EUROPEAN GAS MARKET OUTLOOKS

Transcription

1 OUTLOOK EUROPEAN GAS MARKET OUTLOOKS 2016 Regions covered include: l UK l Germany l The Netherlands l Italy l France l Spain l The Nordic region l Czech Republic l Austria l Hungary l Poland l Ukraine l Romania l Greece l Bulgaria

2 OUTLOOK GAS MARKET OUTLOOKS FOR 2016 UK The oversupply which pressured prices in Britain throughout 2015 looks set to continue as new LNG liquefaction capacity, most importantly in the US and Australia, comes on stream. The market expects a significant proportion of the new volumes to make their way to Europe as the global LNG market is already oversupplied and, Britain especially, has ample regasification capability. The NBP s dominance as the largest traded market in Europe will continue to be challenged by the Dutch TTF. A significantly larger exchange market in Britain meant the NBP re-established a slender liquidity lead going in Liquidity growth is likely to remain centred around hedging of the new LNG volumes coming into Britain. The wide-reaching review of tariff rules to be done by National Grid, together with shippers, in 2016 could go towards an overhaul of a tariff system thought to be outdated by many in the market. The British balancing market could also be set for some significant change if regulator Ofgem allows exchange PEGAS to also offer balancing services alongside ICE Endex. Germany The German supply picture should remain largely unchanged in the coming year, which is one of oversupply for the most part. The most significant drivers will be the maintenance schedule in Norway and any changes to the Groningen production cap. Contracts for delivery in 2016 traded at low prices throughout 2015, which may depress the prompt in the coming year. The weakness of Brent crude and potentially the macro-economic situation could weigh further on curve prices. It is likely that companies active in the GASPOOL area will still look to the TTF Dutch gas hub to hedge volumes. A new policy known as BEATE came into force at the beginning of January. Regulator BNetzA introduced a 50% discount on the regular entry and exit fees for freely allocable capacity at storage facilities. Traders anticipate this will encourage market participants to take advantage of Germany s underused storage capacity. The Netherlands Groningen production in the first nine months of 2016 is likely to dip below output in 2015, due to a new 27 billion cubic metre (bcm) cap for the 2015 gas year (October 15 September 16), which is 23% lower than the 35bcm produced in the 2014 gas year. The year-onyear difference may be limited somewhat by the heavily reduced output already seen in Q4 2015, which is likely to have totalled less than 7bcm when final production figures are published. This would leave more than 20bcm of available production for the first three quarters of 2016; 22bcm was produced from Groningen during the same quarters of With greater short-term certainty about Groningen production, there is likely to be less headlinedriven volatility at the TTF in 2016, but the market will watch closely for a revised production plan for future years due to be published by the field s operator NAM in the first half of the year. Trading at the TTF is likely to continue growing in both the over-the-counter market and through the key ICE Endex exchange and via the PEGAS bourse. The Dutch hub has already shown signs of its potential to overtake the NBP in terms of total traded volumes and is expected to take this mantle by the end of The government s proposed gas and electricity act was rejected by the Dutch senate before Christmas 2015, which may now pose some obstacles for regulator ACM in its bid to set network tariffs for the regulatory period from Draft proposals had an April 2016 deadline, which may longer be feasible without the necessarily clarity around energy legislation in the Netherlands. Italy The implementation of EU-wide balancing rules, which were scheduled to go live in October 2015 but then delayed, is expected by 1 October A specific date for the implementation of the new regime has not been set yet but the Italian energy regulator AEEGSI said that it won t be beyond 1 October. Some shippers are lobbying for progressive implementation of new balancing rules between April and October Once Italy s new balancing regime is implemented, the country s transmission system operator Snam Rete Gas will be able to trade short-term contracts, such as title products and physical locational products to balance the system. Introduction of intra-day re-nominations at Italian entry points, including the Swiss entry point Passo Gries, is expected to take place between April and 1 October This will be key in the new balancing regime, where Snam and shippers will be able to trade intra-day products to balance the system. Copyright 2015 Reed Business Information Ltd. ICIS is a member of the Reed Elsevier plc group. Page 1 of 5

