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European Wholesale Gas Markets

Abstract

Introduction

As the effects of full market opening in the European gas sector become more pronounced, the role of traded wholesale gas markets will grow in importance. Both established and new entrant players in markets at all stages of wholesale liquidity development will increasingly be impacted by the existence, and development, of wholesale markets in their retail operations.

Features and benefits

  • Insight into developments in Europe's major gas hubs through analysis of churn levels.
  • Overview of recent events and major players, with a particular focus on the Dutch, Italian, and Spanish markets.
  • Summarizes the development of the Nabucco pipeline.

Highlights

In the Netherlands, the expected trend is increasing demand and a greater diversification of supply of natural gas through pipelines, storage facilities, and LNG. Due to government intervention, Datamonitor expects trade volumes on the TTF to increase on a par with the Zeebrugge Hub, making it one of the largest in Europe.

Italy's PSV and Spain's Centro de Gravedad hubs remain at an early stage of development with limited liquidity. While attempts to build a single Iberian gas market (MIBGAS) are still under way, Datamonitor notes more encouraging progress in inter-regional co-operation through the South Gas Regional Initiative between Spain, Portugal, and France.

European gas markets are in a highly segmented state and gas cannot easily flow across European borders. On the production front, there remain a limited number production sources (Russia, Algeria, Norway, the UK, and the Netherlands, along with LNG shipments). New entrants are often discouraged by long-term take-or-pay contracts.

Your key questions answered

  • What are the most liquid gas markets in Europe?
  • How has the Netherlands' TTF evolved and why?
  • How far along is Europe in achieving a competitive pan-European gas market?
  • What does a liquid market look like?
  • What has happened to Nabucco?

Table of Contents

DATAMONITOR VIEW

  • Catalyst
  • Summary
  • Sources

ANALYSIS

  • Wholesale gas hub development will lead to further competition, enhanced security of supply, and greater market efficiency
    • The EU continues to strive for greater competition by promoting a single integrated wholesale gas market
    • The market's traditional pricing mechanisms present obstacles to competition
    • The development of wholesale hubs and more gas-on-gas pricing will lead to greater security of supply
  • Traded volumes in European exchange systems
    • The Netherlands
    • Italy
    • Spain
  • Adequate levels of liquidity on wholesale hubs are integral to the development of a competitive European gas market
    • The development of wholesale markets tends to follow a preset pattern of distinct stages
    • The wholesale market development cycle gradually builds up enough momentum to spawn the creation of wholesale support services
    • Once sufficient structural factors are in place, the necessary support services required for wholesale market development begin to emerge
    • The market-based factors supporting hub development are crucial elements in facilitating and developing traded markets
    • Wholesale gas markets are required by different players throughout the value chain for different reasons
  • Currently Europe's wholesale gas markets cover the full range of developmental stages
    • Nascent
    • Emerging
    • Established
    • Mature
  • The UK remains the most mature market
    • Europe's current wholesale gas markets cover the full spectrum of segmentation
    • Analysis of churn levels provides an insight into liquidity and wholesale market developments
    • Current levels of churn in individual wholesale markets vary significantly
    • The National Balancing Point's maturity, deep liquidity, and strong volume growth have led to the UK's position as Europe's leading gas market
    • The Zeebrugge Hub remains Europe's second most liquid hub
    • The TTF has experienced remarkable liquidity growth and continues to challenge the Zeebrugge Hub in traded volumes
  • Price efficiency levels in the European wholesale markets show varying ranges of volatility
    • Datamonitor's Deviation Days Index measures price movement ranges and provides insight into price efficiency
    • Levels of volatility in the established markets have been decreasing markedly
  • Other less developed hubs
    • The Central European Gas Hub continues to develop its traded volumes, although it is still limited by its single source of gas supply
    • Europe's emerging wholesale gas hubs continue to expand in both traded volumes and liquidity
    • Europe's nascent markets are seeing renewed impetus towards development
  • The Netherlands
    • Market overview: demand and supply
    • Future supply diversification
    • The role of non-conventional gas
    • Gas infrastructure and storage investment
    • The growing importance of the TTF
    • Changes of note in the TTF
    • Regulation in the Dutch market
  • Major players in the market
    • GasTerra
    • Nederlandse Aardolie Maatschappij
    • Essent
    • Nuon
    • GTS
  • Italy
    • Market overview: demand and supply
    • PSV developments
    • M-Gas, Italy's new exchange
    • Virtual storage program
    • Competition and concentration in the market
    • Regulation
  • Active and major players in the market
    • Eni
    • Edison
    • Enel
  • Iberian Peninsula
    • Market overview
  • Supply diversification through Nabucco
    • Nabucco pipeline

APPENDIX

  • Ask the analyst
  • Disclaimer

FIGURES

  • Figure: Liquidity in natural gas markets, as defined by the IEA, incorporates four distinct market characteristics
  • Figure: The five distinct stages of wholesale market progression
  • Figure: Wholesale support services emerge as the cycle builds momentum
  • Figure: The interaction between structural and support factors creates a "snowballeffect
  • Figure: The key support elements to wholesale market growth
  • Figure: Different players engage in wholesale trading for different reasons
  • Figure: Market development in Europe
  • Figure: Europe's newer, less developed markets lag far behind the established markets in terms of churn ratios
  • Figure: The NBP remains Europe's most liquid traded wholesale market
  • Figure: Both the TTF and the Zeebrugge Hub have high levels of liquidity and churn ratios
  • Figure: On balance, price volatility on the TTF and the Zeebrugge Hub has remained significantly lower than that on the NBP
  • Figure: Absolute price movements on the TTF and the NBP (£p/th), July 2001 - July 2011
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