Bloomberg News

Netherlands Gas Trade Beats Peers as LNG Arrives: Energy Markets

September 15, 2011

Sept. 15 (Bloomberg) -- The Netherlands’ natural-gas market is growing faster than its peers, fending off competition from Germany to be mainland Europe’s largest as the country starts importing liquefied fuel for the first time.

Volumes at the Title Transfer Facility, the Dutch hub, jumped 42 percent from a year earlier in the first half of 2011, compared with a 21 percent increase in Germany and 9 percent in the U.K., Europe’s biggest market, data from Kingston Energy Consulting Ltd. show. The Netherlands handled more than 13 times as much month-ahead gas as Germany on Sept. 13, according to London Energy Brokers’ Association data.

European Union efforts to deregulate energy markets and encourage new pipelines between countries coupled with a glut that has driven buyers to favor spot markets instead of costlier oil-based contracts is boosting gas trading. The Netherlands has further enhanced its status as a hub after importing its first commercial liquefied natural gas cargo at Rotterdam’s new Gate terminal on Sept. 1.

“Two years ago when the German market was kicking off, it looked like the German hub was going to edge out” the Netherlands, Nigel Harris, a founding partner of Kingston Energy, said by telephone from Kingston, England. “Now it seems that isn’t going to happen and TTF has established itself as a pool of liquidity for forward trading.”

Dutch Hub

The Dutch hub handled more than 3,000 terawatt-hours of gas in the six months through June, according to Kingston Energy data, which include all recorded trades from exchanges and system operators as well as an estimate of the total volume of broker and unrecorded one-to-one trades. That’s enough to meet more than half the demand of the EU’s 27 member states.

Traders prefer the Netherlands because the more active market makes it easier to hedge, or protect, their bets, Jonas Nihoej, a senior trader at KIH Energy Trading GmbH in Prague, said in an interview. “It’s easy to get in and out of positions.”

Trading hubs may cover an entire nation, such as the U.K.’s National Balancing Point, or NBP, or specific pipeline connections, such as Belgium’s Zeebrugge, where the fuel can be bought and sold via brokers or exchanges. Europe’s markets evolved during the past decade, following the U.K.’s debut in 1992.

Gate LNG

The Dutch hub was established in 2003 by Nederlandse Gasunie NV, the state-owned gas transporter, and has pipeline connections to Russia and Norway as well as markets in Germany, Switzerland, France, Italy, Belgium and the U.K. Gasunie started the 12 billion cubic-meter-a-year Gate LNG terminal this year together with Royal Vopak NV to import fuel from countries such as Qatar, the world’s biggest LNG exporter.

Europe’s hubs are challenging the dominance of producers such as Russia’s OAO Gazprom and Norway’s Statoil ASA, which built export pipelines stretching from northern Russia to western Europe starting in the 1960s to supply gas through multiyear contracts negotiated directly with consumers. France, Italy and Austria also have spot markets.

About 4,500 megawatt-hours of month-ahead gas was bought and sold on the TTF on Sept. 13, compared with 340 megawatt- hours for the similar contract on Germany’s NetConnect Germany GmbH, or NCG, London Energy Brokers’ Association data show.

“German hubs are still taking off,” Nihoej said. Germany uses more than twice as much gas as the Netherlands, he said.

Price Collapse

Day-ahead gas in the Netherlands dropped as low as 6.75 euros a megawatt-hour in October 2009 as the global financial crisis sapped industrial demand. It was at 24.95 euros ($34.58) today, according to broker prices on Bloomberg. That’s about $10.13 a million British thermal units.

EON AG, Germany’s largest utility, and GDF Suez SA, Europe’s biggest gas-network operator, sought more flexible terms from producers such as Gazprom during the past two years as oil-linked contracts hurt revenue. EON said last month it may cut as many as 11,000 jobs after posting its first quarterly loss in 10 years. RWE AG, Germany’s second-largest utility, had a loss in its “midstream” gas business in the first half compared with a profit a year earlier.

“There’s been a surplus of gas at a time when markets have been liberalizing and the conditions for accessing grids, storage and customers have been improving,” Colin Lyle, chairman of the gas committee at the European Federation of Energy Traders, said in a phone interview from London. “We can expect continued growth in the traded gas markets across Europe.”

‘Extraordinary Growth’

Germany had 19 gas market areas in 2006, which were consolidated into two main trading zones by 2009. NCG is the most active. Its pipelines span 20,000 kilometers (12,400 miles), covering parts of central Germany and most of the south. The Gaspool hub covers most of the north and east.

The “extraordinary” 80 percent growth of trading in Germany last year has slowed as traders aren’t sure how the country’s regulators will reshape the market, Harris said.

The merger of the Aequamus GmbH gas market area into Gaspool from Oct. 1 may boost liquidity further, Harris said, adding that Gaspool has been growing faster than NCG.

Germany has the capacity to store almost 10 times as much as the TTF region, which includes Denmark, data from Gas Storage Europe, a Brussels-based industry association, show. The ability to draw on inventories helps iron out price swings.

With Germany’s power market established as Europe’s benchmark for electricity trading, it would be natural to trade German power versus German gas in a “spark spread” transaction and so avoid the TTF versus NCG price risk, Nihoej said.

The two German gas hubs will eventually merge into one, he said. “In five to 10 years NCG will be more active than TTF,” Nihoej said. “Then it will be NCG versus” the U.K.’s National Balancing Point.

--Editors: Steve Voss, Rob Verdonck.

To contact the reporter on this story: Ben Farey in London at

To contact the editor responsible for this story: Stephen Voss at

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