Greek crisis threatens activity on energy markets

Trading activity in the Greek energy markets faces difficulties as the country is on the brink of a loan default and an exit from the EU.

Greece remains in the spotlight as it has, so far, failed to secure a new bailout programme and uncertainty plagued other European markets. A failure to secure an extension of the current bailout programme or create a new one would translate into a default on its €1.6bn IMF load due on Tuesday.

Grexit

Market sources fear the impact that a Greek exit from the Eurozone, or the lack of a new assistance programme, will have on the energy sector.

The country faces uncharted territories. Earlier this year, participants said a key hurdle for cross-border trading could be found in higher guarantees, as companies cover a higher financial risk.

But its impact could extend further on whether or not activity will continue.

Traders active in the Balkan region agreed the crisis was putting the energy markets in Greece ‘on hold’. The issues escalated on Monday, when the banks closed for a week.

Some said to expect some impact on long-term activity on the Greek borders in the electricity sector. This is because growing concerns over the situation could cause market participants to reduce electricity imports and exports, over fears of a lack of cash flow or payment.

“It will be more risky definitely and more costly but the activity would remain,” said one source, voicing expectation of a weaker liquidity on the short term products while current events continue to unfold.

Traders said that at the monthly cross-border capacity, expensive outturns were also a result of a strong buying interest.

“Now some of the traders could temporarily decrease or suspend [electricity] deliveries which were flowing to the pool,” said one trader. Greece operates a pool price more commonly known as the system marginal price.

A second source said that foreign companies “were already talking defensive positions by limiting their long term [cross-border] capacities”.

“I expect most international players to limit or stop net importing positions in Greece,” he said.

The aftermath

As Greece struggles to come to terms with the EU, its thunder rattles other European markets and commodities.

Intra-day volatility on the European emissions market rose on Monday, with traded volumes stronger. Data from ICIS-owned Tschach showed that before 9:00 central European time, more than 8m certificates were traded within a range of around €0.30/EUA. Market participants pointed to the tensions over a Grexit as the key driver. An unclear situation over the Grexit weighed on the euro, pushing it down against the Pound sterling.

A downwards move ensued in the British gas market as traders backed by euros retreated from the market. As the British pound gets stronger, buying interest from companies who operate in euros, drops.

Data shows that the NBP Winter ’15 product neared historical lows on Monday, bringing its value below the traded levels that some monthly summer contracts had hit in April. Historically the winter product is always more expensive than its summer equivalent.

The exchange rates also triggered reactions from the coal and German power market. Prices ticked down intra-day but picked up later in the afternoon.

Running out of time

Despite its defiance against coming to terms so far, Athens is running out of time to come up with a proposal. The issue has already been kicked down the road for five months, after Greece obtained an extension for its bailout programme in February (see EDEM 19 February 2015) and negotiations have been running since the start of June.

Meetings between Greece and Brussels continued over the weekend as well with more talks due on Monday.

But the EU remains adamant that a further extension is off the table. “The probable end [is] on Tuesday – if the Greek government is unable to pay the amount on Tuesday night, we have a major problem,” Martin Schulz, president of the European Parliament said in a live streamed conference. sophie.udubasceanu@icis.com