Record-high prices hit Europe two weeks ago, reaching 140 euros per megawatt-hour (MWh). In such a turbulent environment, exchanges play an important role, becoming safeguards for market players.
CEENERGYNEWS spoke with Daniel Garai, CEO of the Central Eastern European Gas Exchange (CEEGEX) about the key factors driving market integration, the effects of new gas routes on the trade side as well as a new initiative aimed at creating more efficient trading between Hungary and its neighbouring countries.
“Exchanges play an important role in these volatile situations,” he begins. “Trading on exchanges has three main benefits: first of all, trading is anonymous which is crucial for competitive trading. Secondly, the exchange provides price indications to the market, regulators and investors. Finally, the clearing as the credit risk management solution provided by the exchange helps traders in safeguarding their deals in unpredictable times.”
In particular, he underlines how the latter one is getting more important in such high price environment as gas will be delivered and money will be paid in deals concluded on CEEGEX and as well as the Hungarian Derivative Energy Exchange (HUDEX).
However, challenges remain and Mr Garai mentions flexibility, security and predictability of energy systems.
“The gas sector can offer additional flexibility to the power sector through the sector coupling incentives (Power-to-Gas and other innovations) and it can contribute to its safety,” he points out.
In this regard, it is a question for gas hubs, such as CEEGEX, how the need for flexibility will affect trading attitude. It will also be interesting to see power storageing solutions in the electricity business as storage adds some further complexity to it.
Regarding the challenges of the energy industry due to the Fit for 55 package, he is optimistic.
“But I have to admit it is partly based on my strong belief in new technologies and the assumption that currently, unknown solutions will be at our disposal,” he adds. “Such an ambitious package can itself accelerate innovations.”
Another key factor that might have benefits for traders are the new gas and supply routes. Thanks to the Southern Gas Corridor, the Trans Adriatic Pipeline (TAP), TurkStream and the LNG terminal in Krk, gas flows have changed in the region. However, for Mr Garai, we are only at the beginning.
“Some flows have already changed, especially for countries like Croatia, Hungary and Serbia,” he continues. “We at CEEGEX believe that Hungary could play a key role in developing gas markets and we would like to make the country the gas centre of this region thanks to the synchronised work of regulators, TSOs and exchanges.”
He reminds us that an already visible sign of changing gas directions is that a few years back the Austrian virtual trading point (VTP) used to be lower than the Hungarian prices and now the Hungarian one is among the cheapest in the region.
“This is a significant change that was not imaginable before,” he says. “This development created a new business case: end customers in Hungary and our region can be supplied at a CEEGEX indexed basis rather than indexed to exchanges with higher price levels. More and more customers realise this potential.”
Earlier in July, a Memorandum of Understanding (MoU) about trans-regional cooperation on the development of an integrated South-Eastern and Eastern European gas (SEEGAS) market was signed by the Energy Community Secretariat, energy exchanges and trading service providers BRM, UEEX, TGE, CEEGEX and ECG and Transmission System Operators (TSOs) Moldovatransgaz, GTSOU, FGSZ and GAZ-SYSTEM. The signatories aim to cooperate on the development of cross-border natural gas trading, for example on exchange platforms and introduce transparent and competitive interregional market-based pricing mechanisms and efficient cross-border gas transmission and interoperability.
“CEEGEX strongly supports all the regional initiatives and SEEGAS is one of the most ambitious and promising ones even though it is in an initial phase,” highlights Mr Garai. “Preliminary negotiations were held about potential market designs. The early results are already there in the shape of new connections to TSOs and other partners, also in the form of knowledge sharing. We don’t see yet what the long-term result of the SEEGAS project may be, it is perhaps too early to visualise market coupling between those countries, but let us not exclude this option.”
CEEGEX is committed to supporting any regional market development ideas as it can bring in the experience that the Hungarian Power Exchange (HUPX) has in market couplings, which went on successfully through the entire continent in electricity.
“We have come up with our initiative too, a potential market design that would result in a more efficient trading between Hungary and the neighbouring countries (first proposed in relation with Croatia),” Mr Garai reveals. “In a nutshell: this would mean mutually shared order books between markets. This is the big thing in the power markets, but in gas, there is only one small (although exemplary) benchmark in the Baltics. I strongly believe that market coupling is the way forward for gas markets and we should carefully study both the power market know-how and the existing gas market example.”
Additionally, the gas exchange will need to work hand-in-hand with the regulator and support the authority with its expertise, while at the end of the day it is the regulator, who will initiate the project. Until then, we can help develop gas trading in our region and help to launch organised exchange trading platforms in other countries – this is a prerequisite of a market coupling, but even without coupling it contributes to more efficient gas markets.
HUDEX can also be part of the gas transformation of the region.
“We talked about Hungary’s role in reshaping regional gas markets and how synchronised steps can facilitate that,” concludes Daniel Garai. “I believe that similar steps would be necessary to boost derivative trading too. Looking at international benchmarks: at some point of the development of many successful exchanges there was additional support, which was needed for a well-operating market design.”