Transcript Slide 1

History of migration towards a Liquid and Open Gas Market:
Focus Germany
Turkish Gas Hub Project: Workshop
24 March 2014, Ankara
European Federation of Energy Traders
Dr. Jan Haizmann L.L.M.
Member of the EFET Board
[email protected]
1
Introduction to EFET
European Federation
 Represents around 120 energy trading
companies, operating in 26 countries
of Energy Traders (EFET)
 Main activities include:
–Promotion of Wholesale Energy Trading through
advocacy with European Institution and national
Governments
–Promoting Legal standard documentation for
physical OTC market (www.efet.org)
-www.efetnet.org, service company operating the
EFET-standard, IT-standardisation and
electronic reporting service (eRR)
-EFET Academy and Education
Jan Haizmann
Ankara, 24 March 2014
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The vision of Europe’s energy traders
EFET Vision
We foresee sustainable energy markets throughout Europe,
in which traders efficiently intermediate in the value chain
on the basis of clear wholesale price signals,
thereby optimising supply and demand
and enhancing security of supply,
to the overall long-term benefit of the economy and of society.
Jan Haizmann
Ankara, 24 March 2014
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Overview
Value of the wholesale market?
Exchange based gas-trade vs.OTC-Trading
The European Federation
of Energy Traders (EFET)
Formation of Markets
Gas-Trading at Physical and Virtual Hubs
Germany: Gas Market and Fundamentals
What are the consitions for building a market?
Secondary Capacity Markets
Current EU Issues
Lessons Learned & Challenges for TR Market
Jan Haizmann
Ankara, 24 March 2014
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European Energy Mix
Nuclear
Coal
Gas
Oil
Mix
Hydraulic
Wind
Jan Haizmann
Ankara, 24 March 2014
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Why is the wholesale market important? (I)
For electricity:
• Supply = Demand at all times
• Limited storage (pump storage in CH and N)
• Trading optimizes supply according to the location and time of
demand and creates a wholesale-tier
• Cross-border wholesale transactions help efficient price finding
over regional area
• Seasonal variations in availability of production sources reflected
in efficient peak-pricing
For natural gas (specific):


Jan Haizmann
Storage is game changer for planning cost/supply
Trading enables optimatisation of LT Agreements
Ankara, 24 March 2014
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Why is the wholesale market important? (II)
Thus trading can optimize the market by creating:
 Efficiencies across regions and countries
 Efficiencies between fuels used in generation
(gas, coal, hydro, nuclear, wind, etc.)
 Efficiencies by virtue of play of inter-related products
(e.g. weather derivatives; emission allowances; transmission rights)
 Efficiencies through financial markets and derivatives
 Efficiencies stimulated by price signals of new products
Jan Haizmann
Ankara, 24 March 2014
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Liberalisation: Formation of markets
 Consumer has free choice of supplier
 Supplier can supply consumers outside their supply area
 Development of Markets to organize and match these
„old
fully integrated energy company
world“
„new
world“
Generation
Market
Trading
Transport
Distribution
regulated Grid
Sales
Market
Power Exchange
OTC (Broker/bilateral)
Jan Haizmann
Ankara, 24 March 2014
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Trading on an Exchange
ADVANTAGES
TRADER A
 Fewer contractual relationships
TRADER G
TRADER B
 No credit-risk through Clearing
 No performance-risk
POWER
EXCHANGE
 Guarantee & margin needed only
TRADER C
TRADER F
by central counterparty
 Simplified invoicing & admin
TRADER D
 High degree of automasation and
TRADER E
standardisation
Jan Haizmann
Ankara, 24 March 2014
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Freedom to engage in OTC transactions restricted …
DISADVANTAGES
POWER
EXCHANGE
 Trading Fees
 Inflexibility
 Lack of competition
 Complexity in rules
TRADER
 Only Standard
Products traded
 Financial Regulation
Jan Haizmann
BROKER B
Ankara, 24 March 2014
BROKER A
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Exchange Traded Products
Physical OTC-Market First
OTC markets should develop first as bi-lateral trading exposures
create the market for financial hedging products which are
traditionally mirroring physical gas products, or cater for specific
delivery risks
Financial (Exchange Traded Markets ) Next
 OTC-Markets at Exchange markets complement eachother,
 market participants use advantages from both systems
Jan Haizmann
Ankara, 24 March 2014
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Characteristics: Exchange vs. OTC
OTC
Exchange
Continuous Trading
Auction
VoiceBroker
direct
contact
BrokerPlatform
Spot Market
Futures Market
Spot Market
Forward Market
physical settlement
financial settlement
physical settlement
financial settlement
Spot Market
Futures Market
 interdependency between Spot and Term Markets: e.g. EEX & NP Futures contracts
are settled on the basis of the spot market prices
Jan Haizmann
Ankara, 24 March 2014
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Competition between trading platforms
ENERGY TRADERS
TRADING PLATFORMS
TRANSACTIONS
It is healthy to have
a choice of trading venues!
