European Traded Gas Hubs: German THE fails to impress

This Comment questions the official statements made in the German energy Act and in the NCG/GPL joint press release, regarding the creation and start of the new merged German gas hub, the Trading Hub Europe (THE). Those comments boldly stated that the new THE hub would be “one of the most attractive and liquid gas trading hubs in Europe […], providing excellent opportunities for future growth”.  Following on from the analysis of trading data from January to October 2021 for the traded gas hubs in a selection of seven west-European countries, and after just one month’s data available for the merged THE, this paper analysed whether there are indeed signs that the German market is developing into an ‘international’ hub or whether it is simply ‘business as usual’?

It could be argued that the German hubs could or indeed should have already performed better over the past decade. The reality is that they did not., despite Germany having Europe’s highest physical gas demand, having a comprehensive gas pipeline and storage infrastructure, and having good connections with all the neighbouring countries. These attributes should have enabled the traded gas markets to flourish, yet compared to some other countries, they did not and the two German hubs remained essentially where they were five years ago.

If the NCG and GPL hubs had not developed more than they had due to there being two hubs in Germany rather than one, simply merging them was unlikely to succeed in creating a more liquid market, as the French experience of hub mergers showed.

In reality, the total traded volumes of the combined German hubs fell 12.45 per cent from 2019 to 2020 and a further 6.55 per cent from 2020 to 2021, making a drop of 18.19 per cent over the two-year period. This is a significant drop, worse than the 10.3 per cent drop at the French TRF and much worse than the 5.2 per cent increase in total traded volumes at the Austrian VTP, and in total contrast to the 33 per cent rise in TTF traded volumes in the same 2-year period.

Despite the extreme and unprecedented rise in gas prices over the summer of 2021, leading to very high levels of volatility and pushing traders towards the exchange contracts in general, and the very liquid TTF in particular, there have not been any encouraging signs of growth in the German traded gas market.

The new THE hub’s biggest rival is the TTF, and the one to ‘catch up’ if the statements were indeed to come true; the churn rates are far from reflecting a mature liquid market, the total traded volumes are reasonable and are ‘the best of the rest’ after TTF and NBP but, it must be stressed that the TTF volumes are just short of eighteen times larger than THE! Given all the statistical trading data, There is no reason to believe at this stage that the new German THE hub could ever challenge TTF to become the European benchmark hub.

The final conclusion of this Comment therefore is that, as previously stated by the Author, the new German Trading Hub Europe is still very unlikely to reflect its name.

By: Patrick Heather