The price dynamics of gas it seems more and more out of control. The alarm raised by Arera, the authority that would be responsible for regulating the market, has created further concern in citizens and businesses. I use the conditional because in 27 years of existence the Italian structure, in charge of the analysis and definition of the rules of the energy market, has played more the role of notary than that of regulator. It certifies the price trend and the repercussions on bills of citizens and businesses but little or nothing does to prevent some sprains have devastating negative effects on the costs of the system. Specifically, also in the last “report on monitoring of procurement contracts intended for the import of gas into Italy “, transmitted to Parliament on 12 June last, had limited itself to reiterating the choice of building the price system” equal to the arithmetic mean of forward quotes OTC quarterly reports relating to the t-th quarter of gas, at the hub Ttf and recognized in the second calendar month prior to the same quarter “.
Translated from hyper-technicalism: 95% of the real price is linked to the trend of the prices of forward contracts (i.e. bets on the future) on an unregulated market (over the counter) at the now infamous Ttf hub created for Amsterdam. In the report to the Parliament Arera legitimized his choice stating “the choice of referring to quotations recorded at the Ttf hub and not in the national forward markets derives from the consideration of the different levels of liquidity, as the risks of handling market prices increase significantly in the presence of a low level of liquidity. This consideration has led the Authority not to use until now the reference to PSV products (virtual trading point), maintaining the reference to indexing to the Ttf which is still today the most popular trading platform. liquid in Europe ”while“ the centralized national forward market, organized by GME, is still little liquid and competitive with respect to the TTF, in particular with reference to the forward products used to determine the protection prices “.
At the top of our Authority they must not have clear ideas, however, because less than two months later, with the resolution of 29 July last, they completely overturned the judgment: “As part of the consultation, users indicated the reference to the PSV Day Ahead price as an index more representative the spot price of the Italian market as it is characterized by more significant levels of liquidity than the other indices proposed at that time and suitable for limiting the costs of risk hedging activities; therefore the Authority with resolution 189/2022 / R / gas adopted the PSV Day Ahead price as the price reference for the aforementioned contracts ”. In short, from next October 1st, and only for private consumers, Arera will use the national PSV platform managed by GME instead of the Ttf hub in Amsterdam. A change that could have positive effects for citizens in consideration of a situation that is clearly increasingly out of control on the Amsterdam platform.
To better understand what this is about, a brief historical reconstruction is essential. Created by Gasunie Transport Services BV, as an alternative to the National Balancing Point British, the Title Transfer Facility has become a global standard even in the face of the simultaneous decline in trade on its main American counterpart, the Henry Hub in Chicago. Formally, the Ttf in Amsterdam is regulated by ICE Endex. There are no limits to the maximum price. So there would be no possibility of suspending negotiations for excess rise. The monthly position limit is set at 25% of the volumes that can be delivered equal to almost 55 million Mwh out of a total available of approx 219 million. Limits in line with the standards of the trading system raw material which are quite large to allow ample room for maneuver for operators’ risk hedging strategies. Esma, the European regulator, has only coordination and harmonization functions. In summary, the limits are established by Ice (a private financial exchange that lives off the commissions on the contracts traded on its platform) and the authorities, with Esma, limit themselves to assessing the compatibility with the MiFiDthe European regulation on financial markets.
A huge house of cards for one very opaque market: according to the same operating rules, information on contracts, actors and positions is confidential and not public. We must, therefore, rely on the hyper-technical information and the conjectures of some operators and analysts who fully confirm that the Ttf is a legalized gambling den where very few operators (215 in the list available on the ICE website) determine the fate of millions of businesses and hundreds of millions of European citizens. By admission of all observers the Amsterdam market is highly volatilei.e. extremely sensitive to price fluctuations, e sparsely liquid. Suffice it to consider that overall the forward contracts that are traded can be worth approximately 250 million megawatt hours per month, that is the average value of real consumption of the entire EU while normally a forward hedging system is a few multiples of the underlying (for example oil).
The first speculative jump in prices occurred after the end of pandemic precisely due to the bearish positions of large traders (It transfiguresGunvor and Glencore first of all): when the recovery took place, prices moved upwards and, therefore, were forced to close operations by repurchasing contracts on the gas. This has fueled demand for securities future which had been short sold earlier, causing the price to rise further. The episode provoked heavy protests from various categories of operators, from network operators to some big players such as Shellwithout the European Commission or other authorities having intervened or investigated in any way dynamics which have produced the distortion of prices. On the other hand in this phase characterized by an economy of warin the market there are those who, without a doubt, are gaining (very much) from the enormous volatility of the Ttf: in addition to the usual suspects (trader energy and large companies with Eni or Bp) even countries like the Norway given that in these days ICIS, the most important information and analysis site on raw materials, highlighted that the Nordic country has become the first supplier in Europe with 25% of the market followed by US liquefied gas and only in third place by that of Russian origin.