Jan Haizmann
Ankara, 24 March 2014
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Germany: European Gas-Wheel
 Central geographical situation
 Big gas-market supporting the largest
economy in Europe (No. 4 world-wide)
 Multiple access & long-term supply from
Russia, Norway, Netherlands
 State-of-The Art Infrastructure
 High Transit-volume (EastWest)
 Biggest Storage capacity in Europe
 Experience with Power Liberalisation as
Reference for Gas Market Liberalisation
 Banks active in Energy Markets offering
Financial Products
Jan Haizmann
Ankara, 24 March 2014
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Germany: Initial Problems
 1996: Energy Act provided for gradual market opening
 Fully vertically integrated structure of gas importer and
regional distributors represented efficient market barrier
for any newcomers
 Complete Lack of Transparency of Supply/Import Prices
 Anti-competitive behavior of incumbent companies
 Territorial Approach -> No competition
 Market Opening Did not immediately happen
 Need to challenge incumbents in court
Jan Haizmann
Ankara, 24 March 2014
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Drivers for Change
 EU Institutions declared “ destination clauses” as invalid and
pursued historic incumbents
 New Market Players (US) entered German market as of 2000
 Electricity Utilities started selling outside their “territory”,
mergers leading to gas release
 Break-Through: abandon negotiated access, unbundling, intro
entry-exit system, transparent congestion management etc.
Jan Haizmann
Ankara, 24 March 2014
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Storage Germany
Main storage regions are:
Source: http://www.lbeg.niedersachsen.de/live/live.php?
navigation_id=797&article_id=898&_psmand=4
 Northern Germany (salt
domes and former gas
fields)
 Eastern Germany
 Total 20.8 bln m³ ~20%
of annual German
consumption
Jan Haizmann
Ankara, 24 March 2014
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Storage access regulation
 Access to storage/grid is based on the Energy Act had to be provided
at reasonable and non-discriminatory technical and economical
conditions, if the access is technically or economically necessary for
efficient system access with a view towards supplying customers.
Operators have to provide transparent information on which locations
are open for access and at what conditions.
 Tariffs are mainly derived from historical investment and actual cost of
operation or just benchmark basis and compared to narrowing
summer winter spreads often in the same range seen from a trading
perspective.
