Download Memo on Hub Liquidity

Paper on gas hub liquidity
Hub liquidity
Introduction
Liquid gas hubs is a crucial measure for the development of a competitive European gas market and
this paper is an updated version of the paper presented at the Workshop in Bonn in February 2007
concerning gas hub liquidity.
DERA has sent out questionnaires to the following hubs in the North/North-West Region
concerning key figures and services offered on hubs in the region: NBP (UK), Zeebrugge (B), TTF
(NL), BEB VP (Germany), E.ON GT VP (Germany) and GTF (Denmark).
The two German hubs are connected to the German gas exchange EEX. Gas traded on EEX is
therefore delivered from BEB VP and E.ON GT VP respectively.
The newly established gas exchange in Denmark is not accounted for in this paper.
Based on the questionnaires we have the following results.
Number of active hub members
The number of active hub members is an indication for the amount of trades on the hubs in question
and therefore an indicator concerning the liquidity of the hubs. Thus, a high number of hub
members, is a high number of potential trade partners.
Based on the number of hub members in 2006 NBP clearly has the largest number of active hub
members in that it has 84 active hub members while Zee and TTF, which are the hubs closest to this
have only 43 and 42 active members respectively.
In 2006 BEB VP, GTF and E.ON GT VP had the smallest amount of active hub members
respectively 19, 4 and 15, which is illustrated in Figure 1.
Figure 1: Number of active hub members in 2006
90
80
70
60
50
40
30
20
10
0
NBP
Zee
TTF
BEB VP
E.ON GT VP
GTF
Number of active hub members in 2006 (January to
September)
Paper on gas hub liquidity
Looking at the number of new active hub members in 2007 the three hubs with the largest amount
of active members in 2006 have had a relatively small increase in new hub members while the two
German hubs BEB VP and E.ON GT VP have had a relatively large increase in new hub members.
The number of new members on BEB VP and E.ON GT VP represent more than a doubling of the
number of active members in 2006.
The increased flow from the German hub E.ON GT VP is influenced by mergers by pipeline
operators of their gas delivery zones which have produced an active virtual marketplace.
Furthermore GTF has also shown a relatively large increase in the number of new members in that
there were 4 active members in 2006 and this number has increased by 7 in 2007 from January to
September.
The following Figure 2 illustrates the number of new active hub members in 2007.
Figure 2: Number of New active hub members from January 2007 to September 2007
BEB VP
35
30
25
E.ON GT VP
20
NBP
15
Zee
TTF
GTF
10
5
0
Number of new active hub members since Jan. 1ST 2007
Key figures
A significant key figure when assessing the competitiveness of a market is the level of
concentration. In this case this is done by measuring the Herfindahl-Hirschmann Index (HHI),
which is a measure of the concentration factor in a particular market. The HHI is calculated as the
sum of the squared market shares and has a maximum of 10,000, where higher values indicate a
greater level of market concentration, i.e. the market is divided amongst fewer market participants.
All the considered hubs are characterized by low or moderate concentration factors except GTF
which is characterized by a considerably high concentration factor.
NBP has the lowest concentration factor, 380 compared to GTF’s 7,372, and the concentration
factor for Zee, TTF and GTF has decreased slightly since 2006 which is all represented in the
following Figure 3. This might indicate a move towards a more liquid gas-hub market.
Paper on gas hub liquidity
Figure 3: Concentration factors from 2007 compared to 2006
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
NBP
Zee
TTF
BEB VP
GTF
BEB VP distinguishes between H- and Lgas. The figure illustrates the
concentration ratio for Hgas.
E.ON GT VP did not state their concentration factor and therefore does not
appear in figure 3.
Furthermore the churn factor describes how many times the same physical gas is exchanged on the
hub. The churn factor is calculated as the ratio of traded volume to volume delivered physically. A
churn factor of 1 indicates that the physical gas in the hub is traded only once. The more times it is
traded, the more liquid is the hub.
Churn factor values in Table 1 indicate a high liquidity at NBP with a churn factor of 14.25,
moderate liquidity at Zeebrugge and TTF with churn factors of 4.13 and 3.66 respectively, and low
liquidity at BEB VP, E.ON GT VP and GTF with churn factors of 2.19, 1.47 and 2.06 respectively.
The churn factor has increased for all hubs except Zee which demonstrates a small decrease
compared to 2006.
Table 1: Key figures for hubs 2007 (January to September)
Concentration
factor (HHI)
Daily average
volume
nominated,
MWh
Daily average
physical
delivery,
MWh
Churn factor
GTF
E.ON
GT VP
NBP
Zee
TTF
BEB VP
380
460
490
Hgas:963.4/Lgas:2297.7 7,372
N/A
25,566,793
1,192,291
736,225
119,622
46,048
146,000
1,794,474
14.25
243,753
4.13
200,916
3.66
54,732
2.19
31,361
1.47
71,000
2.06
The largest relative increase in churn factor is seen in E.ON GT VP and BEB VP which
respectively demonstrate an increase of about 80 % and 67 % which is illustrated in Figure 4. The
Paper on gas hub liquidity
increased churn factors of BEB VP and E.ON GT VP are influenced by the earlier mentioned
mergers by pipeline operators of their gas delivery zones. This might indicate a move towards a
more liquid gas-hub market.
Figure 4: Churn factor in 2007 compared to 2006
16
14
12
10
8
6
4
2
0
NBP
Zee
TTF
BEB VP
GTF
E.ON GT
VP
The following table 3 provides an overview of the services offered at the different hubs. Compared
to services offered in 2006 there are no changes in any of the services offered at any of the hubs
except Zeebrugge which now offers electronic trading as opposed to 2006. This shows a lack of
development of new products at the hubs.
Only E.ON GT VP offers hub-to-hub transfers, which is an indication of poor liquidity at the other
hubs as they do not interact with each other.
Table 3: Offered sevices at hubs
Matching nominations
Title tracking
Allocation
Blending services
Title transfer
Balancing
Back-up/Back-down
Parking/loaning
Electronic trading
Administration
Risk management
Natural gas futures
trading
Hub-to-hub transfers
NBP
Y
N
Y
N
Y
Y
N
N
Y
N
N
Zee
Y
Y
Y
N
Y
Y
Y
N
Y
Y
N
TTF
Y
Y
Y
Y
Y
N
N
Y
N
N
N
BEB
VP
Y
Y
Y
N
Y
Y
N
N
Y
N
N
GTF
Y
Y
Y
N/A
Y
Y/N
N
N
Y
Y
N
E.ON GT
VP
Y
Y
Y
N
Y
Y
Y
N
N
Y
N
N
N
N
N
N
N
N
N
N
N
N
Y
In conclusion the questionnaire indicates that NBP with the highest churn factor and lowest
concentration factor still is the most liquid gas hub, although the two German hubs are gaining
Paper on gas hub liquidity
territory. The German hubs have had a larger expansion of new members and a larger increase in
churn factor than NBP but the hubs are still smaller than NBP and therefore not yet at the same
level as NBP.
There is a great difference concerning the liquidity of the different hubs but at the same time there is
a small sign of a positive development.