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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.