DATAMONITOR VIEW 1
CATALYST 1
SUMMARY 1
Sources 1
ANALYSIS 2
Wholesale gas hub development will lead to further competition, enhanced security of supply and greater market efficiency 2
The EU continues to strive for greater competition by promoting a single, integrated wholesale gas market 2
The market's traditional pricing mechanisms present obstacles to competition 2
The development of wholesale hubs and more gas-on-gas pricing will lead to greater security of supply 2
Adequate levels of liquidity on wholesale hubs are integral for the development of a competitive European gas market 3
The development of wholesale markets tends to follow a preset pattern of distinct stages 4
The wholesale market development cycle gradually builds up enough momentum to spawn the creation of wholesale support services 5
Once sufficient structural factors are in place, the necessary support services required for wholesale market development begin to emerge 6
The market based factors supporting hub development are crucial elements in facilitating and developing traded markets 7
Wholesale gas markets are required by different players throughout the value chain for different reasons 8
Currently Europe's wholesale gas markets cover the full range of developmental stages 8
Datamonitor segments wholesale maturity and liquidity into four distinct categories 8
Europe's current wholesale gas markets cover the full spectrum of segmentations 10
Analysis of levels of churn provide an insight into levels of liquidity and wholesale market development 10
Current levels of churn in individual wholesale markets vary significantly 11
The NBP's maturity, deep liquidity and strong volume growth has led to the hub's position as Europe's leading gas market 12
Historically, the Zeebrugge has been Europe's second most liquid hub 13
The TTF has experienced remarkable liquidity growth and continues to challenge the Zeebrugge in traded volumes 13
Although having the potential to emerge as a key wholesale trading hub the CEGH is limited by its single source of gas supply 14
Europe's emerging wholesale gas hubs continue to expand in both traded volumes and liquidity 15
Europe's nascent markets are seeing renewed impetus towards development 15
Price efficiency levels in the European wholesale markets show varying ranges of volatility 16
Datamonitor's Deviation Days Index measures price movement ranges and gives insight into levels of price efficiency 16
Levels of volatility in the established markets have been decreasing markedly 17
The polarization of the markets will reduce in the wake of market opening 19
Datamonitor forecasts future levels of wholesale liquidity by examining a range of structural factors on a weighted average basis 19
The structural factors used to predict wholesale market development produce a sliding scale of scores 20
Wholesale market development potential varies widely across the EU 27 gas markets 21
The markets categorized in the limited progress grouping lack the necessary structural factors required to catalyze wholesale activity 21
Despite showing some degree of progress, markets in the discernable progress segment will remain undeveloped 22
In addition to the three established markets, there are six countries in the substantial progress segment 22
The NBP is likely to maintain its sustainable advantage over the long term due to UK's competitive spiral 23
APPENDIX 25
Summary of Scores 25
Natural Gas-Based Infrastructure - Project Pipeline (some examples) 26
Scoring methodology for Structural Factors used to rate markets 27
The "Impetus" metric examines the progress already made, and being made, towards the establishment of a wholesale market 27
The "Gas Penetration" metric examines the degree to which gas has made an impact to the energy mix of a specific country 28
The "Future Role of Gas Fired Power" metric has been used because gas fired power generators are often significant wholesale gas market users 28
The "Demand Growth" metric is used because demand growth can, in itself, be a key catalyst to wholesale activity 29
The "Wholesale Market Fragmentation" metric gives an indication of the potential impact on liquidity of upstream supplies and gas imports 29
The "Retail Market Fragmentation" metric provides insight on the impact on wholesale development of retail market players needing to source gas 30
The 'interconnectivity' metric is used to highlight current and future opportunities for wholesale liquidity to be driven by cross-border trading 31
Glossary 32
Ask the analyst 32
Datamonitor consulting 32
Disclaimer 33
List of Figures
Figure 1: Liquidity in natural gas markets, as defined by the International Energy Agency (IEA), incorporates four distinct market characteristics: 3
Figure 2: The five distinct stages of wholesale market progression 4
Figure 3: Wholesale support services emerge as the cycle builds momentum 5
Figure 4: The interaction between structural and support factors creates a 'snowball' effect 6
Figure 5: The key support elements to wholesale market growth 7
Figure 6: Different players engage in wholesale trading for different reasons 8
Figure 7: Market Development in Europe 10
Figure 8: Europe's newer, less developed markets lag far behind the established markets in terms of churn ratios 11
Figure 9: The NBP remains Europe's most liquid traded wholesale market 12
Figure 10: Both the TTF and Zeebrugge have high levels of liquidity and churn rates 14
Figure 11: On balance, price volatility on the TTF and Zeebrugge has remained significantly lower than at the NBP 17
Figure 12: Structural factors used by Datamonitor to determine wholesale liquidity 19
Figure 13: Wholesale market development potential scale 20
Figure 14: Development Scores 21
Figure 15: The NBP's competitive spiral 24
Figure 16: Detailed breakdown of scores 25
Figure 17: Gas -fired power generation and gas storage facilities 26
Figure 18: Scoring scale 27
Figure 19: Scoring scale 28
Figure 20: Scoring scale 28
Figure 21: Scoring scale 29
Figure 22: Scoring scale 29
Figure 23: Scoring scale 30
Figure 24: Scoring scale 31
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