Jan Haizmann
Ankara, 24 March 2014
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Capacity Contracts
 Initially No changes to contract framework (Entry, Exit, Balancing
Account etc)
 Capacity contract length at (market area and national) borders:
not more than 65% beyond 4 years, 20% less than 2 years
20% x 2 yrs
~½
year
imple
mentat
ion
Potentially available
15% x 4 yrs
65% untouched
 Applicable to contracts after Gas Access Regulation was implemented
 Major legal issues: revision of existing capacity contracts
Jan Haizmann
Ankara, 24 March 2014
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Characteristics mature wholesale market
 Standard-Products and Standard
Contracts:
Base: Mo-Su: 0:00 – 24:00h
Peak: Mo-Fr : 8:00 – 20:00h
 Physical: Master Contract EFET
 Financial: Master Contract ISDA
Standardisation
Example: EEX-Futures Market
Liquidity
 multiple x consumption in DE
 5 Market Maker: continuously
simultaneous bids & offers
Trading data: Prices & Volumes  PXs & Broker
Transparency
Fundamental data: Generation data (incl. RES)  e.g. EEX Transparency
Platform; Nordpool;
Grid data: transmission data  ENTSO-Vista
Jan Haizmann
Ankara, 24 March 2014
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Conditions for Developing Gas Trade
 Diverse product-offering matching market-needs
 Unbundling of Pipeline-Transport and Supply
 Transparent and Non-discriminatory Access and Usage
 Standardised Products  Liquidity
 Multiple Market-Participants
 Diversified Market Participant-Structure
 Transparent Price-Discovery-Mechanism
 Price-Volatility and reliable Price Reporting
 Aceptance of price-building by Market-Participants
 Credible Platform Operators & Regulatory Oversight
Jan Haizmann
Ankara, 24 March 2014
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What does a spot market do?
Spot Market Functionality:
 Allows short-term sale or purchase of missing
amounts for nest day delivery
 Allows short-term optimisation of flexible LTContracts or Supply-Contracts
 Multiple Savings through portfolio or asset
optimsation
 Allows independence in supply-chain
Jan Haizmann
Ankara, 24 March 2014
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Futures-market Functionality
Futures- market functionality:
 Futures Market allow hedging of price risks resulting prom
physical supply positions. Managment through Derivatives.
Theses are Financial Instruments and are subject to
regulation. Products are Forwards and Futures.
 Market particpants can have different motivations and
underlying drivers for becoming actice, hedging,
speculationg, arbitrage takers (optimisers) etc.
Jan Haizmann
Ankara, 24 March 2014
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Example: Structured Portfolio
Optimisation of a Flex Gas Supply Agreement
Jan Haizmann
Ankara, 24 March 2014
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Physical and Virtual Trading Hubs
GUD
NCG
GUD
NCG
= Fixe Handelspunkte
= Virtuelle Handelspunkte
= Interconnector
= BBL
Quelle: Vortrag E-World 2008, Klaus Schüßler, novogate GmbH, Namen der Handelspunkte aktualisiert
Jan Haizmann
Ankara, 24 March 2014
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Hubs Comparison
Jan Haizmann
Ankara, 24 March 2014
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Gas-Trading Hubs
Early Years Market-Liquidity: Spot
Quelle: www.gaspool.de/fileadmin/download/information/GASPOOL_Kunden_Forum_2_Teil3.pdf
Jan Haizmann
Ankara, 24 March 2014
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Gas Trading Liquidity
Early Years Market-Liquiditity: Forwards
Quelle: www.gaspool.de/fileadmin/download/information/GASPOOL_Kunden_Forum_2_Teil3.pdf
Jan Haizmann
Ankara, 24 March 2014
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Initial Volumes NCG-Hub – GWJ 2008/2009
2009/2010
1200000
1000000
800000
600000
400000
in GWh
200000
0
Okt Nov Dez Jan Feb M rz Apr M ai Jun
08 08 08 09 09
09 09 09 09
Handel s v ol umen (H-Gas )
Jan Haizmann
Jul
09
Aug Sep
09 09
P hy s i s c he M engen (H-Gas )
Ankara, 24 March 2014
Okt Nov Dez Jan Feb M rz Apr M ai Jun
