Beatrice Petrovich

Research Fellow

Beatrice Petrovich joined the OIES in November 2012 after conducting European gas hubs research with the institute in August 2012. Her first paper on European gas hub price correlation was published in October 2013. In 2014 and 2015 she published two papers investigating the possible barriers to the creation of a single European gas market and the corresponding costs. Since 2016 she is involved in a joint research project with the research institute EWI Cologne, aiming to assess the impact of changes in gas demand and supply patterns on the European gas network. Since April 2016 Beatrice is researcher and Phd candidate at the Institute for the Economy and the Environment at the University of St Gallen (Switzerland), where she investigates the non-financial motivations behind investment decisions in the energy sector and the implications for policy. Before that, she worked for 5 years at REF-E, a leading energy consultancy based in Milan (Italy). Among other activities, she specialized in the analysis of the natural gas market and energy regulation, and contributed regularly to the editing and writing of REF-E specialized publications. She holds an MSc in economics from the University of Milan Bicocca and completed a one-year exchange at the University of Glasgow. While at university, she collaborated on a research project in the field of experimental economics.

Contact

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                    [post_content] => This paper brings together findings from previous OIES research on European gas hub price correlation by Beatrice Petrovich  with demonstrated capability in European gas transmission system modelling by Harald Heckling and Florian Weiser at EWI Energy Research and Scenarios at the EWI Institute in Cologne.

The paper compares the evidence for periodic bottlenecks in Europe’s gas transmission systems, indicated by price correlation de-linkage - and supporting  evidence of apparent physical or contractual flow constraints - with the results obtained by ‘re-running history’ using the EWI TIGER model.  The modelled view of history presumes ‘perfect market’ behaviour in respect of agents making the best use of infrastructure (‘lowest cost’ objective function) to move gas from A to B given data on tariff costs.

A ‘tidy’ confirmation that modelled and actual flows were broadly in line would have been welcomed by those regulatory bodies tasked with achieving the Gas Target Model.  The findings of this paper suggest that much more work is necessary to ensure that: critical route capacities are increased, capacities each side of specific interconnector points are better harmonised and that capacity held under long term contracts is made available on a shorter time horizon. The forensic investigation contained in this paper is to be highly commended and is an excellent starting point for regulatory bodies.
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                    [post_content] => This comment piece follows on from previous publications by the Beatrice Petrovich and assesses whether the main European energy exchanges provide a reliable price reference for traded gas. Exchanges are viewed as performing a vital role in the development of a traded commodity market and provide the important functions of: price discovery, price transparency, supply/pricing flexibility, physical balancing and financial risk management. Based on this, if gas exchange trading activity exists and offers reliable price signals, we can conclude that these vital functions are provided at a satisfactory level and therefore foster the development of a mature traded commodity market. In particular, this applies to some of the nascent hubs at the European trading periphery, where well-functioning exchange trading could be instrumental in helping to develop hub liquidity by offering new products on “easy-to-trade” electronic platforms and, perhaps more importantly, price transparency.
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                    [post_content] => The growth of trading activity on Europe’s gas hubs and access to anonymised OTC price data provides the OIES Gas Programme with the opportunity to analyse and draw conclusions on issues of direct relevance to policy makers and market participants. With 2014 data available, the objective of this paper is primarily to explore the extent to which conclusions reached in the Author’s previous papers have changed.

As trading volumes and liquidity increase one would expect to see price correlations across market geography improve, and indeed this is the general trend observed in this paper. Of equal interest however are the anomalies to this trend which may be one-off or recurrent in nature. Beatrice identifies such ‘de-linkages’ and with reference to the work of market monitoring groups and using data on infrastructure capacities and flowrates which has recently become more widely available, applies a forensic approach to assessing the prime causes for such episodes – whether due to physical or contractual congestion.
With the IGU’s annual price survey data available at a national market level, a measure of the financial impact on consumers of such price de-linkages is also estimated, helping to focus the minds of policy makers on appropriate actions to ensure the free flow of gas across interconnection points. As the future pattern of gas flows inevitably changes over time, due to LNG import level fluctuations, pipeline import patterns changing and a more diverse supply pattern from the European core to eastern Europe and indeed Ukraine, we should expect this to be a continuing and dynamic challenge.

