1
How To Establish A Proper Working
Gas Hub?
Bilbao – 24th June 2014
HUBERATOR - Laurent Remy
AGENDA
 INTRODUCTION
 BELGIAN TRADING LANDSCAPE
 OPERATIONAL REVIEW
 CONCLUSION
2
INTRODUCTION
3
WHO IS HUBERATOR?
 A non-regulated company established in 1999, with a strong
shareholder base
 The operator of both Zee...
HUB DEFINITION
 A hub is a point (physical/local or virtual/notional) at which title
to gas can be transferred between bu...
Infrastructure
Systems & Commercial
Arrangements
Convergence of Pipelines & Available
Transmission Capacity
Many Buyers & ...
COMMERCIAL REQUIREMENTS
 The hub operator has a standard hub agreement in place with
its hub customers (Hub Services Agre...
OPERATIONAL REQUIREMENTS (1)
 The hub operator must be a separate legal entity from
customers at the hub, so all particip...
OPERATIONAL REQUIREMENTS (2)
 Hub operator provides firmness through back-up and offtake
services with transparent and ma...
HUB INDICATORS (1)
 Liquidity:
- increases when number of customers, volumes traded, number
of trades and price transpare...
HUB INDICATORS (2)
 Level of concentration: the Herfindahl-Hirschmann Index
(HHI) is a measure of the concentration facto...
BELGIAN TRADING LANDSCAPE
12
13
SWITZERLAND
ITALY
EASTERN
COUNTRIES
SPAIN SWITZERLAND
ITALY
Gascade
GERMANY
Open Grid Europe
SOTEG
GRTgaz
FRANCE
UNITED...
14
FROM ZEEBRUGGE AREA ONLY (1999)…
ZEEPIPE
TERMINAL (ZPT)
INTERCONNECTOR
ZEEBRUGGE
TERMINAL (IZT) &
ZEEBRUGGE HUB
LNG
TER...
ZEEBRUGGE – A BRIEF STORY OF TIME (1)
 October 1998: IUK starts commercial operations, linking the
UK gas market to the C...
ZEEBRUGGE – A BRIEF STORY OF TIME (2)
 Huberator and the founding fathers jointly wrote, under the
umbrella of a Focus Gr...
ZEEBRUGGE – A BRIEF STORY OF TIME (3)
 In October 2004, HSA 2005 is launched in order to foster
liquidity and further inc...
ZEEBRUGGE – CONCLUSION
 When developing a hub, it is paramount not only to be a first
mover (becoming the reference for a...
19
… TO WHOLE OF BELGIUM (October 2012)
Main principles
Zeebrugge Beach (Physical Trading
Services) is an entry point to t...
Transmission Services
Consolidation of net trading position
in Grid User Balancing Position
ICE ZTP
Exchange
Platform
OTC
...
A NEW BALANCING REGIME
1
2
3
Thresholds to limit the aggregated market
imbalances, sized to domestic market needs
No Fluxy...
WHAT’S NEXT (1)?
 PEGAS (Pan-European Gas Cooperation) is a trading
platform (set up at the end of May 2013 as a cooperat...
WHAT’S NEXT (2)?
 ZIGMA (Zeebrugge beach Interconnector
Gas Market Area): cross-border entry-exit
zone bringing together ...
BELGIAN TRADING LANDSCAPE – MORAL OF THE STORY
 Heraclitus of Ephesus:
“The Only Thing That Is Constant Is Change”
24
OPERATIONAL REVIEW
25
26
HUB MEMBERS (84)
 Alpiq Suisse
 Antargaz
 AXPO Trading AG
 AXPO Trading UK
 BASF
 Barclays Bank PLC
 Belgian Eco...
SPREAD OF NOMINATIONS 2013
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0%
2%
4%
6%
8%
10%
12%
1 3 5 7 9 11 13 15 17 19 21 ...
28
0
10
20
30
40
50
60
70
80
90
0,00
500,00
1 000,00
1 500,00
2 000,00
2 500,00
3 000,00
3 500,00
4 000,00
2000 2001 2002 ...
29
GWh/day
LIQUIDITY ON THE ZTP (Launched October 2012)
0,00
0,50
1,00
1,50
2,00
2,50
3,00
0
50
100
150
200
250
300
350
Da...
KEY FIGURES
 Traded quantities in 2013: 827,7 TWh (73 BCM)
 BE consumption amounting to 183,2 TWh (17 BCM)
 Churn rate ...