3 Snam Rete Gas introduced within-day cross-border capacity bookings on Prisma on 1 November 2015, in order to fully implement the EU-wide capacity allocation mechanism code. But intra-day re-nominations at Italian entry points are still not available at Tarvisio, Passo Gries and Gorizia. The Italian energy regulator AEEGSI is expected to decide on details of storage allocation for 2016 in January-February AEEGSI introduced auctions to sell storage capacity in In 2015, the auction reserve price was set at a low level, which took into account the summer-winter spread at the Dutch TTF hub and the PSV premium to TTF. As a result of the low reserve price and wider range of shippers taking part, all of the 11.4 billion cubic metres of available storage capacity sold out at auctions. But traders that had not hedged all this capacity did not profit from their storage capacity, according to market sources. Moreover, if Q1 temperatures do not get cold enough to use all the gas in store, storage sites might remain relatively full. In December, the European Federation of Energy Traders (EFET) said that rules governing storage in Italy should be changed to increase the flexibility of the system. The group has made a number of suggestions for how a reformed storage allocation process might work, covering auction procedures and the types of products to be sold, among other aspects. France The commissioning of the Dunkirk LNG terminal is expected to occur in February, as installation work has run behind schedule. The terminal was initially expected to receive a commissioning cargo by the end of December. France s EDF, the main shareholder in the project, has contracted 26 LNG cargoes for delivery to the Dunkirk terminal from US marketer, Cheniere. While there is a possibility that cargoes could be diverted to other markets depending on LNG price dynamics, French traders are confident that at least some of the volume will be unloaded at Dunkirk. Greater LNG sendout into northern France could spur a further narrowing of the PEG Nord premium to TTF in the coming year, a trend that was seen already in More generally, global LNG demand and prices will influence the number of vessels berthing not only at Dunkirk but at France s existing terminals, particularly those at Fos. More LNG arriving in southern France would typically put pressure on TRS prices, reducing the differential with PEG Nord. Demand from Spain will also be a key determinant of TRS prices, but this too is driven in large part by LNG supply to the Iberian peninsula. In terms of structural features of the market, France s storage reform will be in the limelight in the coming quarter. The French energy ministry announced in late 2015 that it plans to implement an auction-based system before April 2016, a year ahead of the original schedule. The shift in gears means storage operators will have to race to put together an appropriate commercialisation process. Shippers will also have to quickly adapt to the new system to cover their portfolio appropriately and avoid penalties that have been suggested by the ministry. If the industry pulls off a smooth shift to a more marketoriented allocation system, it has potential to attract new counterparties to the storage market for instance traders who are active on the French wholesale market but do not have end-user customers, and therefore are not obliged to book storage. Spain The year 2016 is set to be an important one for the Spanish gas market, with changes kicking off from day one of the new year with a reform to the balancing regime that will cut the amount of linepack flexibility to shippers by 50%, theoretically increasing the need for spot trading and coinciding with the launch of a new Spanish gas exchange. Portugal will join the exchange later, and has yet to pass all the relevant legislation. In October 2016 all remaining linepack flexibility will disappear compounding the need for balancing, and bringing Spain up to date with its commitment to implement the European network code for balancing. The year 2015 was also a psychologically important one for Spain as it represented the first year since 2008 that gas demand had moved above the previous year. After six years of declining demand, the scene is now set for to increase again in 2016 as the recovery of the Spanish economy continues. The Nordic region Further changes to the Danish balancing model are likely, following suggestions from the country s transmission system operator Energinet.dk. These include the introduction of a market marker on the within-day market at exchange Gaspoint Nordic (GPN), an increase in the cost of ending the day out of balance and economic incentives for improved data. Introducing a within-day market marker could further increase exchange liquidity, widening the gap between GPN and the over-the-counter Gas Transfer Facility (GTF). Page 2 of 5

