The 2014 Wrap Up: Increased Clearing, Gas and UK Power Volume Growth, and Continued Exchange Competitiveness
There were three main themes evident in the Euro Commodity markets during 2014:
1. Increased clearing;
2. Gas and UK Power volume growth; and
3. Continued exchange competitiveness.
1. Increased Clearing
A major trend through 2014 was the increase of clearing across almost all Euro Commodity markets.
Coal, UK and Euro Gas and Euro Power all showed significant increases in cleared market share during 2014, amid mixed volume growth. Emissions cleared market share was stable while UK Power shifted to 99% broker bilateral trading.
There were several drivers for the increases in cleared market share: (i) a full year of the increased cleared market share for Coal that resulted from the implementation of Dodd-Frank during 2013, with Dec-13 cleared market share of almost 95%; (ii) impact of the EMIR regulation; (iii) increased price volatility in the Euro Gas markets as a result of political instability in Ukraine increasing liquidity and drawing new participants into the market; and (iv) growth in exchange executions in the largest Euro Power market, German Power, with both Nasdaq and EEX achieving growth in volume, while total market volume declined. The cleared market in German Power also shifted towards exchange executions, gaining 5% to 17% of the market, while broker clearing grew 1% to 10% of the market.
2. Gas and UK Power Volume Growth
The UK and Euro Gas markets saw significant volume increases over 2014. Traded volumes in NBP rose to just under 18,883 TWh for the year, up 25% vs 2013, while volumes in Euro Gas increased 51%, to 17,005 TWh for the year. TTF was the main contributor to Euro Gas growth, with volumes up 61% 2014 vs 2013. TTF also grew to 71% of the size of NBP, up from 55% in 2013. TTF set several new monthly records during 2014, with the most recent in July 2014, traditionally a low volume summer month. Is TTF becoming the European gas benchmark? There were several contributing factors to this volume growth but one of note was the political uncertainty that surrounded the gas markets due to events in Ukraine, with price volatility driving high volumes throughout the early months of the year.
UK Power also recorded a 27% increase in volumes in 2014 vs. 2013 (and a 16% increase on 2012). Ofgem introduced a market making initiative in April 2014 which resulted in the largest monthly volume in UK Power since March 2011. Volumes throughout the rest of the year continued sustained increases over 2013, and finished the year at 1,010 TWh traded, just under the 2011 record of 1,054 TWh since we began reporting.
3. Continued Exchange Competitiveness
A major theme through 2014 was the continued competition between several exchanges active in our markets: CME, ICE, Nasdaq OMX, PEGAS and EEX.
EEX expanded their power derivative offering into further regional markets. Their success in Italian Power trade registration saw them launch an exchange traded product, and a complementary Oil trade registration product, during 2014. Additionally, they launched trade registration in Spanish and Greek Power, and re-launched their API2 and API4 coal offering. PEGAS, the Powernext-EEX gas co-operation, also expanded into the ZTP spot and derivatives market during the year.
Nasdaq OMX continued their growth into the German Power market, supported by their German Power initiative which includes broker, liquidity provider and market making programs. Nasdaq OMX achieved a record 11.9 TWh traded in October 2014 and ended the year at 65.2 TWh, up 59% vs. FY 2013. ICE Endex has also attempted to enter this market, launching German power futures trading in June 2014, with no volume traded to date.
The battle between CME and ICE in coal continued throughout 2014, with CME gaining share to record FY 2014 share of 76% of the API2 and API4 cleared market, up from 60% in 2013. ICE responded to this by adding new Coal liquidity programs, one focused on screen trades, and one focused on options. However, this was with limited success as the market remained OTC traded and CME ended the year at 72% of the total cleared API2 and API4 market in December.
In 2015, we expect to see further expansion of the Euro Commodities product set across the exchanges, starting with CME's launch of Euro Gas this month. No doubt as the cleared market continues to grow, we will see further competition amongst the trading venues.