09 09 09
10
10
10
10
10
10
Handel s v ol umen (L-Gas )
P hy s i s c he M engen (L-Gas )
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Initial Churn-rate NCG-Hub (2009/2010)
3,5
3,04
3
2,52
2,5
2,73
2,4
2,6
2,6
1,73
1,75
2,75
2,66
2,6
2
1,86
1,91
1,5
1,72
1,69
1,69
1,67
1,56
1
0,5
0
Okt 09
Nov 09
Dez 09
Jan 10
Feb 10
L-Gas
Jan Haizmann
Mrz 10
Apr 10
Mai 10
Jun 10
H-Gas
Ankara, 24 March 2014
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Historic Market-Liquidity TTF <-> NCG
Volumes Trade PA [TWh]
Volume Sales PA [TWh]
Quotient
[Handelsvol./Jahresabsatz]
Netherlands*
2009: 962
2009: 426
(2008: 441)
2009: 2,26
(2008: 2,03)
Germany
2009: 559
2009: 924
(2008: 987)
2009: 0,61
(2008: 0,57)
* Handelsvolumen nur EGT /NCG VP bzw. TTF
120
5,0
4,5
4,0
3,5
80
3,0
60
2,5
2,0
40
Churn Ratio
Traded Volume in TWh
100
1,5
1,0
20
0,5
0,0
Ja
n
F 08
eb
M 08
ar
0
A 8
pr
M 08
ay
Ju 08
n
0
Ju 8
l
A 08
ug
S 08
ep
O 08
ct
N 08
ov
D 08
ec
Ja 08
n
F 09
eb
M 09
ar
0
A 9
pr
M 09
ay
Ju 09
n
0
Ju 9
l
A 09
ug
S 09
ep
O 09
ct
N 09
ov
D 09
ec
09
0
Traded Volume TTF
Jan Haizmann
Traded Volume NCG
Ankara, 24 March 2014
Churn Ratio TTF
Churn Ratio NCG
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Secondary Capacity
 Starting Point: Availabilities of Capacities is limited,
Incumbent companies holding LT-capacities, independent of
their actual use
 In order to utilisise commercial opprtunities (example:
spreads between specific VP and physical supply in different
area) it is required to buy/sell capacities
 The smaller the number of market-participants at VP, the
more important is need to have firm capacities available
 Chicken and Egg Problem
Jan Haizmann
Ankara, 24 March 2014
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Standard Trading Products
Trader is a Seller/Buyer of fixed
priced standard and bespoke
volumes at the UK and European
Virtual Points for both Prompt and
Curve products.
On the curve side prices can be
quoted up to Balance of the Year + 4
years. Longer term products outside
this time corridor can be looked at on
an individual basis
Trader is a Seller/Buyer of monthly
or seasonal shaped base products
Trader can offer a variety of virtual
and physical capacity products
between the various points in its
capacity portfolio
Jan Haizmann
Ankara, 24 March 2014
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Contractual Standardisation =
Condition For Market Development
 EFET Standard Agreement enjoys market acceptance in Europe
Jan Haizmann
Warsaw, 29th March, 2010
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EFET General Agreement (Natural Gas)
Contractual Structure
Individual Contract
Individual Contract
General Agreement
Agreement
General
(“main
(“main body”)
body”)
Election
Election
ElectionAnnexes
& &
Annexes
Sheet
Sheet Appendices
Sheet
Appendices
Individual Contract
Individual Contract
Individual Contract
priority (§ 2.2)
Jan Haizmann
Ankara, 24 March 2014
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EFET General Agreement (Natural Gas)
Essential Risks
Legal
RISKS
Operational
Jan Haizmann
Credit
Ankara, 24 March 2014
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Transparent Price Discovery
Offer = price dependent, demand
is not price dependent
30
Nachfrageszenario 2
Decision which gas to use should
be based on good information of
different prices for own supply
(Left Column), Gas Storage Use
(Central Column), or Purchase of
Short-Term Gas
25
20
Nachfrageszenario 1
15
10
5
0
Produktion 1
Jan Haizmann
Ankara, 24 March 2014
Speicher A
Import vom TTF
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Criteria for Positive Market Development
Market Confidence
1
Entry New Players
Diverse Players
2
Standard Products
Standard Contracts
4
3
Liquidity and
Choice of Products
 Any action creating market confidence within companies such as reliable
price discovery, neutral price reporting, entry of new and diverse market
particpants will help liquidity. A market cannot develop based on incumbent
and vertically integrated stryctures as they hamber choice and flexibility.