WHAT ABOUT THE COST OF TRADING?
 Industrial customers are incentivized to source their gas on the
ZTP:
31
-200
-100
0
100
200
25/12/2008 1/01/2009 8/01/2009 15/01/2009 22/01/2009 29/01/2009 5/02/2009
GWh
32
-200
-100
0
100
200
2...
PRICE INDICATORS - EUROPE
33
Strong correlation between EU market places
EUR/MWh
CONCLUSION
34
CONCLUSION
 Huberator has a proven track record of successfully developing
trading hubs (both physical and notional), in ...
36
37
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How to Establish a Proper Working Gas Hub-Laurent Remy

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Institutional and Organizational Designs of Natural Gas Hubs: An Introduction to the Iberian Gas Hub

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How to Establish a Proper Working Gas Hub-Laurent Remy

  1. 1. 1 How To Establish A Proper Working Gas Hub? Bilbao – 24th June 2014 HUBERATOR - Laurent Remy
  2. 2. AGENDA  INTRODUCTION  BELGIAN TRADING LANDSCAPE  OPERATIONAL REVIEW  CONCLUSION 2
  3. 3. INTRODUCTION 3
  4. 4. WHO IS HUBERATOR?  A non-regulated company established in 1999, with a strong shareholder base  The operator of both Zeebrugge Beach (physical trading point) and Zeebrugge Trading Point – ZTP (notional trading point) 4 Fluxys is a Belgium‐based, fully independent gas infrastructure group with assets in gas transmission, gas storage and LNG terminalling throughout Europe
  5. 5. HUB DEFINITION  A hub is a point (physical/local or virtual/notional) at which title to gas can be transferred between buyers and sellers  In a physical hub, the contractual place where the gas is exchanged corresponds to a specific and well identified geographical point on the transmission system (Zeebrugge Beach)  In a notional hub, the contractual place where the gas is exchanged is being defined as a group of entry and exit points belonging to a whole transmission system or balancing zone (e.g. ZTP, TTF, NCG, GASPOOL, NBP)  Both types must ideally allow OTC transactions (either bilaterla or preferably through brokers) and Exchange trading (on anonymous platforms). 5
  6. 6. Infrastructure Systems & Commercial Arrangements Convergence of Pipelines & Available Transmission Capacity Many Buyers & Sellers with Available Commodity Access to Tradable Gas, End-Users and Storage Easy Transport to/from Hub Hub services Agreement (& Ops rules) Market Maker WHAT DOES IT TAKE TO DEVELOP A HUB? Standard Trading Contract 6
  7. 7. COMMERCIAL REQUIREMENTS  The hub operator has a standard hub agreement in place with its hub customers (Hub Services Agreement - HSA)  The HSA is supplemented by Operating Procedures (exchange of messages, matching rules, curtailments…)  The main components of the HSA are: - Tariff (Fee structure) - Services - Liabilities, FM, amendments…  Hub customers (as the case may be assisted by the hub operator) jointly develop or abide by a standard trading contract to trade at the hub - Initially ZBT 2004, followed by ZBT 2012 - ZBT gradually overtaken by EFET General Agreement (vast majority of transactions at Zeebrugge Beach are EFET based) with a specific ZBT annex. 7
  8. 8. OPERATIONAL REQUIREMENTS (1)  The hub operator must be a separate legal entity from customers at the hub, so all participants should be treated on a non-discriminatory basis  Standard hub terms and conditions are published  No market dominance by a single market participant  Title transfer services are provided by the hub operator - Nominations - Title tracking (tracking the change in ownership of gas volumes) - Matching - Confirmation - Allocation - Monthly reporting 8
  9. 9. OPERATIONAL REQUIREMENTS (2)  Hub operator provides firmness through back-up and offtake services with transparent and market-based charges (to make traded quantities firm in case of physical disruption up- or downstream the hub)  For physical hubs, hub operator needs to ensure a high level of interoperability in cooperation with the operators of the adjacent systems (e.g. renomination lead-time)  Ideally, hub prices are used in the settlement of transportation imbalances, in order to foster liquidity  Robust IT system is needed for - Handling of incoming and outgoing e-messages - Matching and balancing calculation  EDIGAS messages exchanged by Fluxys dispatching: ± 11 000 (daily) 9
