Dismay over Czech natural gas security standard ahead of bourse launch

06 December 2013 15:21 Source:ICIS

New Czech natural gas security standard regulation is out of line with EU rules and hurts market development, companies active on the hub have said.

The regulation requires, among other things, that suppliers have in storage gas matching 20% of peak demand of socially sensitive customers on each day of the winter season.

It will also exclude the Czech gas exchange due to be launched on Monday 9 December, from qualifying as a valid source of supply under the security standard.

ICIS understands that traders are planning to appeal to the European Federation of Energy Traders (EFET) demanding changes to the regulation enforced by the Czech energy regulator ERU and the country’s industry and trade industry from 1 October.

Traders had until 15 November to provide paperwork to ERU showing that they had complied during October.

Traders that fail comply with the security standard could face penalties of Czech koruny 50m (€1.8m) or up to 1% of net profit of the offending company, according to ERU.

Security standard

Protected customers in the Czech Republic include three categories of end-users – households, socially important entities like hospitals and customers that use gas for heating.

Traders selling to these types of customers have to prove they can provide set amounts of gas during winter.

They have the option to either store the gas in any EU country or prove they have bought it on the market.

If traders buy or store the gas abroad, ERU also demands they provide paperwork showing where it originates and that enough firm Czech cross-border capacity has been booked to ship it into the Czech Republic.

For example, if a Czech supplier buys gas to be delivered at the Czech virtual hub from Germany’s GASPOOL trading area, the seller has to provide a proof of origin of the gas as well as a proof of having secured Czech transport capacity for delivering it.

Unclear rules

Traders said the requirement is restricting competition and makes trading on the virtual hub “impossible”.

“All in all, it makes no sense that traders cannot use storage gas in the winter when it is meant to be used. We will only be able to withdraw that gas in March or April, when we do not need it,” one dealer said.

The rule can be especially detrimental to small companies.

Traders also said there was a lack of information concerning the regulation with some requirements being vague. One source said that ERU and the ministry point at each other if asked questions.

ICIS understands that companies active on the Czech market were hastily collecting the paperwork before the 15 November deadline and it is not clear how the authorities will check compliance. “It will all come to a head in January,” one trader noted.

Gas exchange

The planned launch of an exchange-based gas derivatives market in the Czech Republic on 9 December by Austria’s Central European Gas Hub (CEGH) and the Czech Republic’s POWER EXCHANGE CENTRAL EUROPE (PXE) will not qualify under the security standard because it is not possible to prove origin of gas purchased on the exchange.

The market will be operated by PXE while clearing will be provided by European Commodity Clearing (ECC) to offer derivative products with delivery at the Czech Virtual Trading Point.

The CEGH Czech Gas Futures market will offer settled gas futures, including monthly, quarterly, seasonal and yearly futures, with the market running on the Trayport GlobalVision Exchange Trading System (ETS) of PXE.

Traders expect a moderate impact on liquidity once the exchange is launched.

Some said a market-maker will be necessary to put bids and offers for the quoted products.

One source said traders prefer longer-dated bilateral contracts. Most companies are already registered on the German EEX and they still prefer bilateral deals for long-term gas.

Cost could also be an issue, traders said.

But 42 Financial Services (42FS), the most active broker on the Czech market, welcomed the exchange.

“It will for sure help liquidity on the market, we do not perceive the exchange as competition,” said Juraj Broncek, head of the energy desk at 42FS.

The exchange would help deal settlement, Broncek added. “All things being equal - [the exchange] is a positive development on the market,” he said. Katya Zapletnyuk and Miriam Siers

By Katya Zapletnyuk