The integration of Germany's NCG and Gaspool into "Trading Hub Europe" is expected to lift overall liquidity, although this will depend on whether traders "accept" the new hub, NCG managing director Torsten Frank has said.
The joint market area, which is scheduled to be launched on 1 October 2021, should increase trading opportunities and lift overall German liquidity, Frank told Argus on the sidelines of the E-World conference in Essen.
Most market participants expect it to be easier to trade in an integrated German hub, Frank said. That said, some trading opportunity will be lost as it will no longer be possible to profit from spreads between the existing NCG and Gaspool, he said.
Trading Hub Europe should attract higher liquidity, given its central location in Europe and its position as a key entry point for Russian and Norwegian pipeline gas, as well as its proximity to markets with direct access to LNG, Frank said. There are also government-backed plans to develop an LNG terminal in Germany in 2022 or 2023, with proposals for an import facility in each of Wilhelmshaven, Brunsbuttel and Stade.
Trading Hub Europe could also act as a "satellite hub" for nearby central and eastern European markets, depending on how "accepted" the integrated German market area is by traders, Frank said.
Germany is a physical delivery point for a number of central and eastern European markets, unlike the Netherlands, which could increase its attractiveness, Frank said.
Gasunie, which operates the Netherlands' GTS grid and the German Gasunie Deutschland network, said last year that it would consider further integration between the TTF and other northwest European markets, especially with Germany. "The centre of gravity of the European gas market is gradually shifting towards Germany," Gasunie had said.
Yet combined traded volumes in the NCG and Gaspool have still stayed well behind the TTF as well as the UK's NBP in recent months. TTF liquidity has risen over the past year even as production from the Groningen field as well as the Dutch small fields has slid further. Long-term hedging strategies are typically based on TTF contracts even if physical delivery is not in the Netherlands.
The integrated German market area is still expected to be introduced from 1 October 2021, with no indications yet that there may be a delay, Frank said. But it remains possible that the merger will be postponed, for example if there are difficulties integrating IT systems, he said.
There would be no legal barrier to delaying the merger, with a compulsory deadline of 1 April 2022 set by the German government.
But the German system operators will aim to implement the merger at the start of the 2021-22 gas year as planned, Frank said. This date was the "most convenient solution for market participants from an operational perspective", the German system operators had said.
