Europe's volatile gas market attracts new players

By Rhod Mackenzie

The refusal of Russian gas by many European nations last year, coupled with the resulting energy crisis, compelled Europeans to seek out "blue fuel" from around the globe, despite its high transport costs or price. The augmented demand for gas not only rendered the European gas market appealing to traders from every corner of the world but also brought about volatility of prices.

Gas prices first surged, then declined swiftly, after 24th February 2022, but volatility has persisted. In recent months, numerous new entrants have joined the European gas
market. "The growing number of players in the European (gas) market is causing increased market volatility," explains James Waddell, head of European gas and global LNG at Energy Aspects. "This was especially noticeable last summer."

The European gas market hosts traders and players from all parts of the world. For instance, Banco BTG Pactual SA, the largest investment bank in Brazil, has a foothold and couldn't resist the chance to profit from the price changes and substantial trading amounts. The distinction in price between the Dutch TTF hub and the Asian spot market for LNG lured Brazilian bankers. "Fluctuations may generate lucrative prospects," affirms Bank of America Corp's commodities strategian, Francisco Blanch.  Price volatility in the market is a major draw for investors.

BTG is in the process of divesting gas contracts that it obtained earlier to power three stations and stave off any potential blackouts. These agreements were entered into in October 2021, anticipating the event of a drought causing depletion of water resources at hydroelectric plants and consequent power cuts across the country. Once the threat had subsided and water levels in the reservoirs had reached the necessary level, running the gas plants around the clock was no longer necessary, and the government terminated the contract with the bank, resulting in the bank being left with the blue fuel. This made selling gas in Europe an enticing prospect.

Of course, BTG is merely one of numerous recent players in the European gas market. Recently, over 1.4 million gas futures contracts were traded, breaking yet another record. This represents a 30% surge compared to September 2022, as stated by Intercontinental Exchange Inc.

ICE abstains from breaking down trading volumes by region. The growth implies an expansion and flow of business between the most prominent trading centres in Europe and the US.

Futures and options contracts have also seen a substantial improvement. Presently, they are 50% higher than last year as per ICE data. However, the trading volumes in Asian LNG-linked contracts witness a slower growth rate, down by 7% year on year.