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EU Gas Trading in Transition: Gas Hubs & Pricing

In the first of two articles discussing the transition of EU gas trading, Nicholas Newman examines the contribution virtual gas hubs have made towards creating a fully-integrated European energy market.

Europe is the world’s second largest gas consuming region after the United States. With declining domestic output from the region’s production hot spots – including the North Sea, Holland’s Groningen gas field, and the Lower Saxony district in Eastern Germany – the continent’s gas imports have risen commensurately. In the first nine months of 2017, Europe’s imports of gas reached 345 billion cubic metres (bcm), valued at €17 billion. Russia and Norway are the leading suppliers of natural gas to Europe, accounting for 44 and 33 percent respectively of imported pipeline gas.

In recent years piped natural gas imports have been joined by Liquified Natural Gas (LNG) imported from Qatar and, in the last year, by imports from the United States and Russia, which collectively have won 16 percent of Europe’s gas market. Perhaps the most striking developments are that Europe last year accounted for some 23 percent of total US LNG exports (or 0.84 bcm of gas equivalent), and that Europe has become a destination for LNG from Yamal since the facility came on stream last December. Overall, imported gas supplied 69 percent of Europe’s natural gas consumption compared with 64 percent in 2009.

Europe is now within reach of achieving a fully-integrated internal energy market, facilitated by huge investment in transmission and interconnectors, and the establishment of gas trading hubs, chiefly in the UK and the Netherlands. These have almost displaced the traditional multi-year, oil-indexed, fixed-price contracts between supplier and major customers, with gas being sold at hubs at spot and futures pricing. In these respects Europe’s energy trading has been one of gradual market transition. However, the ongoing experiments by energy companies, large traders and utilities in applying blockchain digital technology promises less of a transition and more of a European gas trading revolution; a topic which will be covered in greater depth in the second part of this two-article series. Read more

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