Executive Summary
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                    [post_content] => With survey data from the IGU and others continuing to demonstrate the continuing widespread adoption of hub pricing for European gas, and trading volumes growing strongly overall, this paper revisits the issue of hub price correlation.  Following from her ground-breaking paper of October 2013 where for the first time in the public domain the analysis of OTC trading data revealed strong trends towards price convergence at the European gas trading hubs, Beatrice Petrovich in this paper extends the analysis with data to October 2013.

Focussing on price and volatility correlations between Europe’s gas trading hubs, Beatrice identifies those whose trends, either temporarily or on a more sustained basis, are out of line with the ‘core group’ of North West continental hubs.  Applying a forensic focus, the underlying causes of such anomalies are, where possible, identified.  This involved extensive discussions with system operators, market participants and analysis of infrastructure flow data.

The emerging picture is a positive one in terms of supporting the thesis that European gas hub prices respond to supply and demand forces.  However as flow patterns across the European geography change, for example due to LNG being diverted away from Europe towards Asia and with the opening of North Stream, new ‘pinch points’ or bottlenecks emerge which can cause hub prices to de-link.  Whether, in a European context, the appropriate incentives are in place to resolve such bottlenecks in a cost effective manner is beyond the scope of this paper.  It may be worth reflecting however that despite being a liberalised gas market since the 1980s, the US still has need to reconfigure and debottleneck its gas transmission system as its geographic loci of demand and supply continue to change and evolve.

Executive Summary
                    [post_title] => European gas hubs price correlation - barriers to convergence
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                    [post_content] => While the succession of pro-competition measures (or ‘packages’)  for gas at the EU level since the early 2000s certainly favoured the development of the continental trading hubs, their progress has faced headwinds from dominance on the supply-side by long-term contracts which, until recently, were almost exclusively priced in relation to oil products. However, in the 2008 to 2011 period, a surge of LNG supply to Europe, growing accessible pipeline connectivity, supplier choice for end-consumers and a protracted period in which hub prices were considerably below those of oil-indexed contract prices, together catalysed the development of liquidity at these hubs.  Some upstream suppliers came to embrace this transition, others continue to resist; but in the downstream markets hub development has been generally assisted by co-operation between system operators and regulators.

Despite favourable outward signs of progress, in order to assess the degree to which the European traded hubs have matured to the point where they can be said to represent a reliable and representative ‘market price’ requires extensive data and quantitative analysis.  In this context Beatrice Petrovich’s paper is a truly landmark work.  What sets it aside from previous research is that it incorporates OTC (Over the Counter) market data.  Through access to data from brokers (The Tankard Parties: ICAP Energy Limited, Marex Spectron Group and Tullett Prebon Group Limited) who in aggregate represent some 80% to 90% of the European gas OTC market, Beatrice’s analysis was able to incorporate anonymised price and volume data on every trade on every European hub considered since January 2007.

The degree of price correlation between hubs demonstrated by this analysis provides compelling support for the hypothesis that the European hubs do provide a reliable price reference.  Where anomalies occur they can be related either to hub immaturity in early periods or to physical connectivity constraints.
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            [post_content] => This paper brings together findings from previous OIES research on European gas hub price correlation by Beatrice Petrovich  with demonstrated capability in European gas transmission system modelling by Harald Heckling and Florian Weiser at EWI Energy Research and Scenarios at the EWI Institute in Cologne.

The paper compares the evidence for periodic bottlenecks in Europe’s gas transmission systems, indicated by price correlation de-linkage - and supporting  evidence of apparent physical or contractual flow constraints - with the results obtained by ‘re-running history’ using the EWI TIGER model.  The modelled view of history presumes ‘perfect market’ behaviour in respect of agents making the best use of infrastructure (‘lowest cost’ objective function) to move gas from A to B given data on tariff costs.

A ‘tidy’ confirmation that modelled and actual flows were broadly in line would have been welcomed by those regulatory bodies tasked with achieving the Gas Target Model.  The findings of this paper suggest that much more work is necessary to ensure that: critical route capacities are increased, capacities each side of specific interconnector points are better harmonised and that capacity held under long term contracts is made available on a shorter time horizon. The forensic investigation contained in this paper is to be highly commended and is an excellent starting point for regulatory bodies.
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Latest Publications by Beatrice Petrovich

Latest research by Beatrice Petrovich

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