  10. 10. HUB INDICATORS (1)  Liquidity: - increases when number of customers, volumes traded, number of trades and price transparency all increase - A market is said to be liquid when trades of normal size can at any time reliably be transacted at prices that will approximate those being reported at that time as being market prices  Churn factor (re-trading ratio): is the ratio between the traded volumes and the physical throughput. It points to the number of times gas volumes change hand within the hub. OUT IN 1 N 10
  11. 11. HUB INDICATORS (2)  Level of concentration: the Herfindahl-Hirschmann Index (HHI) is a measure of the concentration factor in a particular market. The HHI is calculated as the sum of the squared market shares and has a maximum of 10,000, where higher values indicate a greater level of market concentration, i.e. the market is divided amongst fewer market participants  Depth: significant volumes can be traded without resulting in excessive price moves 11
  12. 12. BELGIAN TRADING LANDSCAPE 12
  13. 13. 13 SWITZERLAND ITALY EASTERN COUNTRIES SPAIN SWITZERLAND ITALY Gascade GERMANY Open Grid Europe SOTEG GRTgaz FRANCE UNITED KINGDOM National Grid NORWEGIAN GAS FIELDS Zebra NETHERLANDS GTS OVERSEAS LNG sources Zeebrugge Beach Zeebrugge Trading point NBP PEGs TTF GASPOOL NCG PSV VTP BELGIUM: A UNIQUE LOCATION TO REACH MAJOR MARKETS ÀND THEIR TRADING PLACES AOP
  14. 14. 14 FROM ZEEBRUGGE AREA ONLY (1999)… ZEEPIPE TERMINAL (ZPT) INTERCONNECTOR ZEEBRUGGE TERMINAL (IZT) & ZEEBRUGGE HUB LNG TERMINAL Interconnector IUK Zeepipe Borders IZT, LNG, ZPT: Total annual delivery capacity of around 50 bcm
  15. 15. ZEEBRUGGE – A BRIEF STORY OF TIME (1)  October 1998: IUK starts commercial operations, linking the UK gas market to the Continent for the first time. Flange trading develops in Belgium at several IPs, but most market players wish to exchange gas in a more structured way on a unique trading point  Zeebrugge Hub is officially launched in November 1999 by Huberator after intensive stakeholder consultation  The 6 “founding fathers” were a perfect mix of - UK/US producers - Continental vertically-integrated players - Trader (spread trading) 15
  16. 16. ZEEBRUGGE – A BRIEF STORY OF TIME (2)  Huberator and the founding fathers jointly wrote, under the umbrella of a Focus Group, a Hub Services Agreement (HSA1999) and its Operating Procedures (OP)  In December 2001, a new HSA is drawn out in order to increase the firmness level (IUK switch from forward to reverse mode brings along many curtailments, leading to hub reductions), and to that effect services are added to the initial offer: - automatic Back-Up/Off-Take for a period of 5 hours (Huberator temporarily substitutes for the hub customer impacted by the curtailment) - Nominated Back-Up/Off-Take after 5 hours (by the hub customer) - Rounding (to cover for small differences between counterparties) 16
  17. 17. ZEEBRUGGE – A BRIEF STORY OF TIME (3)  In October 2004, HSA 2005 is launched in order to foster liquidity and further increase firmness (Nominated Back-Up/Off- Take services didn’t prove satisfactory, resulting in hub reductions): - Additional Back-Up/Off-Take for a unlimited period of time after 5 hours of automatic Back-Up/Off-Take - Creation of an Exchange Platform in cooperation with APX (anonymous screen-based trading)  In October 2012 finally, launch of the HSA2012 in order to integrate the newly created notional services at the Zeebrugge Trading Point, a new notional hub where Fluxys Belgium’s shippers can perform balancing operations 17
