Regulators seek details on gas hub price volatility limits
“It’s worth looking at the trading arrangements and then determining whether we’re getting the right balance between preserving healthy market functioning and excessively high volatility not explained by market functioning,” said Dennis Hesseling. , gas manager at Acer, to Montel in an interview.
Currently, each exchange has its own rules for dealing with excessive price volatility in gas hubs, which was usually triggered in response to market rumors or algorithmic trading, he said.
But the recent spike in EU gas prices has been driven by tight global LNG supplies, rising demand, falling Russian flows and the risk of further Russian supply cuts as relations are deteriorating due to the war in Ukraine.
Regulators had no specific proposal for how they could access these volatility management details and they had no power to compel exchanges to give them to them, Hesseling said.
One option would be to ask exchanges to provide the information voluntarily. A possible problem, however, was that not all exchanges would respond and that some played a bigger role than others in shaping gas prices, he said.
“If people see this as an urgent issue, there could be pressure to act quickly,” Hesseling said.
Earlier this year, the EU agreed to new binding rules for filling gas storage in less than two months – instead of the usual 18-24 months – to help mitigate any further cuts in Russian supplies this winter.
The bulk of EU gas demand – 80% – is still met by long-term contracts, including around 40% with Russia’s Gazprom, according to the joint Acer-CEER report, which covers 2021 and the first half of the year. 2022.
The volumes traded on the hubs are mainly linked to EU suppliers covering their portfolios and to financial traders, and not to physical supplies from non-EU producers.
Acer and CEER want to retain hub price signals and in particular see more liquidity in futures markets and more physical supplies sold on hubs.
They also called for more transparency on long-term contract price indexation patterns and durations to better analyze the risks to the security of EU gas supply.