The German regulator, the Federal Network Agency (BNetzA), has dismissed the hope of many market participants for the creation of a single German natural gas trading zone in the short to medium term.
In a report published on Wednesday, the BNetzA agreed with a previous assessment made by the country's transmissions system operators (TSOs), saying the costs of an NCG-GASPOOL hub merger would indeed outweigh the expected benefits.
According to a recently published study conducted by the TSOs, the financial benefit for the market would amount to a maximum of €57.3m/year, while the additional minimum costs would total €395m/year in the first year after the merger (see ESGM 8 November 2012). In all, the gas grid would need investments of €3bn in order to keep functioning at the current level, should the two market zones merge, the TSOs said.
Market participants have harshly criticised the TSOs' study as not being transparent, and have said it underestimated the benefits of the merger, comments from a consultation published on Wednesday showed. The responding companies also agreed the capacity scenarios drawn up by the grid operators in their study represented extreme cases, which exaggerated the estimated costs.
The German branch of the European Federation of Energy Traders (EFET), for instance, stressed that cost-reducing market-based mechanisms, such as load flow commitments and interruptible capacity products, have not been taken into consideration.
German gas supplier WINGAS also questioned the TSOs' statement about liquidity on the market being sufficient: "Experience shows that participants often migrate to more liquid hubs in order to hedge major positions."
This view was also recently raised by Maik Neubauer, partner at energy consultancy Baringa.
"The German gas market needs another merger in order to compete with the Dutch TTF. It would, of course, be expensive - but it is necessary if the goal is to have a strong, competitive gas market," he told ICIS last week (see ESGM 15 March 2013).
Conversion fee phase-out
The regulator said it generally agreed with the criticism from the consultation, but added that even if the TSOs were to take into consideration the comments made by participants, the study would still have come to the same result. At the same time, the BNetzA called on the grid operators to further optimise trading in the existing two market zones in the short to medium term.
The regulator stressed it expects the phase-out of the fee for the conversion between low-calorific and high-calorific gas (L-gas and H-gas respectively) to significantly increase liquidity in the next few years. Both German hubs have been charging conversion fees since the market zone mergers in 2011, which integrated the L-gas areas into the H-gas trading zones.
Although both German trading zones are now officially set up as cross-quality market areas, thanks to the fee, many participants consider H-gas and L-gas to be separated in reality.
Most recently, the NCG announced that it will lower its conversion charge to about one-third of the equivalent GASPOOL charge from 1 April (see ESGM 15 February 2013). While the NCG fee will drop to €0.60/MWh, down from €0.70/MWh, the GASPOOL charge will remain at €1.76/MWh. For each hub, the BNetzA has set a maximum yearly fee from 2012 until October 2016 - at which point, the conversion fee will drop to zero.
In the recently published ICIS buyer study, which questioned 37 German gas buyers, 27% of the interviewees believed a further zone merger is the single most-needed measure to further improve competition in the German gas market. Another 24% said that getting rid of the conversion fee was most important. Johanna Blackader