  18. 18. ZEEBRUGGE – CONCLUSION  When developing a hub, it is paramount not only to be a first mover (becoming the reference for a given area) but also to stay ahead of the game by listening to (and evolving in parallel with) the market needs  Listening to your customers is essential!  A well functioning market place, with a great track record of meeting its customers requirements, will not lead a regulatory or national authority to completely revamp it  The success story of the Zeebrugge Hub has caused the Belgian regulator CREG to further carve the Belgian trading landscape (2012) based on the existing building blocks 18
  19. 19. 19 … TO WHOLE OF BELGIUM (October 2012) Main principles Zeebrugge Beach (Physical Trading Services) is an entry point to the system and stays connected to IZT, ZPT and LNG through ZeePlatform services Zeebrugge Trading Point (Notional Trading Services) is automatically accessible through bookings in the entry/exit zone Transmission inside Belgium + border to border: annual capacity of around 120 bcm
  20. 20. Transmission Services Consolidation of net trading position in Grid User Balancing Position ICE ZTP Exchange Platform OTC Market Registration & facilitation of OTC/exchange trading Net trading position Commodity Market Physical & Notional Trading Products Single-side nomination Notional Trading Services & Zeebrugge Beach Physical Trading Services ZTP, ENHANCED WHOLESALE COMMODITY MARKET ZTP - the Belgian Gas Market combining liquidity of existing Zeebrugge Beach with new notional trading services 20 ICE Belgium
  21. 21. A NEW BALANCING REGIME 1 2 3 Thresholds to limit the aggregated market imbalances, sized to domestic market needs No Fluxys Belgium action intra-day and no impact on market parties as long as market imbalance is within market threshold Residual action initiated by Fluxys Belgium on the exchange when market position goes beyond market threshold, with cash compensation for causers Residual end-of day imbalance settled in cash Daily Market Based Balancing Time Market threshold 2 3 Fluxys reaction zone ExcessShortfall Time 1 12 18 24 6 Da y 6 Day+1 Market Balancing Position Grid User Balancing Position 4 4 Comprehensive hourly information provision to the market In line with EU Balancing Framework Guidelines 21
  22. 22. WHAT’S NEXT (1)?  PEGAS (Pan-European Gas Cooperation) is a trading platform (set up at the end of May 2013 as a cooperative venture between the German company European Energy Exchange (EEX) and the French company Powernext) PEGAS offers its 140 members both outright products and spreads Implementation plan in Belgium - July 2014: Day-Ahead and Forward Month ZTP - Autumn 2014: Zeebrugge Beach products (TBD) 22
  23. 23. WHAT’S NEXT (2)?  ZIGMA (Zeebrugge beach Interconnector Gas Market Area): cross-border entry-exit zone bringing together the Interconnector Pipeline, Zeebrugge area and Zeebrugge Beach.  Zeebrugge Beach becomes the virtual trading point within the cross-border EE zone, which: - Provides gas sourcing possibilities from Norway (Zeepipe pipeline) - The UK Continental Shelf (SEAL pipeline) and the ZBG LNG terminal; - Connects the GB, Dutch and Belgian gas trading places (NBP, TTF, ZTP) - Links into the GB, Dutch and Belgian downstream markets. (Consultation on-going - Launch date November 2015) 23
  24. 24. BELGIAN TRADING LANDSCAPE – MORAL OF THE STORY  Heraclitus of Ephesus: “The Only Thing That Is Constant Is Change” 24
  25. 25. OPERATIONAL REVIEW 25
  26. 26. 26 HUB MEMBERS (84)  Alpiq Suisse  Antargaz  AXPO Trading AG  AXPO Trading UK  BASF  Barclays Bank PLC  Belgian Eco Energy  BG International Ltd.  BNP Paribas  BP Gas Marketing Ltd.  British Gas Trading Ltd. (Centrica)  Cargill International  Citigroup Global Markets Limited  ConocoPhillips (U.K.) Limited  Danske Commodities  Delta Energy N.V.  Deutsche Bank AG - London Branch  DONG Energy A/S  DufEnergy Trading SA  EconGas GmbH  EDF Luminus  EDF SA  EDF Trading Limited  Electrabel  EnBW Trading GmbH  Eneco Energy Trade B.V.  Enel Trade S.p.A.  Energy Logistics and Services GmbH  Eni S.p.A.  Enovos Luxembourg S.A.  ENOI S.p.A.  E.ON Global Commodities  ENERGYA VM  European Energy Pooling  ExxonMobil Gas Marketing Europe Limited  Fluxys S.A.  