4 Danish incumbent DONG Energy will divest its offshore natural gas pipelines to Energinet.dk, as part of a strategy ahead of an initial public offering. The potential sale has been welcomed by traders, who expect the transportation tariff on the pipelines could reduce as a result. Tariffs on the Norwegian Gassled network will fall by 90% in October due to a Ministry of Petroleum drive to stimulate investment unless an appeal by four of the network s stakeholders is successful. Czech Republic The Czech natural gas grid operator NET4GAS and regulator ERU have each proposed a balancing model to ensure compliance with the new EU-wide balancing network code. Discussions are ongoing and a final balancing model will be tested from 1 July. The transition to the new model is planned for 1 October. A timeline to merge the Czech, Austrian and Slovak gas markets should be created in the first half of Austria, the Czech Republic and Slovakia have been discussing a hub merger for more than two years. The project has been hampered previously by a lack of interest on Slovakia s part. The Czech industry and trade ministry and ERU plan to increase storage requirements during winter for shippers serving socially sensitive customers from 20% to 30%. The new regulation will be enacted by March 2016 and will be enforced for Winter 16. Austria Virtual trading point liquidity is not expected to increase in the short-term and will possibly decline as neighbouring markets become increasingly transparent and attractive. Despite this expected decrease, the Austrian hub will remain important as a price setter in the region. Under EU-regulation the start date to report non-standard or pure bilateral deals is April Reporting those deals to Austrian regulator E-control started on 1 October 2015 to comply with national law. This may result in double reporting during the transition phase later this year. Hungary No increase in wholesale trading activity is expected following a decline in Increased government intervention in the retail market has been blamed for discouraging wholesale activity and pushing several nondomestic players away from Hungary. A new trading licence that would allow individuals to take part in the gas market is still under discussion from the regulator. Market sources have questioned the use of such a licence. Poland Companies active on the Polish wholesale natural gas market expect regulation forcing them to diversify their sources of gas to ease this year. This should make way for more cross-border trade and make the market more competitive, following final approval of a change to the diversification rule. The rule currently states companies cannot import more than 59% of their supply from a single source. In the future, this will only apply to gas imported from outside the EU. Shortly before parliamentary elections in October 2015, the former ruling party approved the changes, set to come into force at the start of Tariffs imposed on the country s main gas sellers could be deregulated in the first half of 2016 following a letter from the Court of Justice of the EU last year. The court said Poland is breaking EU law by imposing regulated prices on the country s biggest gas companies, preventing full liberalisation of the wholesale market. If the tariffs paid the largest consumers were deregulated, more participants could sell their output to them, increasing competition and the volume of trade based on market fundamentals. Following the first send-out of natural gas into Poland s transmission system from the commissioning Swinoujscie LNG terminal in the first week of January, the 5 billion cubic metre/year terminal expects another 210,000 cubic metre commissioning cargo in February this year. The LNG was bought by PGNiG, from Qatargas, on behalf of the terminal s Operator Polskie LNG. The additional gas entering the grid could provide pressure to Polish prompt prices. Ukraine In 2016, the Ukrainian gas sector may go through another round of reforms as part of the gas market liberalisation process. The unbundling of the grid operator Ukrtransgaz from incumbent Naftogaz is scheduled to take place by the end of January. Naftogaz itself is planned to be restructured by June. The restructure is aimed at making the company independent from political influence, with the board of directors potentially including representatives of international financial organisations. Last year, Slovak and Ukrainian grid operators agreed to enable virtual reverse flows of gas via the Budince border point. The launch of the new scheme which would allow European companies to use the Ukrainian storage Page 3 of 5

5 facilities was expected by the end of 2015 but the date was postponed to 2016, as the Ukrainian parliament is yet to approve relevant legislation. The date of the final reading of the law will become known around 25 January. In late December, Ukraine s regulator NERC ruled to change gas transit rules, which may lead to an increase in tariffs on Russian gas travelling through Ukraine for Europe. Ukraine s Naftogaz and Russia s Gazprom are yet to discuss the new rules. Naftogaz has assured that the transmission of Russian gas to European consumers will remain uninterrupted, but for European consumers an increase in Ukrainian transit tariffs could result in a rise in the Russian gas price. In 2016 talks with Russia regarding gas transit rules are likely to be as prominent as talks about the price of Russian gas for Ukraine. Romania Romania will be in a position to start exporting gas, particularly since its domestic production can more than cover demand. With the expiration of the capacity agreement between Russia and Romania on the Isaccea II pipeline at the end of 2015, this string offers an ideal path for Romania to become a net gas exporter. The challenge will be if government is willing to kick start the process as it requires introducing compressor stations to implement reverse flows. In the past Romanian officials have cited lower transmission pressure compared to neighbouring countries as one of the reasons for not becoming an exporter. Romania is making the right noises about improving liquidity in the gas market. The launch of the over-thecounter platform by OPCOM in July has already attracted 19 companies. But to date, no trading has taken place mainly due to the fact that Romania s largest producers Romgaz and Petrom still hold the weight of power in the wholesale market. This can only change if more competition enters the market through the development of increased interconnectivity. From 1 January 2016, the percentage of gas volume producers offer to the market for trading fell by five percentage points. The volume share is expected to fall by the same percentage points every year until By that year, it is envisaged that the market will be liquid enough to operate without this obligation for producers. Greece A market evaluation aimed at securing enough commercial interest for capacity at the Greek-Bulgarian interconnector is expected to end mid-march. In a previous market evaluation, the Interconnector Greece-Bulgaria (IGB) failed to garner enough interest and there is always a risk the situation could be repeated. Between 0.8 billion cubic metres (bcm) and 1.2bcm of capacity is still available to be booked, but if the shareholders do not find investors, they may have to increase their investment. Prospective DEPA auctions are likely to be oversubscribed, adding further pressure on Greek companies to find alternative supply sources and on DEPA to release more of its gas. It is unlikely that DEPA will agree to the latter willingly, as this would eat into its margins. At the same time, Greece s alternative supply sources are limited. Apart from DEPA, only one other company M&M imports LNG. Others have tried unsuccessfully. The prospect of Greece developing its own underground storage facilities is back on the government agenda. Transmission system operator DESFA and regulator RAE are among participants. With Greece expected to see more diversification in gas volumes when the Trans Adriatic Pipeline (TAP) is operational in 2020, developing storage could be a strategic move. Greek explorer Energean Oil & Gas has said underground storage could have 1bcm of capacity and could supply the national network with 7mcm/day. The Greek state could keep a quantity as a strategic reserve and could offer access to third parties for the rest of the natural gas stored. Bulgaria The possibility of implementing reverse flow at the GMS Negru Voda 1 pipeline near the Bulgarian-Romanian border is subject to the conclusion of an interconnection agreement between grid operator Bulgartransgaz and Romanian equivalent Transgaz. As there has been no word on timelines, it is unlikely to materialise before 1 May 2016 when the provisions of the network code on interoperability enter into force. Energy giant Gazprom, which owns 50% of Bulgarian private gas distribution company Overgas, stopped gas sales to the company from 1 January This is the latest in a number of structural changes for Gazprom across its asset portfolio. Although not explicitly said, it looks likely the Russian producer could be exiting the company completely. Neither Gazprom nor Overgas commented on this. A bi-directional natural gas pipeline designed to boost route diversity between Bulgaria and Serbia is on course for completion by the end of The Interconnector Bulgaria Serbia project completed the first phase on the Bulgarian side of the border at the end of December and preparations to source funding for the second phase are underway. Funding is expected to come from the EU s Innovations and Competitiveness Operational Programme The interconnector will have 1.8bcm/year capacity. Page 4 of 5

