Competition in the Natural Gas Exchange Increases as the LNG Terminal Required Volume Realization Model Has Changed
Two months after the liberalization of LNG terminal required volume realization model positive changes in results are captured. From the beginning of this year Lithuanian regulated energy producers were released from the obligation to buy natural gas from designated supplier. Consequently, yearly volume of about 3 terawatt-hours (TWh) of natural gas becomes available on the competitive natural gas market. Previously regulated energy producers purchased this yearly volume only from designated supplier. It is expected that liquidity of gas market and exchange will increase as larger gas volumes emerged in the free wholesale gas market. More active trading on the exchange facilitates new suppliers’ entry to the market, increased competition between suppliers and contributes to the creation of value to the market and consumers.
„Regulated energy producers in Lithuania became a part of competitive natural gas market on an equal footing with other market participants. This is an important step towards European practice and a transparent and efficiently functioning wholesale gas market. We are pleased to capture the positive results of this change – the number of active participants and concluded transactions as well as competition is increasing, liquidity is maintained and growing. New model is creating new opportunities for all market participants and this will also have a positive impact to the end users”, – said Chief Executive Officer of GET Baltic Giedrė Kurmė.
To encourage competition of the natural gas market and increase liquidity of the natural gas exchange, all huge regulated energy producers since 1st of January have been obliged to buy at least half of their annual demand on the Baltic Gas Exchange. Currently there are eight regulated energy produces who consumes more than 90 percent of total regulated energy producers consumption.
Two months after the liberalization of LNG terminal required volume realization model positive changes in results are captured. The number of active exchange participants increased. Compared to December 2018 when 16 participants actively participated in trading, in January 2019 number of active participants amounted to 26, 16 of which were acting as sellers.
Traded volumes within the two months of this year exceeded the total volume traded last year. In January 2019 concluding record number of transactions (1313), monthly traded volumes reached new heights since the beginning of GET Baltic operation (0,7 TWh). Traded volumes in January -February 2019 (1,12 TWh) exceeded the volume traded last year (1,08 TWh).
The first monthly transaction concluded for delivery in January broke the ice in a long-term products market. For delivery in February 10 monthly transactions were concluded.
Increase in number of active participants and submitted orders have had a positive impact on the liquidity and price convergence between the Baltics and Western European gas hubs. The value of bid-ask spread, indicating market liquidity, has fallen twice (from 0.75 EUR/MWh in 2018 to 0.36 EUR/MWh in January-February 2019). The price difference between the Baltics and Western Europe gas hubs has fallen more than three times (the difference between BGSI Lithuania and GASPOOL front month in December – 0.86 EUR/MWh, in February – 0.24 EUR/MWh).
The successful start of the year has not only encouraged competition in the natural gas market and boosted trade volumes, but also attracted attention of new market players. It is expected that the number of natural gas exchange participants will grow in the nearest future and new domestic and international players will join the Baltic Gas Exchange.
About GET Baltic
Conducting its operations since 2012, GET Baltic is a licensed natural gas market operator with a status of Registered Reporting Mechanism provided by the ACER. The Company administrates the electronic trading system for trading spot and forward natural gas products with physical delivery in the market areas located in Lithuania, Latvia, and Estonia. Moreover, GET Baltic regularly extends the functionality of its electronic trading system and develops other services provided by the Company. By providing high quality services, the Company is seeking to contribute to increase in liquidity, competitiveness, and transparency of the wholesale gas market of the Baltic States.