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Corrected: PRISMA auctions lift far curve liquidity at PEG Sud

12 Mar 2014 12:52:00 | esgm

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(The original version of this story published on 12 March 2013 in paragraph 13 contained errors. The equivalent costs for annual firm capacity at the north-south link in paragraph 13 were incorrect. A corrected story follows.)

Liquidity on the PEG Sud far curve has been increasing in recent weeks as a result of new transport capacity auctions at the French north-south link. Traders say this is because the auctions, held on the pan-European platform PRISMA, now give visibility further out on the value of gas at PEG Sud.

Since 17 February, Sud Summer ’14 traded nine times, and Summer ’15 traded once, according to data reported to ICIS. Sources have also reported seeing consistent bids and offers for Sud Summer ’14, Winter ’14 and Summer ’15 over the past three weeks.

Most recently, Sud Summer ’14 traded at €27.85/MWh on 11 March – this was a premium of €3.95/MWh to its northern equivalent at the time of the trade. Summer ’15 traded at €27.90/MWh on 3 March, €2.50/MWh above the corresponding Nord product.

Last year during February and March, Sud Summer ’13 traded five times and Winter ’13 four times, according to ICIS data.

“As bids are going on PRISMA, prices for the far curve are emerging from this. It is pushing the market into having a clearer view on what those prices should be,” said one trader last Friday.

Previously, capacity was allocated pro-rata only for a year at a time, and at a regulated price which did not reflect the market value of the capacity in the north to south direction, traders say. The interface is a notorious bottleneck and the Sud zone lacks other supply sources apart from LNG, which has been in short supply in recent years.

Now, capacity is being offered up to four gas years ahead, giving greater visibility, while the auction system gives a more representative price signal.

“We were expecting the auction on PRISMA to extend into prices for the far curve. It is registering a lot of attention from shippers,” another trader said earlier in the week.

But as one source pointed out, it remains to be seen whether this burst of activity turns into a sustained trend.

“I still can’t figure out what will happen after this auction, if people will hedge in the market or if everyone’s happy to keep that … as a reference and we will never see anything else on the curve,” the trader said.

Early shift to CAM

The allocation of capacity at the north-south link via auctions on the PRISMA platform was introduced in France as an early adoption of the EU capacity allocation mechanism (CAM) network code.

All four yearly firm capacity products for the north to south direction were oversubscribed, resulting in multiple auction rounds. The auction for gas year 2014/15 took more than a week to complete.

The cost of capacity is based on a regulated tariff, plus a surcharge which increases with each additional round in case of oversubscription. The equivalent capacity cost for 1MWh for each annual firm capacity product was:

€3.54 for 2014/15

€2.97 for 2015/16

€2.40 for 2016/17

€1.81 for 2017/18

In this year’s process for allocation of annual capacity, nearly all of the available firm capacity for 2014/15 (125.3GWh/day/year) was offered via PRISMA, with the exception of 40GWh offered earlier, pro-rata to French gas-intensive users, in line with a government decree issued in October ( see ESGM 24 October 2013 ).

The amount of firm capacity commercialised was progressively smaller for the periods further out. For 2015/16, 76GWh/day/year was auctioned, decreasing to 38GWh/day/year each for 2016/17 and 2017/18. In the case of all auctions, almost all the offered capacity was allocated.

One trader suggested that the auctions could result in some small loss of some liquidity on the margins, as counterparties with no retail clients in PEG Sud might not risk buying capacity on the link at auction prices.

“I think all the pure traders will not secure capacity because it’s too much of a gamble, so that might change... the south to north forward spread [marginally],” he said.

But he added that, on the other hand, shippers reshuffling their capacity portfolio might bring some liquidity.

“At the end of the auction a variety of people [are] holding capacity rights going to September 2018. Those people make a decision to acquire capacity now, but in six months, a year, they might decide to buy some or sell. Potentially that might create a certain amount of liquidity. It might change a little... not right away but over time.” Miriam Siers/Emma Slawinski

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