Gastech News: What is the outlook for European gas trading and pricing?
Andree Stracke: There are two factors to consider when determining the outlook for European gas pricing: level and indexation. On the pricing level, it is clear that additional LNG coming from the U.S. will put pressure on all energy prices over the next years – already we see this on European gas. To what extent this will occur further is difficult to predict though as there is also additional demand for gas in Europe combined with a reduced indigenous production.
In terms of indexation, we see customers increasingly demanding a clear linkage to Europe’s liquid market indices such as TTF or NCG via either fix or indexed pricing structures, and only committing to very short term contracts.
In North-West Europe markets are now fully dominated by hub prices, whereas Southern Europe prices are somewhat “lagging behind” with the differential largely being driven by transportation capacity. I expect LNG will make a difference in countries like Spain where currently the gas transport connection is not sufficient. In such European markets, TTF and NBP will become the benchmark once LNG priced against those European indices reaches Europe.
Gastech News: What do you think would be an ideal trading scenario in Europe?
Andree Stracke: It centres around a capacity driven market leading to further improved interconnectivity. With an effective transportation network, ultimately connecting LNG terminals in Spain and the rest of Europe and countries like Bulgaria, Romania and Hungary with the fully liquid markets in the North-West, we could significantly expand trading, enabling Eastern European countries to access liquid markets.
Gastech News: Talking about the future, what are your predictions for Europe’s gas hubs this year?
Andree Stracke: I don’t expect to see any significant changes in NBP traded volumes, but TTF and NCG will grow further, because more and more LNG players will utilise the opportunity to financially or physically hedge their volumes in those liquid markets. This has already been seen over the last two years, with active selling of future production volumes and I believe that this will develop further, increasing volumes and trading activity. Here again, the customer demand for indexation will drive the development.
Do you agree with Andree? What are your predictions for Europe’s gas hubs this year? Leave a comment below.
Andree Stracke is an Executive Advisory Board Member of the European Autumn Gas Conference. The 2016 EAGC Executive Advisory Board comprises many of Europe’s most influential gas executives, tasked with ensuring the EAGC will thoroughly explore the most relevant and topical issues driving the European gas industry today. Find out more about the event in The Hague.
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