ICIS gas market pricing
Bursa, 26 April 2013
Louise Boddy – Director, Global Energy Markets
Aura Sabadus – Senior Reporter, Turkish Markets
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
Corporate structure
• 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.
www.icis.com
ICIS – reporting on and analysing energy,
chemical and fertiliser markets.
Over 600 staff globally.
Moscow
London
New York
Germany
Washington
Yantai
Houston
Shanghai
Guangzhou
Mumbai
Singapore
www.icis.com
2. Evolution of European gas markets
and pricing
www.icis.com
History of gas price reporting
19 years of ICIS gas prices – first to bring price
transparency into every new market
1994 – 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
Characteristics
evolution phase
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
•
LIQUID
High liquidity , steady number of
• Assessment.
regular counterparties (<20),
• Trades-based index over long
narrow bid/offer spreads every day
periods (all day/all month).
on a range of contracts.
MATURE
High liquidity on spot and curve
• Assessment.
contracts, steady number of
• Trades-based index over long
regular counterparties (<30),
periods (all day/all month).
narrow bid/offer spreads every day • Trades-based index over short
on a range of contracts, derivative
periods (5-30 minutes).
trade developed.
www.icis.com
Assessment.
European gas hubs by development phase
IMMATURE
FORMATIVE
Turkey
Spain
(AOC)
Poland
Czech Republic
Austria (CEGH)
Italy (PSV)
LIQUID
Germany (NCG)
Germany (GASPOOL)
MATURE
France (PEGS)
Belgium (Zeebrugge)
Britain (NBP)
Netherlands (TTF)
www.icis.com
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
Oct-10
Jul-10
Apr-10
Jan-10
Oct-09
Jul-09
Apr-09
Jan-09
Oct-08
Jul-08
Apr-08
Jan-08
Oct-07
Jul-07
Apr-07
Jan-07
Oct-06
Jul-06
Apr-06
Jan-06
Oct-05
Jul-05
Apr-05
Jan-05
Oct-04
Jul-04
Apr-04
Jan-04
Oct-03
Pan-European hub trade volume 2003-2012
Source: Transmission System Operators
GWh/month
80000
70000
60000
50000
40000
30000
20000
10000
0
www.icis.com
Tradability index by hub 2007-2013
This measures bid/offer spread availability, not volume
Source: ICIS European Gas Hub Report
20
18
16
14
TTF
Zeebrugge
12
NBP
GASPOOL
10
PEG Nord
NCG
8
PSV
6
CEGH
Czech
4
2
0
Q3 '07 Q1 '08 Q3 '08 Q4 '08 Q3 Q4 '09 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4'11 Q1'12 Q2'12 Q3 '12 Q4 '12 Q1 '13
'09*
www.icis.com
Many hub contracts have consistent high liquidity
Number of trades going into the ICIS front-month indices
12000
10000
8000
6000
TTF
NBP
NCG
4000
Zee
2000
0
www.icis.com
ICIS prices are the most widely
used benchmarks in Europe
Built into many contracts. The most reliable measure of physical traded
value:
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.
Used as a reference price by many different business functions:
7. As a starting point for negotiations.
8. In valuation of assets.
9. In strategic planning.
www.icis.com
3. ICIS Turkish market coverage
www.icis.com
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
www.icis.com
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)
www.icis.com
Test details – who was approached?
www.icis.com
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
www.icis.com
Test findings
www.icis.com
Reporting trades and swaps…
www.icis.com
www.icis.com
www.icis.com
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
www.icis.com
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
www.icis.com
www.icis.com
www.icis.com
www.icis.com
www.icis.com
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
www.icis.com
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, bidoffer spreads, mid points with other companies.
• Assessments done in a transparent manner
• Bring consistency to the market and visibility to traders
www.icis.com
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
www.icis.com
www.icis.com
www.icis.com
Price visibility is crucial to investors
Spot prices bring:
• Transparency
• Flexibility
www.icis.com
T-Hub is vital for southeast Europe, Middle East
& Caspian region
GTF
NBP
TTF GASPOOL
ZEE NCG Czech
PEGs
AOC
VTP
PSV
T-HUB
www.icis.com
Thank you!
Aura Sabadus + 44 (0) 207 911 1853
aura.sabadus@icis.com
Louise Boddy +44 (0) 207 911 1928
louise.boddy@icis.com
www.icis.com