ACER CEER published its yearly Gas Wholesale Markets Monitoring Report

ACER and CEER published its yearly Gas Wholesale Markets Monitoring Report, which is available here.

• The report relates to 2021, but includes also developments in the first half of 2022.
• Since 2021, events & market fundamentals affecting EU gas prices can be divided into 3 main phases (tight LNG & recovery from covid; low storage levels; RU invasion of UA).
• Long-term supply contract’s prices show a considerable variation depending on the price formula (e.g. correlates with TTF FM with 1 month delay or it is a combination of hub and oil index).
• So far lower Russian supply was offset by higher LNG (especially from US).
• EU intends to end reliance on Russian gas until 2027. Apart from some long-term Russian contracts which were cancelled because of rouble dispute, the 2022 volumes of those which remained in place do not differ significantly from 2027 volumes.
• Capacity bookings at IPs reacted flexibly to shifting flows (rising LNG inflow, West-to-East flows), but there are still network bottlenecks and auction issues. From 2021Q4 the use of short term products increased strongly.
• The TTF curve provides a good snapshot of expectations. Markets will persist high until 2024, but there is some downside potential (due to supply diversification efforts).
• ACER recommends to:
  • preserve the hub trading model to attract more LNG
  • accelerate measures to security of supply
  • aim supply flexibility as much as possible
  • explore the use of EU energy purchase platform
  • interval price limits at gas hubs, centralised reporting on long term contracts
  • preserve current low barriers to cross border trade & capacities
  • speed up targeted LNG congestion investments
  • further demand saving strategies
  • ensure storage regulation is resilient against external supply shocks

• EC comment on the report:
  • The Commission agrees with ACER recommendations as it fits into the REPowerEU plan.
  • In the short-term diversification of supply, fuel switching and demand reduction should be applied.
  • The EU energy platform should be used – core role in helping member states in conversions and optimisations, main goal is to pull demand together, support common purchase initiatives. (In SE Europe already launched, Baltic and NW coming soon).
  • Macroeconomically it is better to have targeted demand measures now, than later a total supply shock.

• EFET comment on the report:
  • It is a good sign, that markets still work and support supply security.
  • We are facing a prolonged shortage of gas, but we need to recognise that there are also upsides of it: prices attract more LNG to Europe and encourage lower demand, but vulnerable consumers need to be protected.
  • The markets already anticipate where the prices will stand. This is a basis for what we need to do in the future e.g., long term arrangements, hydrogen investments. Market will find a balance of short- and long-term arrangements.
  • Storage filling is a tool, a coordinated response is important, but are the incentives for the filling really working? The processes should not be over administered.
  • In CEE and SEE region there is still much to do for markets to function properly.
  • Storage tariffs are not cost reflective, affordability is questionable.
  • Availability of capacities at borders is key, there is still room for improvement, timely access to capacities is crucial.

• Statements related to Hungary:
  • Hub-traded volumes also declined in the Central and Eastern markets of Austria, Poland, Czech Republic and Slovakia. In addition to the general reasons already mentioned, the hubs were specially affected by the uncertainty and the declining Russian flows transited across Ukraine and Yamal. The exception was Hungary. The rise in Hungarian hub liquidity in 2021 was driven by the enhanced interconnectivity of the market and the new supplies reaching across Turk Stream and also the Croatian Krk LNG terminal. However Hungarian liquidity has also been falling in Q4 2021 and across 2022, as the supply crisis intensified.
  • The flows of Russian gas across the Ukrainian corridors were significantly lower YoY in 2021, primarily as a result of the new lower threshold committed in the five-year transit agreement. The outcome of geopolitical tensions made flows across Ukrainian corridors to fall further, by 37% YoY in Q1 2022. Flows into Hungary and Romania were completely suspended from March and April 2022 respectively, while from May 2022 the transmission of Russian gas through the Ukrainian territories faced some discontinuity. The 38.6 bcm transited in 2021 was 13% lower than the volumes transited in 2020 and accounted for only 35% of the aggregated nominal capacity of the Ukrainian corridors. The gas volumes intended for Hungary and Romania were re-routed into the second line of Turk Stream, Balkan Stream.
  • Turk Stream’s second line – Balkan Stream – reached Serbia in early 2021 and connected Hungary in October 2021 (with 6 bcm/year of nominal capacity) with the by then final aim to reach Austria in 2022.
  • While the segment connecting Hungary from the Turkish-Bulgarian border was being built, Romania became a transit country to flow gas into Hungary. Since October 2021 Balkan Stream has reached Hungary via Serbia. Ukrainian imports from the EU dropped by six times down to 2.6 bcm, with the Slovakian route leading, followed by Hungary and Poland.
  • In the absence of gas transits from Ukraine into Hungary and Poland, Ukrainian importers face more restrictions to acquire gas. Both in Hungary and Poland firm capacity development is ongoing to guarantee more flows. At the end of the year, Ukrainian grid operator GTSOU said it had been working with its Hungarian counterpart FGSZ to offer firm gas cross-border capacity from Hungary to Ukraine.