point the conversion fee will drop to zero. According to the figures, GASPOOL will have to lower its fee to a maximum of €1.76/MWh from 1 September this year. The hub operator currently charges a €2.20/MWh conversion fee, although this is set to drop to €1.95/MWh from 1 April.

In contrast, the NCG fee already matches the maximum level prescribed by the regulator for September 2014. NCG recently said it will lower the charge for the second time since its introduction, reducing it to €0.90/MWh from 1 April from the current €1.50/MWh.

Tightening spreads

Traders expect the reduced fee to narrow the spread between H-gas and L-gas products and to lead to higher conversion rates in the NCG market zone over the course of next quarter, while they consider the new GASPOOL fee still too high (see ESGM 17 February 2012).

At the less-liquid German hub, market participants have found it even more difficult to procure L-gas volumes, as there is little transparency. According to traders, there are usually no offers for L-gas products on brokers' screens, and the majority of deals are done bilaterally. Traders estimate the average L-gas prompt premium to its H-gas equivalent at around €1.00/MWh.

According to the figures published by the regulator on Thursday, the GASPOOL fee is not set to drop below this level before September 2014. Until then, the hub operator is free to charge a fee significantly above the average L-gas premium, giving no incentive for traders to use the conversion service.

The first conversion charge was introduced in April 2011, ahead of a zone merger which tied the then-NCG area with the Thyssengas network, creating the first cross-quality market area in Germany. Grid users had strongly opposed the conversion charge, considering it a market barrier for those trading L-gas.

BNetzA expects last year's market zone mergers to lead to a significant increase in liquidity at the German trading hubs within the next four years, according to the document. At that point, the watchdog will completely phase out the current fee and socialise the conversion costs among all market participants, as they will then all profit from the mergers' positive effects, the regulator said. JR

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