Market Dynamics Report

APRIL 14 2014

March 2014

Higher exchange executions in the NBP market, gas prices fall across Europe, mandatory market making initiative begins in UK Power.

March 2014 saw significant movements in the NBP market, with high volume days and price volatility as a result of the recent geopolitical events in Ukraine bringing this contract to the forefront of the financial news this month. Volumes increased MoM and increased vs. March 2013.  Did the price volatility in the earlier part of the month drive higher volumes, as traders may have moved to hedge their positions? Are the higher levels of exchange executions this month correlated to volatility, and will this trend reverse should the political situation in Eastern Europe diffuse somewhat in the coming months?

The other main European gas contracts also saw interesting movements in March. While TTF displayed similar price movements to NBP - an initial spike in prices, followed by a decline in the latter part of the month- the market dynamics did not shift significantly. The majority of this market traded bilaterally this month. Volumes are up YTD 2014. NCG and Gaspool volumes YTD grew, while front month prices in both contracts fell vs. February. Exchange executions market share doubled in NCG, with PEGAS direct execution volumes increasing significantly this month. PEGAS also saw volumes increase in Gaspool this month. Is the overall monthly decline in prices indicative of traders' confidence that supply to Europe through Ukraine will not be disrupted throughout 2014? The Nord Stream pipeline from Russia to Northern Germany has been open since 2009 and bypasses Ukraine entirely while the mild winter of 2013 means that gas supplies on the continent are high.

March 31st saw the introduction of mandatory market making in UK power for the big 6 energy providers between 10:30-11:30 and 15:30-16:30 each day. Many of the exchanges likely saw this as an opportunity to grow their franchises in these areas. Throughout the month of March the UK Power market was nearly all broker bilaterally traded, while YTD volumes increased vs. 2013. We will not see the impact of this initiative until April's report and will monitor this market closely over the coming months in order to ascertain what affect this change has on volumes, dynamics and price. However, initial indications from the UK power market are that the bilateral market remains strong and volumes within market making windows are healthy.  French Power has also seen volumes increase in 2014, up YTD vs. 2013. Both German Power and Nordic Power have seen volumes fall this year, with German Power volumes down YTD and Nordic Power volumes down YTD.