Freepoint Commodities Europe LLP  Gas Natural Europe  Gas Natural Aprovisionamientos SDG  GasTerra BV  Gazprom Export  Gazprom Marketing & Trading Limited  GDF SUEZ  GDF SUEZ Trading  GDF SUEZ Trading EM  GETEC Energie  Glencore Energy UK Ltd.  Goldgas  GreenEx s.r.o.  Gunvor International B.V.  Iberdrola  J. Aron & Company  JPMorgan Securities Ltd  Koch Supply and Trading Sarl  Lampiris SA/NV  LDH Energy Merchant Europe Sarl  Macquarie Bank Limited  Mercuria Energy Trading SA  Merrill Lynch Commodities (Europe) Limited  Morgan Stanley Capital Group Inc  Natgas  Noble Clean Fuels Ltd  Novatek Gas & Power GmbH  Vattenfall Energy Trading Netherlands N.V.  Petrochina International (London) Co  Petroineos Manufacturing France  Petronas Energy Trading Limited  POWEO Direct Energie  Progress Energy Services  RWE Supply & Trading GmbH (Essen Desk)  RWE Supply & Trading GmbH (UK Desk)  ScottishPower Energy Management Limited  SEGE  Shell Energy Europe Limited  Société Générale  Spigas S.r.l.  Statkraft Markets GmbH  Statoil ASA  SVS Securities PLC  Total Gas & Power Limited  Vattenfall Energy Trading GmbH  Vitol S.A.  VNG – Verbundnetz Gas Aktiengesellschaft  WINGAS GmbH & Co. KG
  27. 27. SPREAD OF NOMINATIONS 2013 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0% 2% 4% 6% 8% 10% 12% 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73 Percentage per Member Cumulative Percentage 22 Hub Customers 80% of the traded quantities ShareperMember Cumulativeshare HHI Concentration factor = Σ Sharei 2 YTD 2013 = 437 << 10 000  no dominant player Ranking in % of trade nominations 27
  28. 28. 28 0 10 20 30 40 50 60 70 80 90 0,00 500,00 1 000,00 1 500,00 2 000,00 2 500,00 3 000,00 3 500,00 4 000,00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Daily Average Physical Throughput Daily Average Net Traded HHI Hub Customers GWh/day STRONG LIQUIDITY GROWTH EE2012 March 2013 Change in IUK Ops Rules combined with strong LNG deliveries and ZeePlatform New HSA New HSA
  29. 29. 29 GWh/day LIQUIDITY ON THE ZTP (Launched October 2012) 0,00 0,50 1,00 1,50 2,00 2,50 3,00 0 50 100 150 200 250 300 350 Daily Average Physical Throughput Daily Average Net Traded Churn (right-hand axis) 223% increase
  30. 30. KEY FIGURES  Traded quantities in 2013: 827,7 TWh (73 BCM)  BE consumption amounting to 183,2 TWh (17 BCM)  Churn rate 4.5 (even 6+ when considering HCG only)  Highest traded quantities - Zeebrugge Beach > Daily: 3021 GWh (267 Mio m³(n)) on 8th February 2012 > Monthly: 80.2 TWh (7 BCM) in March 2013 - ZTP: 382 GWh (daily) and 9.5 TWh (monthly)  Active players: - Zeebrugge Beach: 53 (or 63% of the Hub Customers) - ZTP: 26 30
  31. 31. WHAT ABOUT THE COST OF TRADING?  Industrial customers are incentivized to source their gas on the ZTP: 31
  32. 32. -200 -100 0 100 200 25/12/2008 1/01/2009 8/01/2009 15/01/2009 22/01/2009 29/01/2009 5/02/2009 GWh 32 -200 -100 0 100 200 25/12/2008 1/01/2009 8/01/2009 15/01/2009 22/01/2009 29/01/2009 5/02/2009 GWh -200 -100 0 100 200 25/12/2008 1/01/2009 8/01/2009 15/01/2009 22/01/2009 29/01/2009 5/02/2009 GWh 0 100 200 300 400 25/12/2008 1/01/2009 8/01/2009 15/01/2009 22/01/2009 29/01/2009 5/02/2009 GWh ZEEBRUGGE HUB & UKRAINE/RUSSIA DISPUTE IN 2009 OR HOW A HUB CAN PROVE A RELIABLE SoS TOOL HUB The Netherlands France GermanyZeebrugge area In combination with interruptible transit offer
  33. 33. PRICE INDICATORS - EUROPE 33 Strong correlation between EU market places EUR/MWh
  34. 34. CONCLUSION 34
  35. 35. CONCLUSION  Huberator has a proven track record of successfully developing trading hubs (both physical and notional), in close cooperation with its customers and industry associations (e.g. EFET)  A hub operator has to respond quickly to market changes  Industrial customers show a growing interest in sourcing their gas directly at a trading point  A well-functioning hub combined with the necessary gas infrastructure increases SoS  With our mother company Fluxys, and in cooperation with industry associations, we can help you put in place a successful hub in Spain  Any further question? Laurent Remy +32 2 282 7450 laurent.remy@fluxys.com 35
  36. 36. 36
  37. 37. 37
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