CEGH-PEGAS: Binding Russian pipe gas with global LNG

Theodore Michael's picture
Theodore Michael, LNG Analyst, Genscape
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Europe continues the process of physically integrating its gas networks. The Central European Gas Hub (CEGH) intends to complete its integration into the PEGAS trading system end of 2016. Ushering in a new era of transcontinental trading. The hub is the gateway to twenty-five percent of Russian gas exports to Western Europe. The virtual balance point (CEGH) located in Vienna, Austria, is the leading hub for trading gas from the East to Europe. And the conduit for price arbitrage with NBP.

A convergence of hubs on the PEGAS platform allows NBP to arbitrage against CEGH. One common gas trading platform offering spot and futures; as well as spread or basis trades with other European hubs.

At The European Autumn Gas Conference 2016 (The Hague) speakers examined the benefits of this integration with the North West European grid. The integration of the CEGH into the rest of Europe joins world gas markets to continental pipe gas; physically and financially. The major European continental hub, the DTTF and NBP, the gateway to global LNG markets, will now attempt to balance European demand against pipe and LNG source through a single platform and a harmonised set of rules and codes.

North West Europe’s huge regasification capacity is returning NBP to its role as the global gas index. Prior to Fukushima, NBP was the alternative to Asian markets. Now post Fukushima, as markets return to balance, NBP has resumed its role as the global gas basis. While the DTTF has become the “Henry Hub” of Continental Europe.

Battle ground Europe - Where is the LNG wave? With Cheniere ramping up Sabine production, expectations have run high for a wave of LNG to hit the world’s largest network of regasification facilities. Pushing pipe gas out of Western Europe. Although NWE regasification capacity operates at 27% or less, it is unlikely that spot LNG cargoes will be anything other than a last resort.

Pipe gas suppliers, Norway and Russia, have no other option. Sell their gas to Europe. Russia stands waiting with 200 bcm (20 bcf/d) of reserve capacity. US LNG suppliers have declined to go head to head seeking more lucrative netbacks elsewhere.

Contrary to expectations, events have taken a different course. Emerging markets have absorbed new supply into Pakistan, Egypt, Middle East, India and Latin America. Global markets are rolling back into balance. Will NBP hold its old crown as the global gas basis or will markets continue the shift from Europe to emerging zones and a new global gas hub arise? Share your views below.

The European Autumn Gas Conference (EAGC) – Connecting European gas markets with new global opportunities.

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The views expressed are the author’s own, and do not reflect any position on behalf of dmg:: events Global Energy.