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Market Dynamics Report

December 2018: NBP and Coal lowest months on record, recap on 2018, total volume up 10% vs 2017, TTF and EUA standout years.

Total monthly contracts traded in December came in at 6,076,181, down 32% MoM. All groups dropped in the seasonally low month of December, led by Coal    (-64%) and UK Gas (-43%), with Euro Gas and UK Power both falling 32%. Total 2018 monthly contracts traded ended at 91,538,536, up 10% vs 2017.

2018 saw TTF rise to new heights, with NBP’s simultaneous retreat changing the landscape of the European gas market. The ‘Beast from the East’ gripped Europe early in the year, plunging gas inventories to a five-year low, while the default of Einar Aas in September sent a shockwave through the power market. Elsewhere emissions prices more than doubled YoY, fuelling volatility within the market.  

Looking ahead to 2019, we wait to see what impact Brexit will have on European markets, whether a continued increase in LNG trading will impact volumes, and if the continued rise of renewables influences market dynamics.

Gas

NBP volumes retreated 43% this month to record the lowest volume since Jan-11 at 697 TWh. TTF fell 33% MoM, resulting in a record 279% of NBP’s volume for December – does this signal the end of the TTF as a percentage of NBP metric? YoY figures see Euro Gas volumes up 7% vs Dec-17, with UK Gas down 37%. TTF front month price ended up 12% vs Dec-17, while the NBP front month price was up 8%.

Euro Gas closes the year up 24% vs 2017, driven by TTF’s 28% rise vs 2017. With NBP falling 17%, TTF’s volume for 2018 was 188% of NBP’s total. We have commented extensively about TTF’s record volumes this year and its growth over the past eight years to become the benchmark European gas hub. How much has hedging of LNG influenced TTF figures and where will this lead volumes in 2019?  Away from the headline story, we have seen growth vs 2017 from all gas markets with the exception of NBP (-17%) and ZEE (-9%). Austria VTP grew 22%, whilst France Hubs, beset with volatility particularly in the first half of the year, ended with volumes up 21%. In terms of market share, Euro Gas saw a 3% shift away from exchange executions vs 2017, with 2% moving towards broker bilateral. This represents a reversal of the trend we have seen over the past few years, where Euro Gas market share has been moving from broker bilateral to exchange executions. Could MiFID II be behind this movement?

Power

YoY both Euro Power (-11%) and UK Power (-9%) volumes are down. Front month German Power prices were up 45% vs Dec-17, with UK Power up 15%.

Euro Power ends the year flat vs 2017 volumes. Belgian Power (42%) and Italian Power (25%) saw the largest growth in the group, with German Power up 2%. All others were flat or down vs 2017 with French Power (-11%) and Nordic Power (-7%) the largest fallers. Whilst group volume may be flat, there has been a shift in market share. Broker bilateral share declined just under 4% vs 2017 levels, with 2% shifting to broker cleared and 1% moving to exchange executions. This represents a change in the movement seen from 2016 to 2017, where broker bilateral gained 6% share, 4% coming from exchange executions. It leaves broker bilateral up 2% vs 2016 levels at the expense of exchange executions. The default of Einar Aas is likely to have contributed to Nasdaq’s share of the Nordic Power market falling from 79% in September to 64% in December. UK Power fell 6% vs 2017 levels, with market share shifting slightly vs 2017, 1% moving to exchange executions to end at 82% Broker Bilateral / 18% exchange executions.

Coal

Coal volumes fell 64% MoM to record the lowest volume since Jan-16 at 62 million metric tonnes. This follows a four-month streak of volume growth. CME’s cleared market share for December rose 5% to 22%, with ICE holding the remaining 78%. API2 front month price fell 2% MoM to US$86.70 per tonne. YoY, coal volumes are down 31%, and prices down 9%.

Coal ends the year with volumes down 16% vs 2017, marking a second straight year of declines. We saw 10% of market share move to exchange executions at the expense of broker cleared. This continues the trend for the past two years of a shift to exchange executions, rising from 9% share in 2016 to 36% in 2018. Broker cleared fell from 86% to 64% over the same period.

Emissions

Emissions fell 25% MoM, with EUA volume down 25%, whilst CER saw 124% growth off a low base. YoY, emissions volumes are 20% higher than Dec-17.

Emissions finished as the stand out performer of 2018, up 41% vs 2017. We saw a shift in market share towards the cleared market, with broker cleared gaining 6%, exchange executions falling 1% and broker bilateral conceding 5%. This is contrary to the past couple of years where we have seen growth in the broker bilateral market. At the end of 2017 EU reforms were introduced to reduce emission permit surplus and raise carbon prices. With EUA Dec-19 price rising 203% YoY, are these reforms the driver of emission’s growth? How will carbon prices grow in 2019 - will they break past €30 / tonne? How will Brexit impact the emissions market?

Downloadable Content

File:
Euro Commodities Report

Downloadable Content

File:
Euro Commodities Report