High imbalance charges may cap Slovak gas liquidity – traders

Marcello Kolax

12-Feb-2016

Penalty charges on the Slovak interim balancing platform may hamper liquidity growth on the country’s natural gas hub, according to market participants canvassed by ICIS.

Instead of risking penalty charges for imbalances, traders eliminate the risk by buying gas on the more liquid Austrian VTP hub and ship it to Slovakia for balancing purposes.

Market participants who decide to balance on the Slovak platform have to buy or sell gas at unfavourable prices that act as a penalty if they are out of balance at the end of the gas day.

Either the Austrian exchange spot gas index CEGHIX times the factor 1.1, or the highest purchasing price at the balancing platform for the given gas day, are used to calculate negative daily imbalance charges, whichever is higher.

Positive imbalance charges are calculated on a daily basis either according to the lowest selling price at the balancing platform or the CEGHIX times the factor 0.9 – whichever is lower.

“[The CEGH index is] too expensive and [a] better and cheaper solution is balancing with daily capacity from the Austrian VTP hub,” one trader active on the marker said.

Lack of action

Considering Slovakia’s long march ahead towards a fully functioning platform in April 2019, the level of imbalance charges could not be determined by Slovakia’s low market liquidity, according to a spokesman for the Slovak grid operator Eustream.

Around 20 parties are currently registered on the Slovak balancing platform. No balancing actions have happened since the launch of the platform on 2 October 2015, according to Eustream data.

“No balancing actions were taken because the platform isn’t used very much. The penalties are very high, preventing traders from using the platform. The penalties are painful but not extremely painful. Overall it is cheaper to just buy gas from Austria instead of exposing oneself to the risk,” a second source said.

Choice

In Slovakia, the transmission and distribution balancing zones are separated, giving shippers full control of individual imbalances in case of unmatched entry and exit nominations.

“Since imbalances result from [unmatched] confirmed nominations, the shippers have of course the option to balance their portfolio via standard market tools including CEGH [Austrian hub]-even on an intra-day basis,” the Eustream representative said.

As required under the EU’s balancing network code, the existing interim balancing platform and the imbalance charges are bridging the period until the country has set up a fully functioning balancing platform by 2019.

Despite the criticism, Eustream described the introduction of the imbalance charges as a big step forward which “may have only a positive effect to the market liquidity in Slovakia”. Some traders are less certain. marcello.kolax@icis.com

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