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ACER: CEE still has weak or no hub dynamics with Hungary as an exception

Economic lockdowns associated with the crisis have resulted in severe reductions in energy consumption throughout the European Union. In the case of gas, EU demand fell by 8 per cent year-on-year up to May 2020.

According to ACER’s Annual Report on the Internal Electricity and Natural Gas Markets in 2019, The Gas Wholesale Markets Volume, last year the supply of gas to EU markets underwent a substantial shift, impacting prices, hub liquidity and other key metrics, some of which moved into levels not seen before: LNG imports rose 90 per cent year-on-year, EU hub prices dropped to ten-year lows, record volumes of gas were injected into underground storage sites and the volume of natural gas traded at hubs was at an all-time high.

Sales by the main gas supplier to the EU, Russia’s Gazprom, were rather steady at 185 billion cubic metres (bcm). Gas exports from the EU into Ukraine rose to 14.3 bcm ( over 35 per cent year-on-year), backed by lower hub prices and the increased interest of EU shippers in using Ukraine’s ample undergoing gas storage (UGS) facilities. By the end of the year, Ukraine and Russia signed a five-year agreement setting the minimum volumes to be transported across the Ukrainian transit network.

“Most EU gas demand is consumed at wholesale markets that are generally functioning well, but significant differences persist among Member States,” reads the report. “Those located in the CEE and SSE regions, still have weak or no hub dynamics. In these markets, a trading venue with a transparent price mechanism is either absent or not visible during many trading days of the year. This year notable positive developments were observed in Hungary, resulting in its hub no longer being classified as illiquid, now it is mentioned as an emerging hub.”

As a result of infrastructure and system operation developments, the first string of the EUGAL pipeline opened a new supply route to the Czech Republic at the end of 2019. The new corridor will likely decrease Russian gas transits across the Ukrainian-Slovakian route. Furthermore, the new ROHU interconnector has enabled Romania to receive additional reverse flows from Hungary. Also, Bulgaria acquired some small deliveries of LNG from the Greek Revithoussa terminal.

Developments in the Balkan area are also significant, with the enabling of reverse flows from Croatia into Slovenia and Hungary, plans to interconnect Hungary and Italy across Slovenia and the linking of Bulgaria to Hungary through Serbia.

The ACER Gas Target Model (AGTM) – which makes recommendations on developing competition at, liquidity of and price integration between gas hubs – highlights that the Hungarian virtual trading point (MGP) is progressing from the illiquid to the emerging hubs category. The reclassification is based on a notable increase in liquidity and competition of MGP’s spot market, which has benefited, amongst other factors, from increased transits on the Hungarian gas network.

On the other hand, the illiquid category includes both hubs where some trading of standard gas products on organised market venues took place in 2019 (including hubs in the Baltics, Slovakia, Ireland, Romania) and hubs where no standard gas products trades were reported for the year (like those in Portugal, Greece, Slovenia, Croatia, Bulgaria).

Simultaneously, the future of the EU gas sector is being discussed by policymakers, with the aim of identifying the best ways it can contribute to Europe’s decarbonisation targets as well as underwrite a more efficient integration with the other energy sectors. Today, carbon neutral gasses account for a minor share of EU gas consumption (around 4 per cent, mainly biogas which is not injected into the gas grid) while the objective is to fully decarbonise the gas sector by 2050. Up to 10 billion euros – involving co-financing – is expected to be mobilised over the next ten years to scale-up and reduce risks of projects related to renewable gasses, including hydrogen.

In accordance with the Green Deal strategy, decarbonisation efforts must go hand in hand with ensuring a well-functioning, fully integrated and competitive gas market. It is essential that clean transition does not lead to national market fragmentations, which may then need many years to align back.

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