Austrian natural gas hub finally becomes virtual trading point
After many months of preparation the Austrian natural gas hub will finally move from a physical point to a virtual trading point on New Year's Day. But market opinion is divided on whether the new system will attract more liquidity.
Participants polled by ICIS agree unanimously that the regime change will be beneficial to trading at the Austrian Central European Gas Hub (CEGH). The more controversial question, however, is how big the benefit for liquidity will be.
While forming the cornerstones of the new virtual trading point, the regulator emphasised that the change was aimed at making it easier for new players to enter the market, which should then stimulate competition.
But some believe too many parts of the old system will be kept alive after 1 January: "Someone has tried to save the old system and carry on in the new one. The only difference is that we'll be calling it entry/exit system next year," one source said. "This becomes very clear when you look at the way the concept of dynamically allocated capacities for transit to other countries is designed. These capacities can only be booked firm when you name the entry and the exit point, so that's keeping up the old system."
The trader added that this would keep the current differentiation between transit and domestic transport alive. This was viewed as one of the main barriers to competition in Austria, as certain transport capacities are booked for one or the other purpose and cannot be used on a flexible basis.
Other traders believe that the problem of the dynamically allocated capacities would not be that great a hurdle, as long as the entry and exit fees were to change.
ICIS understands that at least one company was considering the possibility of a lawsuit against the new tariffs, because the German/Austrian grid point and bottleneck Oberkappel will be twice as expensive as the Baumgarten entry point.
"This will make it far too expensive to bring in gas from Germany and discourage new market participants to start trading," a dealer said. "And at the same time, it will be an advantage for the old incumbent because the entry of Russian gas coming in at Baumgarten will be cheaper."
A question mark remains on how important the entry tariff at Oberkappel will be in the current market environment.
CEGH Day-ahead has been trading at an unusual discount to the German NCG peer for some time this winter, according to ICIS data. It rose in late December, but only to regain a relatively small premium over its NCG counterpart.
Some sources stated that because of the low spreads between NCG and CEGH it would be important to lower the entry tariff and make transport viable again. Others see no point at all in a lower tariff since they believe the spread will remain nearly nonexistent in the future.
"I've been expecting that CEGH will adjust to the level of NCG more and more under the new regime," another source said. "I don't think this will change next year. People won't even try to bring gas from Germany to Austria if there's no money to be gained.
"Even if Austrian prices remain at a premium to Germany, I don't think the premium will be huge, since Italian demand will not recover anytime soon from the economic crisis."
While many players believe that simply by having a less complicated trading system some new players - including financial players - will be attracted, they also see the new system as a condition clause.
One trader said: "Even if new players come to the market, the most probable thing is that it will not change anything in the fundamentals. Italian demand and the spread to Germany will drive the demand in Austria. This market will remain driven by physical issues, even if it will not be a physical hub anymore."
ICIS will continue to assess the same contracts at the Austrian hub as under the old regime, but will change the definition of the market in line with the new virtual trading point.
The switch from a physical to a virtual hub is based on an amendment to the Austrian gas market law, which was passed in parliament in October 2011 and incorporates the requirements of the third EU energy package (see ESGM 20 October 2011). MH
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