icis gas market pricing bursa, 26 april 2013 louise boddy – director, global energy markets aura...
TRANSCRIPT
ICIS gas market pricing
Bursa, 26 April 2013
Louise Boddy – Director, Global Energy Markets
Aura Sabadus – Senior Reporter, Turkish Markets
www.icis.com
Contents
1. Introduction to ICIS
2. Evolution of European gas markets and pricing
3. ICIS Turkish market coverage
4. ICIS Turkish gas pricing trials and methodology
www.icis.com
1. Introduction to ICIS
www.icis.com
• ICIS is the energy and chemicals information division
and the fastest growing business within Reed Business
Information (RBI).
• RBI is a powerful business-to-business publisher. It is
part of parent company Reed Elsevier.
• World’s third largest professional information company
(after Google and Thomson Reuters). Global leader in
Science, Medical, Legal, Risk and Business data
services, and Exhibitions. Employs over 35,000 people
worldwide. Annual revenues of over £6bn in 2011.
Corporate structure
www.icis.com
ICIS – reporting on and analysing energy, chemical and fertiliser markets.
Over 600 staff globally.
Washington Washington New York New York
Houston Houston
LondonLondonMoscowMoscow
GermanyGermany
ShanghaiShanghai
SingaporeSingapore
MumbaiMumbai
YantaiYantai
GuangzhouGuangzhou
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2. Evolution of European gas markets and pricing
www.icis.com
History of gas price reporting19 years of ICIS gas prices – first to bring price
transparency into every new market1994 – Heren Energy (now ICIS) started pricing UK gas trade, assessing Bacton and St. Fergus beach trade before the virtual hub was created.
1996 – Network Code launched, creating the NBP traded market.
1998 – First pipeline to continental Europe. ICIS starts first price assessments outside UK at Zeebrugge.
2005 – First LNG cargoes arrive in the UK at Isle of Grain.
2006 – ICIS launches global LNG reporting and the first Asian LNG spot price assessment in 2007.
2005-2008 - new European assessments started every year as trading spreads.
NOW - 700-1000 primary prices published every day. 193 for European gas.
www.icis.com
Market evolution phase
Characteristics Suitable pricing methodologies
FORMATIVE Low liquidity, low numbers of counterparties, little standardisation, no brokers, wide bid/offer spreads, contradictory price signals.
• Assessment.
IMMATURE Medium liquidity, growing number of regular counterparties (>20), narrowing bid/offer spreads
• Assessment.
LIQUID High liquidity , steady number of regular counterparties (<20), narrow bid/offer spreads every day on a range of contracts.
• Assessment.• Trades-based index over long
periods (all day/all month).
MATURE High liquidity on spot and curve contracts, steady number of regular counterparties (<30), narrow bid/offer spreads every day on a range of contracts, derivative trade developed.
• Assessment.• Trades-based index over long
periods (all day/all month).• Trades-based index over short
periods (5-30 minutes).
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European gas hubs by development phase
LIQUID
Germany (NCG)Germany (GASPOOL)
France (PEGS)Belgium (Zeebrugge)
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Pan-European hub trade volume 2003-2012Source: Transmission System Operators
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Tradability index by hub 2007-2013This measures bid/offer spread availability, not volume
Source: ICIS European Gas Hub Report
www.icis.com
Many hub contracts have consistent high liquidity
Number of trades going into the ICIS front-month indices
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ICIS prices are the most widely used benchmarks in Europe
1. In high volume, long-term, pipeline and LNG supply contracts.2. In short and medium term supply contracts.3. In floating-price end-user contracts.4. Infrastructure operators’ capacity sale and auction contracts.5. In Energy Trading and Risk Management Systems.6. In physically settled derivative contracts.
7. As a starting point for negotiations.8. In valuation of assets.9. In strategic planning.
Built into many contracts. The most reliable measure of physical traded value:
Used as a reference price by many different business functions:
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3. ICIS Turkish market coverage
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Price reporting
What is price discovery?
Just that. It seeks to determine a reliable price for a specific
contract at a specific moment in time by talking directly to a
wide
section of the market.
Why is it useful?
It brings transparency
It gives coherence to the market
It helps to minimise risk
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Developing spot and balancing gas prices for Turkey
• Tests carried out weekly for day 7 ex-post (“day after”)
prices from 30 November (start day of test 6 December)
• Tests carried out daily for day 7 ex-post
prices from 31 December (start day of test 7 January)
• Tests carried out daily for day-ahead
prices from 12 March (start date of test 11 March)
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Test details – who was approached?
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How is the test conducted?
• An average of five different companies submit prices to ICIS
on a daily basis
• Around one third of our communication is done via e-mail
• Two thirds by phone
• Companies are contacted between 11:00-14:00 for Day-
ahead and throughout the day for ex-post deals
• Average call duration 5 minutes
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Test findings
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Reporting trades and swaps…
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Challenges – Collecting data
AT THE BEGINNING
• Confusion over day-ahead, day-after prices and trades
• Reluctance to report higher volumes
• Reluctance to confirm the counterparty
NOW
• Reluctance to confirm counterparty
• Ensuring that companies submit trade prices or bid-offer spreads
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Intrinsic market challenges
• Natural gas volumes tied up in TOP contracts – hence little
liquidity on the market, particularly for day-ahead trading
• BOTAS book closure – what happens afterwards?
• Stamp tax – a market killer
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Stamp tax – kills the market
• Jeopardises security of supply
• Deters investors
• Fractures the market
• Drives financial trading to other jurisdictions that are not covered
by the tax. Turkish companies interested in speculation could, in
theory, trade in the UK
• Seriously affects Turkey’s ambition of becoming an energy and
financial hub
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Reliability of day-after and day-ahead Turkish gas prices
• Good reflection of market views (importers and
wholesalers). Comparison between Turkish and Czech
gas markets.
• Avoiding manipulation through cross-checking trades, bid-
offer spreads, mid points with other companies.
• Assessments done in a transparent manner
• Bring consistency to the market and visibility to traders
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Sooner or later? Developing Turkish gas prices
• Bringing liquidity to the market: the “Turkish Airlines” effect.
Where Turkish Airlines fly, business follows
• Crucial to investors
• Need to offer a south-eastern counterbalance to the north
west European hubs and reach out to the Middle East and
the Caspian region
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Price visibility is crucial to investors
Spot prices bring:
• Transparency
• Flexibility
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T-Hub is vital for southeast Europe, Middle East & Caspian region
AOC
PEGs
NBP
TTF
ZEE
PSV
GASPOOL
NCG
VTP
Czech
T-HUB
GTF
www.icis.com
Thank you!
Aura Sabadus + 44 (0) 207 911 1853
Louise Boddy +44 (0) 207 911 1928