Factors shaping European gas trading & Alpiq's plans to stay ahead of competition

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Michel Kolly, Head of Business Unit Cross-Commodity Trading & Origination, Alpiq
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Michel Kolly, Head of Business Unit Cross-Commodity Trading & Origination at Alpiq, discusses with Gastech News the big picture of gas trading in Europe and the real potential of future trading points in Poland and Turkey. As well as Alpiq's plans to stay ahead of competition in the region.

Gastech News: What is the big picture of gas trading in Europe? And, what factors could have an impact on Europe’s gas trading at the moment?

Michel: "A few key drivers are currently shaping European gas trading:

Demand dynamic remains poor due to Europe’s slow economic growth. Furthermore, the anticipated gas demand for power generation has not materialized as even the most efficient gas-fired power plants were outcompeted by subsidized renewables and cheap coal.

However, LNG supply is returning to Europe and is competing for market shares, impacting gas flows across the Continent and giving new opportunities to wholesale market participants like Alpiq to optimize our transportation and storage portfolio to better serve our customers.

This has further increased gas-to-gas competition and customers now clearly choose to purchase gas indexed to hub-pricing, pushing oil-linked pricing further away. On the regulatory side we are carefully following the ongoing definition of MIFID II detailed rules set. We all anticipate a negative impact on market liquidity and an increase of costs. In case the impact is very significant the market shall re-invent itself to provide efficient supply and risk management products to gas customers and to suppliers."

Gastech News: What is the real potential of future trading points like Poland and Turkey?

Michel: "Alpiq has been active in those countries for many years on the power side. We recently started to develop our gas trading activities in Poland at PolPX and across the borders and we are currently preparing to enter the Turkish gas market. The Polish market is an attractive East-West trading hub. Wholesale trading is developing to optimize cross-border capacity and to supply eligible customers. The development of a regional gas hub in Turkey is hindered by substantial subsidies of the domestic gas price and therefore not attractive for local wholesale trading. Third party access to transportation and storage shall improve to attract more international players and large local portfolios to the market."

Gastech News: Which role will play gas in the power generation mix in the future?

Michel: "Power markets are increasingly biased by renewable subsidies. The current market situation is unsustainable for most of the CCGTs in Europe which are the most prominent collateral victims. Power regulatory framework is so unstable that it is challenging to anticipate which new rule will impact CCGTs and how.

The competitiveness of CCGTs depends on the gas price and C02 price respectively the clean spark spread. In many areas and for several periods of the year, CCGTs can be competitive with slightly cheaper gas prices. They could provide an interesting and large incremental outlet for gas in case of increasing oversupplied LNG markets. At current levels, CCGTs will remain one of the flexibility and back-up providers to the power system. The power flexibility market is attracting many new players however; therefore gas flexibility costs should not rise, or should even decrease, to keep competitiveness of CCGTs in the flexibility power markets and at least maintain their current gas demand market share. An efficient intraday gas market across Europe would be the best means to ensure it."

Gastech News: What are your company’s plans to maximise business activities and stay ahead of competition in the region?

Michel: "Alpiq has specialized competence in short-term optimization of dispatchable flexible assets together with non-dispatchable assets or customer demand. Alpiq is also a wholesale trading company with one of the broadest geographical coverages in Europe. Thanks to our local origination offices we are providing tailor-made solutions for our customers on the basis of central optimisation and risk management of all our portfolios. Our commercial strategy is to offer energy and related energy services to our customers combining the competences and the products of both of Alpiq’s business divisions: Commerce & Trading and Energy Services."

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