6 Turkey Although the Turkish gas market got off relatively scot-free in December, celebrations should be postponed at least until March. The remaining two winter months may still bring surprises. The prospect of more gas curtailments is never too far away in Turkey, particularly if winter days turn out to be exceptionally cold, pushing demand beyond the ability of the transmission system to cope with consumption spikes. On the regulatory front, the market is expecting the new parliament to discuss and approve amendments to the Natural Gas Market Law The proposed amendments were changed 10 times before being sent out to parliament in the second half of However, there has been no developments since then because Turkey has been caught up in a long electoral cycle and any law changes may have proved unpopular. There are expectations the regulator EPDK and the incumbent BOTAS may finally launch this year a muchneeded balancing market and introduce daily capacity booking in the system. For the time being, Turkey s balancing market operates on a monthly basis and capacity booking happens for monthly and yearly periods. The Baltic States In the first months of the year the Latvian parliament should pass a new gas law which will formalise the unbundling of incumbent Latvijas Gaze. The liberalisation of the market is scheduled for April 2017, but details of when the transmission grid and storage unit will be separated that same year still need to be formalised. The passing of the law is likely to lead to Germany s E.ON selling its stake in Latvijas Gaze. A regional study for an integrated Baltic market is due to be published in the opening months of It is expected that it will provide insight into the market model that should be used to integrate the hubs. As a result, during Q a regional steering group comprising ministries, regulators and system operators is expected to come to an agreement over the future shape of their combined market. The fate of the Balticconnector the pipeline linking Estonia with Finland could be decided in the first quarter of the year. A funding application to the EU is expected by then, having previously been postponed. Finland s incumbent Gasum pulled out of the project last year, but has been replaced by a state-backed entity. Estonian system operator Elering continues to champion the project. You can rely on ICIS for all your market intelligence needs EUROPEAN SPOT GAS MARKETS The ICIS European Spot Gas Markets report provides you with the latest prices, news and expert analysis on the current day s trading. We publish independent price assessments and Heren indices for the British NBP, Dutch TTF, German NCG and GASPOOL, Belgian Zeebrugge and ZTP, French PEG Nord and TRS, Italian PSV, Austrian VTP, Czech VTP, Spanish AOC, Slovak VTP and Turkey. Get your free sample report EUROPEAN GAS HUB REPORT The ICIS European Gas Hub Report provides readers with a comprehensive, quarterly analysis of liquidity and market developments, as well as an outlook for all liquid and developing trading hubs in Europe. The detailed report now includes not only the major hubs of northwest Europe, but even more markets that are growing and becoming more liquid across Central Europe and the Mediterranean. Get your free sample report EUROPEAN GAS MARKETS REPORT The fortnightly European Gas Markets report provides you with a round-up of all the key developments, prices and industry news in the European natural gas market. It is a must-read for anyone looking for a comprehensive insight into the most relevant gas market news with a strong focus on supplier countries and routes. Get your free sample report Page 5 of 5