German gas market busier but needs fine-tuning

Frankfurt: Clashes between gas importers, pipeline operators and suppliers and persistent regulatory niggles are preventing big industrial consumers from trading on the German gas market and limiting its growth.

After decades of being tied to one supplier, large industrial consumers in Germany can now shop around for the cheapest deals from many alternative providers.

But most still do not feel comfortable bypassing the middlemen and buying on the wholesale market themselves.

"Classic supply relationships have been abandoned and spot markets are beginning to see rising liquidity," said Lars Maehl, an energy risk manager at Cargill International in Geneva at a Berlin gas conference last week.

"But the market lacks fine-tuning to attract more customer involvement."

Three years of liberalisation has seen trade on the market grow to 1,000 terawatt-hours a year, with E.ON Ruhrgas leading the way. E.ON's transport area has become the E.ON Gas Trading (EGT) hub in central and south-east Germany, which emerged after some distribution zones were merged under pressure from national policymakers.

The virtual trading hub, on which energy exchange EEX bases its gas contract, has become the focus for over-the-counter (OTC) deals and, to a lesser extent, for spot and futures dealt via a one-year old contract on EEX.

Trade is growing. Volumes on the EGT last month of 15.7 TWh were nearly four times those in July 2007, and from October onwards, the hub will expand to encompass the transport regions of Bavarian shipper Bayerngas, called Bayernets.

The EEX has now captured the equivalent of a quarter of the EGT volume and has 52 trading members, double the number when it started in July 2007.

But there are very few big industrial consumers trading on the exchange, unlike Britain's NBP where several big users trade, with only national rail operator Deutsche Bahn and global paper and board maker Stora Enso actively involved.

The EGT is moving towards becoming the German price benchmark, and through the Bayernets integration will offer access to 50 per cent of traded volumes of "H" (highly calorific) gas, the dominant type in Germany.

It is catching up with other European hubs such as the TTF in the Netherlands and NBP in Britain, helping international and domestic suppliers and traders to align and swap gas flows.

"It is not yet a beautiful puzzle, but one with recognisable structures," said Benjamin Peschka, manager grid economics at the 24-7 unit of utility MVV, at the conference.

The groundwork is done but traders continue to squabble with regulators and customers over details, which mean little to outsiders but are key to wider success, said Klaus Kraemer, head of the German arm of energy traders lobby EFET.