Changes to the market are nothing new. In fact, it is a central feature of the market. What’s changed, however, is the speed at whichfundamental changes in market behaviourwill take effect.
Caroline Aumeran, Head of appygas, participated in a webinar from Route4Gas on 28 January to discuss the main factors surrounding gastransmissionwithin today’s gas market today, and how they will change.Read on to find out what you need to know about how market developments impact capacity booking and optimisation.
Shifts in booking behaviour
Sixty percent of long-term contracts are set to expire by 2028, ACER reports. This number may come as a surprise; however, large contracted volumes have been expiring rapidly since 2019.
This fact accompanies the notion that natural gas is increasingly commoditised and following hub-indexation, rather than long-term oil-indexation contracts. Additional to supplying and delivering, optimising and trading between the different hubs has been soaring.Gas gets shifted wherever the market gives the highest value for it. The speed of these shifts, as well as other catalysts such as politics and economics, challenge the predictable and set patterns of physical demand-driven strategies.
Evolution of capacity booked by capacity type – 2016–2045 – TWh/da
As the market turns to a more diversified (and thereby volatile) supply mix, of which LNG has emerged as a real challenger, the decrease of long-term contracts spells short-term rallies for market players. This poses new challenges for Transmission System Operators, or the infrastructure operators in general, to provide flexibility while safeguarding security of supply.
What to expect with the rise of short-term contracts
PRISMA can already offer some insight into what conditions will become the norm as long-term contracts subside. An analysis of PRISMA data from Gas Year 2019-2020 returned the following trends:
The volume of available capacity is increasing. While shippers still tend to favour longer-term products (quarterly and yearly make up for vast majority of bookings – between 63% [unbundled] and 86% [bundled]), even shorter-term products are opening up and offer interesting opportunities to seize market volatility.
50% of capacities are still unbundled, largely due to long-term contracts accommodating unbundled capacities. Once the long-term contracts expire, something that is expected to happen by 2035, bundled capacity products will dominate the market. This shift reduces complexity in optimisation and gives way to a more liquid capacity market.
Today’s secondary market is still largely unused; in fact, only 10% of capacities were further traded on PRISMA last year. According to Route4Gas, the annual spend on capacity booking is currently 5 billion €. And while the system is built on a use-it-or-lose-it principle, it is estimated that 1 billion € could be earned back with proper tools for secondary trading.
Adjusting to the digital
Channelling the potential for more liquidity and agility on the market anticipates two main requirements. It requires not only harmonised products but also streamlined channels and processes. This is where platforms such as PRISMA come into play. As a standardised system for trading and booking, PRISMA presents a gold standard for market players seeking consistent and reliable data across all points and market areas.
In turn, these large-scale market changes increase the demand for real-time data. This is where digitalisation comes in, as a means of centralising and unifying data from various sources a market in order to generate quick market insights and spot short-term opportunities.
These circumstances provide ideal conditions for new businesses to emerge. Route4Gas and appygas are just two examples of digital ventures that use digitalisation to their benefit. Route4Gas, on the one hand, provides an algorithm to simplify secondary trading, whereas appygas offers products that help experts track and monitor market data. Both businesses demonstrate the creativity of market experts to adapt to increasing unpredictability and volatility on the market.
Caroline Aumeran is Head of appygas, a data-focused innovation venture that seeks to make the gas market easy. Our team of gas experts offers end-to-end digital solutions that take the guesswork out of monitoring changes. Book a demo with us today.
This article is an adaptation of the webinar “Monetising Physical Flows”, organised by Route4Gas. To access the webinar, click here.