The year in brief: Czech Republic

27 December 2013 14:21 Source:ICIS

Liquidity on the Czech OTC natural gas market continued its exponential growth over 2013 as the market became established with companies being able to trade both bilaterally and via broker screens.

But trading remained limited to suppliers balancing their positions rather than trading for speculative purposes.

Traded volumes are gradually shifting to broker screens. According to some estimates, as much as 60% of all spot deals are now done via brokers, mostly 42 Financial Services.

More than 24TWh of gas changed hands during the first nine months of 2013, compared with about 880GWh during the same period in 2012, according to ICIS data.

Volumes of bilateral gas trades reported to the Czech market operator OTE were even higher, reaching 94.3TWh during the first nine months of 2013, compared with 72.34TWh during the same period last year. In 2012, OTE had registered 107.4TWh of trade. This data captures gas traded bilaterally by companies, delivered to the virtual trading point and reported to OTE for balancing purposes.

The short-term market remained the main focus of trading activity, with Day-ahead the most traded contract. But the front-month and quarterly contracts also traded and sporadic deals were reported on Calendar Year 2014 and 2015 via the broker. ICIS understands that bilateral activity on the curve was higher than brokered activity.

Narrowing price spreads between the Czech and German markets are making transportation from Germany to the Czech Republic less attractive, encouraging more buying directly at the Czech virtual trading point. Supplier margins have decreased but, with multiple local and international companies now active in the market, competition for end-customers increased.

The rise in liquidity was largely attributed to those companies increasing their activity rather than new participants starting to trade.

Several new companies obtained licenses to trade and, according to OTE, the number of gas market participants is now 63, including more recently the entrance of British-headquartered BP Energy Europe in June, Polish PGNiG and Slovak incumbent SPP in early October. SPP had previously been active in the market via its Czech subsidiary.

The number of companies active on the market, however, has stabilised over 2013.

Czech prices continued to take their mark from German NCG but the Day-ahead contract was also affected by the Czech Republic’s own fundamentals. As a result, the Czech-NCG Day-ahead spread was volatile with the Czech contract dipping below Germany on some sessions. Czech weather-driven demand has also had an effect on prices.


The Czech industry and trade ministry and the energy regulator ERU introduced a new gas security of supply standard regulation from 1 October 2013.

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 winter.

It will also exclude the Czech gas exchange launched on 9 December, from qualifying as a valid source of supply under the security standard because it is not possible to prove origin of gas purchased on the exchange.

Several traders active on the market said in December the regulation is out of line with EU rules and hurts market development.

However, the Czech industry and trade ministry and independent industry group Czech Gas Association has defended the rule, saying it is necessary in order to avoid crises similar to 2009 supply disruptions due to a Russia-Ukraine spat.

“We can see no reason to amend (the regulation) on states of emergency in the gas industry and on methods to safeguard security standards of supply at the present time, because through it the Czech Republic meets the requirements set by the European Parliament and the Council concerning measures to safeguard security of gas supply,” the ministry told ICIS on 12 December.

ICIS understands that traders are planning to appeal to the European Federation of Energy Traders (EFET) demanding changes to the regulation enforced by the 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.

Failure to comply with the security standard could be subject to penalties of Czech koruny (Kc) 50m (€1.8m) or up to 1% of net profit of the offending company, according to ERU.

Protected customers in the Czech Republic include three categories of end-users – households, socially important entities such as 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.

Infrastructure projects

The opening in January of the 30 billion cubic metre (bcm)/year Gazela pipeline - which transports gas from Germany’s OPAL pipe via the Czech Republic back to Germany and the MEGAL pipeline - is also likely to have boosted interest in the hub.

The pipeline, which links Nord Stream’s onshore extension OPAL with southern Germany, intersecting the Czech Republic, is flowing at almost 100% of its 90 million cubic metre (mcm)/day capacity, Radek Bencik, managing director of Czech transmission system operator (TSO) Net4Gas, said in April.

Gas flowing via the Gazela pipe mostly comes from Nord Stream and flows from OPAL to another Nord Stream link, MEGAL. Gazela has two connections points with the main Czech transit route that takes Russian gas coming via Ukraine and Slovakia further to Europe, as well as the Czech network, which makes it possible in theory for some of that gas to also enter Gazela. Gazela is exempt from third-party access requirements.

Cross-border connections

GATRAC, the gas cross-border platform for the Czech Republic, Slovakia and Germany, ceased to exist at the end of September.

The platform, which had offered shippers bundled Day-ahead capacity, was closed down because of the changing regulatory landscape in Europe, according to Net4Gas.

However, Net4Gas said it has no plans to replace GATRAC with pan-European platform PRISMA.

The Austrian and Czech TSOs Gas Connect and Net4Gas have launched a market survey to test potential demand for the bi-directional Austrian-Czech Interconnector project (BACI).

Based on the results of the studies, the TSOs will decide whether to continue or not by launching a binding open season, Net4Gas said. Katya Zapletnyuk

By Katya Zapletnyuk