LONDON (ICIS)--Over-the-counter European natural gas trade climbed by over a quarter year on year in 2018 to exceed 30,000TWh for the first time, ICIS data showed.
The Dutch TTF led the way in 2018, with traded volumes rising almost 50% to total 19,365TWh – over two thirds of the 30,260TWh European total.
The British NBP dropped for the second consecutive year. Traders dealt over 400TWh less in 2018 via brokers than in 2017, bringing total trade for Europe’s oldest market to 6,238TWh.
Liquidity from Europe’s smaller markets rose 9% to 4,656TWh, but fell almost 400TWh short of their 2016 record.
The TTF’s strong growth in 2018 shocked many in the market but was a result of a number of key players embracing the hub.
Russian producer Gazprom has been reluctant to embrace hub-based pricing mechanisms for years - supply contracts have always retained an element of oil-indexation despite growing calls for greater gas-on-gas competition. But Europe’s largest supplier has made a number of concessions to greater reflect hub prices, with the introduction of hybrid contracts which reflect the TTF.
There is no going back for the Russian major, who will likely continue with its contractual concessions and pursue selling uncontracted supply directly onto hubs.
Global LNG players increasingly hedged portfolios on the TTF in 2018, with Europe’s prominence as the LNG market of last resort coming to the fore towards the end of the year.
While still an important hedging venue for local and global participants, the NBP has been usurped by its Dutch neighbour. A lack of storage capacity has hit asset-backed trading on the British market, while the looming British exit from the EU has brought uncertainty that traders have shied away from.
Business as usual for other hubs
Traded hubs outside of the TTF and NBP once again struggled to build a liquid forward curve, with traders more than happy to rely on the two dominant markets for hedging. The smaller markets accounted for 15% of total trade in 2018, 2 percentage points down on 2017 - their lowest share over the past four years.
Day-ahead and front-month liquidity remained healthy across a number of markets, including Germany’s NCG and GASPOOL, Italy’s PSV, Austria’s VTP and the France’s newly formed PEG.
Belgium’s two hubs – Zeebrugge and ZTP – accounted for almost a fifth of trade among Europe’s smaller market in 2015. Since then, primarily due to weaker Zeebrugge trade, it has dropped seven percentage points. Other markets have developed their own balancing markets and developed prompt liquidity. Participants no longer need the Belgium hub, in tandem with the Interconnector pipeline to Britain, to balance their spot positions.
The PSV has benefited from aggressive liberalisation policies implemented years ago and has continued to grow liquidity, with its share rising four percentage points from 2015.
Germany’s NCG remains the largest of the smaller hubs, but has lost market share to the aforementioned PSV, as well as the French PEG, Austria’s VTP and Spain’s burgeoning PVB.