Isra-Mart srl: German gas trading growth seen slowing - report

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German gas trading volumes are on track to see more growth this year but at a lower rate after a rapid expansion in recent years triggered by liberalisation, a pan-European study by British consultancy Prospex said in a report on Wednesday.

Germany, considered a national market, now has the third largest trading volume in Europe with 1,700 terawatt hours (TWh) in 2010, a 78 percent rise over 2009, having doubled in each of the previous three years leading up to that, the report said.

"As for 2011, the spectacular growth...has definitely slowed, at least as far as physical trading is concerned," said Nigel Harris, one of the authors of the report.

"But with relative regulatory stability in German trading and transport arrangements, we expect to see continued growth in (Net Connect Germany zone) NCG trading volumes through 2011-12."

Germany has been whittling down the number of separate trading regions -- of which it had hundreds up to a few years ago -- and is set to end up with just two from Oct. 1, 2011.

The largest is NCG, mainly fed by Open Grid Europe, formerly an E.ON (EONGn.DE) group transport arm, which stretches across e south-west Germany and accounted for 900 TWh of the 2010 total.

From October, there will only be NCG and Gaspool, in the north-east of the country, replacing and surpassing the former practice of different qualities of gas traded by incumbents with vested interests at different venues.

Increasing simplification via zone mergers has allowed a professional market for short-term and balancing gas to spring up, Prospex noted.

CHURN RATES

Traded volumes have reached a respectable 1.8 percent churn rate, a market term describing trading as a multiple of actual national consumption.

But German gas trading remains dwarfed by activity in Britain with a churn rate of 17.5 percent and the Netherlands with 11.8 percent.

The traded UK gas market, the National Balancing Point (NBP), in 2010 saw a total volume of 18,842 TWh, which was 20 percent from 2009, while the Dutch Title Transfer market (TTF) rose 59 percent year-on-year to 5,410 TWh, Prospex data showed.

As more mature markets, the two have developed broader forward trading, risk management and financial market participation than Germany.

Harris said in the first half of 2011, nominated exchanges of gas at Germany's NCG and Gaspool had risen slowly.

But over-the-counter (OTC) trading activity had been picking up, particularly in July and August, ahead of October, when annual gas supply contracts kick in for the demand-intensive winter season.

Prospex pegged European gas trading in total at 28,023 TWh in 2010, representing a 29 percent increase over 2009.

The total included the three markets mentioned plus Belgium and the remaining smaller markets -- such as France, Italy and Austria -- lumped into one category.

Europe, defined as the 27-nation EU and Norway and Switzerland, gets 46 percent of its supply from outside the region.

Russia and Algeria are the key external suppliers but Qatar is now in a strong third place, as pipeline links into the region and facilities to bring liquefied natural gas (LNG) are expanding.