Jan Haizmann
Ankara, 24 March 2014
40
Current European Challenges
 Implementing the 3rd Gas Directive
 Progress in European Gas Hub Development
 Achieving an EU Gas Target Model
 Implementing EU Gas Network Codes
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EU Challenges
Implementing the 3rd Gas Directive
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Progress in European Gas Hub Development
Liquid gas market in NW Europe,
slow progress elsewhere
(Assessment based on ISIS data & LEBA reports)
See EFET Guide on features of a successful Virtual Trading Point
http://www.efet.org/EnergyMarkets/Gas-Position-Papers/2005-today
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Access across Europe is addressed
44
Achieving an EU Gas Target Model (GTM)
 GTM1 three pillars:
 New issues for Gas Target Model review (GTM2):
 Interaction of gas and power markets
 EU-wide regulatory and political oversight
 Investment signals and use of infrastructure
 Retail competition
 Consistency of EU Gas Network Codes
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Implementing EU Gas Network Codes (I)
46
Implementing EU Gas Network Codes (II)
 Gas networks should have entry/exit systems that each give direct access to
a single Virtual Trading Point (VTP).
 TSOs should provide real-time information on all aspects of their regulated
infrastructure.
 TSOs should make all entry/exit capacity available to market participants
using consistent processes and consistent capacity contracts.
 Underlying terms and conditions should enable market participants to have a
single bundled capacity contract.
 Market participants should have the right to make re-nominations at short
notice to enable a rapid commercial response
47
Implementing EU Gas Network Codes(III)
 Congestion management processes should converged on a single
approach
 The way pipeline tariffs are set should ensure that the short-term and longterm markets are efficient and sustainable.
 Interoperability and data exchange for the whole gas grid by all TSOs
should, from a system user’s perspective, be as if the whole EU gas
transmission network were operated by a single TSO.
 Essential transitional arrangements need to be correctly identified,
managed sensibly and phased out.
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Conclusion – EU Gas Market
 Need more focus on establishing gas trading throughout Europe
 EU Gas Network Codes should help, if they are written to meet
the needs of market participants and are implemented
consistently
 Dangers of over-regulation
and national fragmentation
 Policy must ensure that gas
is not unduly squeezed out
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Challenges for the Turkish Gas Market?
 Accelerate the draft Gas Market Liberalisation Act
 Complete the transparency initiative for TR gas market. Without
liberalising the gas market, the recent electricity initiatives have no use
 Achieve Gas Market Design for better Price Formation at all levels
starting from the MENR all the way to the EPİAŞ-structure
1. Build to operate balancing market, this is usually the first point to start
OTC and Liquid market.
2. Finalize Operational Standards
3. Utilize EFET-Gas-TR standard-contract; Standardise products
4. Develop a national balancing point (UDN) for price formation
5. Continue Volume Releases - BOTAŞ portfolio
6. Finalize BOTAŞ Unbundling Process and Open Grid Access
Learn from Experience – do not repeat Mistakes made elsewhere!
Build Confidence!
50
History
of migration towards a Liquid and Open Gas Market:
Aim:Trading
Focus Germany
without
Turkish Gas Hub Project: Workshop
24 March
2014, Ankara
borders
European Federation of Energy Traders
Dr. Jan Haizmann L.L.M.
Member of the EFET Board
[email protected]
51
Thank you for your attention!
European Federation of Energy Traders
Dr. Jan Haizmann
Rue Le Correge 93
B-1000 Brussels - Belgium
Email: [email protected]
www.efet.org
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