The task of building new EU gas standards will be ‘necessary’, the regulator has admitted | Techy Kings


The watchdog admitted that the ambitious project to build a new EU benchmark for imported gas would be difficult to implement.

EU energy regulator Acer has joined traders and analysts in casting doubt on a new regional-level scheme that would accurately track the price of natural gas sent from Brussels to the bloc.

The European Commission wants to create an alternative to the benchmark set up by the Netherlands-based Title Transfer Facility and run by the US Intercontinental Exchange. For European gas buyers, transactions at this virtual hub will form the basis of the region’s benchmark, which has been volatile this year.

The decline in Russian supplies has exacerbated inflation and may bring the Eurozone economy into recession. The war in Ukraine and summer temperatures in Europe pushed TTF prices to €349 per megawatt at the end of August, although prices have fallen to around €100 MWh in recent days.

But the Commission said that the TTF does not accurately reflect supply and demand in international gas markets. In proposals published last month, it suggested a “more representative” option of sending more LNG to the bloc to replace the 155 billion cubic meters it previously received from Russia via pipelines.

Unlike TTF, which is based entirely on actual transactions, the price is assessed by an administrator. “The new measure will provide a stable and predictable price for LNG,” the commission said last week. It works by collecting real-time data on all LNG transactions.

But Acer, which was tasked with creating the new benchmark, admits it is difficult because many LNG deals are negotiated and privately negotiated. This means that data from LNG contracts is difficult to track and measure as pipeline gas prices are higher than spot market prices, the regulator said.

“We look at all kinds of options to come up with methods,” says Iztok Zlatar, head of market data analysis at Acer. He added that the creation of the new benchmark was beyond the scope of Acer’s standard fees and was “operationally demanding”.

“It’s a huge undertaking. [and] We have not yet been given any additional input for this task. It is a very difficult job,” he added.

He also said that Acer “cannot know” whether the new standard will be accepted by the market. “It depends on the LNG market as it grows in Europe.”

Traders and analysts say the TTF reflects the reality of buying and selling gas on the open market.

“The physical LNG market is extremely volatile. You’re lucky if you have a handful of trades in a week,” said Neil Fleming, head of global pricing and analytics at data firm Argus.

“On the contrary, there are thousands of trades per day in the TTF. There is nothing structural to suggest that a new LNG benchmark is cheaper or better than gas prices,” he added.

Even then, industry standards and the futures contracts based on them often take years to absorb the depth and reliability that makes them important to the market.

Acer said the proposal won’t come into effect until November 24, after approval from the EU’s 27 member states. Until March 31st.

However, the energy industry is concerned that the new rate hike will do little to address the underlying issues of supply and demand that have forced an already tight liquidity crunch and record inflation.

TTF and spot LNG prices have diverged this year as capacity to handle and process the chilled liquid fluctuates.

“In such a thinly traded market, you don’t want to further split the equation by creating a new benchmark,” said James Waddell, head of European gas and global LNG at Energy View. “It’s not really clear what purpose that would serve.”

Adding to the complexity, there is no single LNG price. ICE said last week that it would open two new LNG contracts to protect consumers from price differences in north-west and south-west Europe. The two regions have different infrastructure to handle LNG, with the North rising by $1.73 on Thursday to $18.562 per million British thermal units.

Ben Wetherell, director of energy market development at research firm ICIS, said: “It is commendable that there will be further LNG benchmark development, but whether it is actually the solution remains to be seen.”


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