December 2017: Recap on 2017, total volume down 8% vs. 2016, numerous events affecting gas markets in December.
Monthly volumes in December 2017 were down 20% to 6.280 million monthly contracts vs. November 2017. All commodity groupings contributed to the monthly decline following a similar trend to previous years. Coal had the largest decline, down 50% while UK Gas declined 27% and Euro Power 24%. Total market volumes FY 2017 were down 8% vs. 2016, to 82.5 million monthly contracts. Emissions saw the only volume increase vs. 2016, growing 7%; coal saw the largest percentage decline, down 52%; and Euro Power had the largest decline in actual contracts down 1.8 million against 2016 volumes.
Looking back on 2017, the energy markets have experienced notable shifts in both volumes and market structure. Comparing the market composition across the 12 months of 2017, there are obvious trends that stand out:
The German-Austrian Power Market witnessed a substantial shift in structure after the price zone split agreement. From April 2017, Exchanges offered separate German only (DE) and Austrian only (AT) contracts - the former growing significantly in the second half of 2017 to hold 7% of the market in December 2017. Exchange Executed market share (red and green in the below chart) has declined in 2017 from a peak of 26% in March 2017 to a low of 17% in November 2017. Broker Bilateral volumes remained robust and were the beneficiary of the market structure shift regularly holding more than 70% of monthly volumes, up from 60% in January 2017. The structure of Exchange Execution volume (DE only, AT only and DE/AT) will be interesting to watch in 2018 and whether the growth of DE only will be able to regain market share lost to Broker Bilateral in 2017.
Looking at longer-term trends in the German Power Market, the Cleared Market has been growing volumes since 2012.This trend reversed in 2017. Both Broker Cleared and Exchange Execution lost market share to Broker Bilateral off the back of declining volumes; Broker Cleared down 26% and Exchange Execution down 28% in FY 2017 vs. 2016 compared to 2% growth in Broker Bilateral volumes in the same period. Despite the decline in annual volumes, Exchange Execution still recorded its second highest year of volumes in 2017. Could the price zone split continue to have an effect on the market in 2018? Only time will tell.
The coal market was particularly interesting in 2017. Exchange Execution grew monthly market share throughout 2017, finishing at 40% in December compared to just in 20% in December 2016. ICE has been responsible for the shift as they grew direct executions volumes by 37% in FY 2017. ICE also won the cleared market in 2017, holding 66% of the market compared to 44% in 2016, with CME holding the remaining volumes. Total Volumes were significantly down vs. 2016, with API2 down 51% and API4 down 61%. Conversely, prices for both contracts gained as the year progressed as API2 finished the year up 12% and API4 up 9%.
The Gas Markets were relatively stable throughout 2017. However, annual Broker Bilateral volumes declined in the two largest markets, TTF and NBP, down 7% and 17% respectively, while the Cleared Market volumes increased 9% and 5% in the same period. This resulted in Broker Bilateral market share declining 3.2% in Euro Gas and 5.6% in UK Gas in 2017 vs. 2016. TTF retained the crown as the largest gas market, ending 2017 at 121% of NBP annual volumes. Looking at FY 2017 volumes, TTF was down 3% and NBP down 5% conversely, a number of markets provided volume growth: PSV up 4%, Gaspool up 2% and Austrian VTP up 1%.
A number of events occurred in December that affected gas markets. These included the temporary closure of the Forties North Sea pipeline, an explosion at an Austrian gas hub, constrained supply in the BBL pipeline and a significant cold snap across Europe. As expected, the majority of gas markets recorded YoY volume increases, Austrian VTP up 44%, France Hubs up 42%, TTF up 24%, NBP up 16% and PSV up 15%. Although media sources reported significant price increases at the time of the events, prices quickly retreated to finish the month broadly unchanged.
Looking forward to 2018, we will be watching the effects of MiFID II closely and keeping an eye on movements from the exchanges. Already ICE has transferred a large number of contracts away from European clearing while CME have launched their direct executions screen for coal. From January 2018 Dutch Power and Belgian Power will be added to the Euro Power group and globalCOAL Newcastle will be added to the Coal group as we now have 24 months' worth of data.