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Market Dynamics Report

August 2019: Monthly contracts traded down 19% vs. strong July, 2019 low for Euro Gas, TTF price up again.

Monthly contracts traded in August fell 19% vs. July, to 7.502 million contracts, the lowest figure since the start of 2019. While an unusually active July for contracts traded no doubt skews the perceptions on growth this month, it is interesting to note that August 2018 rose 16% vs. July 2018. All commodity groups correspondingly recorded MoM falls of over 10%, with Euro Gas leading the way with a 21% decline, followed by UK Gas and Coal, both with 19% falls against July. With the recent volatility in the gas market still causing uncertainty, TTF prices rose for a second successive month, while the benchmark Emissions contract, EUA-19 fell from its July record price.

Gas

Euro Gas dynamics continue to be intriguing into August with the largest commodity grouping in terms of volume falling a considerable 21% against July. This was driven by a 22% decline in TTF volumes, which fell below 3,000 TWh for the first time this year. Five out of the eight Euro Gas commodities saw MoM falls, NCG down 21%, Austria VTP down 21% and PSV down 29%, while Gaspool was only up 1% and France Hubs was flat. However, looking at a longer period of time, the Euro Gas grouping remains strong with six out of seven (ex PVB – not included as we only have two months' worth of data) displaying double digit YoY and YTD growth rates, headlined by TTF, 53% YTD and 35% YoY growth, and Gaspool, 33% YTD and 61% YoY growth.

On the other hand, NBP volumes continue to fluctuate, falling 19% MoM following a 9% increase June to July. YoY volumes for NBP have also declined, down 27%, and August 2019 now represents just 55% of the volume traded this time two years ago. NBP market composition also saw interesting movements this month, with broker market share rising 6% to 44% of all NBP trades in August. The Euro Gas grouping also saw a slight market share shift towards the brokers, with broker bilateral execution gaining 2% market share. Bucking the trend in Euro Gas, Austria VTP saw its second highest (since records began in Jan-11) exchange executed market share of 22%, up 3% vs. July.

TTF front month prices rose for a second successive month, up 16% to €12.80/MWh while NBP also saw positive growth, up 11% to £33.03/MWh. However, elsewhere amongst the Euro Gas grouping with the exception of ZEE and PVB, front month prices generally saw falls and a look at these commodities' YoY growth rates gives a good insight into the market dynamics at play in the global gas landscape. Is the rise of efficient LNG ports and readily accessible shipping information causing European gas prices to converge towards the prices of their American substitutes?

Power

The European power market saw similar movements to the gas market in August though declines against July were to a lesser extent. The Euro Power grouping fell 11% MoM with the influential German Power also falling 11% to 474 TWh. UK Power declined 15% while Nordic Power had a strong month, rising 26% to 88 TWh to become the second highest Power commodity traded by volume in August. Along with higher trading volumes, August was also a good month for brokers trading Nordic Power, where broker cleared execution market share shifted 4% from exchange executed. This was largely against the trend however, as the Euro Power grouping as a whole saw exchange executed gain 3% of market share.

It is also interesting to note that despite Spanish Power following the August trend finishing down 6%, the commodity displays YTD and YoY growth rates unmatched in Europe, 17% and 42% respectively. Is the large capacity of Spanish regasification plants and the growing demand for natural gas for power generation affecting trading volumes in Spanish Power?

Movement of front month price in the power market displayed a mixed bag of results with German Power falling 2% to €38.63/MWh while UK Power rose 1% to £42.27/MWh.

Coal

Coal volumes were down 19% MoM to 109 million metric tonnes (mmT) driven by a 20% fall in API2 volumes. Likewise, API4 fell 15% and gC Newcastle fell 11%. It is not only the MoM figures showing declines in the coal market, YoY and YTD growth rates for all three coal contracts were negative in August representing the fundamental shift underway in the energy market. API2 front month prices fell 5% to $55.00/tonne following last month's rise and gC Newcastle fell 5% to $65.75/tonne. ICE also grew its cleared market share in coal by 4% to hold 72% while CME had the remaining 28%.

Emissions

Occasionally, the Emissions market has the capability to move in the opposite direction to the general European energy market trend for that month. However in August, it followed gas, power and coal and experienced falls, with EUAs down 17% and CERs down 99%. Following July's record high EUA price (since Jan-11), August prices fell 6% to €26.32. EUA exchange executed market share also rose 7%, to hold 79% of the market.

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