Liquidity and volatility - An inside view of the European energy trading system

The natural gas markets in Europe are continuing to develop but in very different ways and at differing speeds across the continent. Gastech Insights spoke with Chief Commercial Officer Origination and Gas Supply at RWE Supply & Trading and 2017 European Autumn Gas Conference (EAGC) speaker, Andree Stracke, to learn more about recent trading developments and what they really mean for the industry.

Gastech Insights: Does the current European energy trading system work?

Andree Stracke: We are seeing a great deal of additional liquidity on TTF, which is overtaking NBP as the most liquid benchmark for Europe; which is good news for the European players trading in euros rather than pounds. Other markets in Europe have developed as expected, including the Central European gas hub which is potentially the furthest out. Even PSV’s are taking traction and hopefully we will have a single French market soon. Overall, the system works; liquidity is present and volatility is there for the traders. It is a fantastic risk management tool for anyone who wants to be active in the European gas market.

Gastech Insights: What are your views about gas pricing at this point in time?

Andree Stracke: In North West Europe, the customers are telling us what they want, and the customers are choosing to take gas index. Depending on which region, it’s either TTF, gas pool or NCG pack. That is the benchmark the customers want and that is what we trade and risk manage, so the future of oil indexation is not given because the customers do not want it. I believe there is no necessity for the producers to have an oil indexation as they’ve got a liquid market behind it and they can sell volumes into the market.

Gastech Insights: How will recent developments in the global LNG industry and global politics affect the balance of energy trading in Europe?

Andree Stracke: I believe that in the next five to ten years we will see a well-supplied, worldwide gas market, and a lot of this LNG will come to Europe as well. The problem is that Europe cannot absorb that much volume because the economies in Italy and Spain are not as strong as they used to be so ultimately the demand is not as strong.

Gas or LNG can replace some of the coal power plants, but prices need to be really low on the gas side. Up to 15 to 20 billion cubic metres from today’s point of view, which can go additionally into gas-fired power production.

There’s a real opportunity there but prices need to go down first in order to absorb more gas.The question is, how many new markets will develop? Markets like Egypt, Dubai, Pakistan, Bangladesh and similar countries have a good opportunity to bring gas as a fuel of choice into their markets and develop them.

Gastech Insights: How can European gas markets absorb excess gas supply?

Andree Stracke: It depends on the growth of the economies especially in Southern Europe. If the economies really pick up again, then there will be demand opportunity, especially in Italy, Spain and Turkey. However, North-West Europe is very well supplied and some of the volumes need to replace falling production from the Netherlands, Germany and other areas. These volumes have got the opportunity to replace European production, but creating additional demand is very difficult in large amounts.

Gastech Insights: What is the key benefit of attending the European Autumn Gas Conference?

Andree Stracke: I would say the key benefit of the EAGC is that the industry can come together, from producers to big buyers, to discuss business opportunities, as well as learning valuable industry insights. It’s one of those events I attend each year.