New Danish gas balancing window to stifle within-day liquidity – experts

Natural gas market participants fear that a wider Danish balancing window introduced last week will “undermine the liquidity” on the within-day market at exchange Gaspoint Nordic (GPN).

Danish transmission system operator (TSO) Energinet.dk recalculated the Danish system’s ‘green zone’, the window within which the system is calculated to be in balance, with effect from 10 February. The TSO said these recalculations would lead to a wider green zone in most scenarios.

This followed the introduction of an asymmetric green zone on 1 October 2015, in which the system’s total imbalance is carried over to the subsequent gas day. The asymmetric green zone was introduced because Energinet.dk found that shippers preferred to cash-out on the neutral price rather than risk entering the illiquid within-day market, leading to more shippers being out of balance at the end of each gas day and putting the physical system under pressure.

“After introducing the asymmetric zone we found out that we are able to provide some more flexibility in the green zone,” Christian Allan Rutherford, who is responsible for developing the balancing model at Energinet.dk, said. “We see this as a necessary step as we should provide the flexibility that we are able to.”

However, shippers have said this will further damage liquidity at the within-day market.

“Yet again we see a new patch to the Danish balancing system,” one trader said. “This time a patch that undermines the liquidity of the GPN within-day market.”

“It’s not very helpful,” Jacob Pedersen, chief executive of Gaspoint Nordic, agreed. “It’s not going to support more trading since you basically give away more linepack to shippers.”

However, Pedersen added it would take several weeks before the true impact of the wider green zone on the within-day market was known.

Rutherford emphasised that the wider balancing window should not be viewed in isolation.

“If you look solely at this measure it will probably not have a positive effect on the within-day market because we will trade less on GPN,” he said. Energinet.dk will pursue other measures to improve within-day liquidity, Pedersen said.

“Given the package of everything we don’t see as much of a step down for within-day liquidity.”

This adjustment of the green zone calculation was one of a raft of changes to the Danish balancing model proposed by Energinet.dk in an evaluation which it submitted to the Danish energy regulator DERA at the end of 2015.

Its suggestions include steps to improve liquidity on the within-day market such as the introduction of a market marker, an increase in the cost of ending the day out of balance and economic incentives for improved data.

Rutherford said the TSO was continuing to work on these measures, some of which need to be approved by the regulator. When the evaluation was published, Energinet.dk said it hoped all changes would be in place by 1 October 2016. Rutherford said this was on track with some measures including the introduction of the market maker to be in place earlier. julie.fisher@icis.com