Market Dynamics Report

DECEMBER 13 2013

November 2013

Euro Gas volumes continue to grow with a record month in TTF, coal volumes fall sharply off October 2013 all-time highs and Euro Power volumes are down across the board

November 2013 saw volumes in TTF reach their highest levels since our records began in January 2011. This was primarily due to the highest month in terms of OTC Bilateral volume in this period. Both TTF volumes and broker bilateral volumes grew YTD. The TTF market therefore remains overwhelmingly a brokered market. TTF continues to grow relative to NBP. The German NCG and Gaspool markets also continue to grow in liquidity, with volumes up YTD. The trend of growing importance of the primary Euro Gas contracts relative to NBP has been seen throughout 2013.

After October's record volumes, the key European coal markets of API2 and API4 saw volumes fall back significantly in November 2013. API2 volumes dropped vs. October, while in API4 volumes also fell. November appears an unusually low month in API2, the lowest monthly volume of 2013 to date; while API4 volumes ended closer to the monthly average for 2013 following the spike in September and October. Year to date both markets are still significantly bigger than 2012. One major exchange group saw volumes decline more significantly than its competitor this month, with one exchange increasing its cleared market share. Block futures also increased as a percentage of the cleared market in October. What was behind the change in traded coal volumes this month? Were October's high volumes unsustainable, especially in API4? Was it due to unusually warm weather expected in January and February 2014? Will we see volumes continue to fall across the traditionally quiet December period?

Volumes were also down in the primary European Power markets this month. German Power volumes fell vs. October, while UK Power volumes fell MoM. French and Nordic Power volumes also fell vs. October. The German Power volumes are particularly interesting as the MoM decline in November follows a MoM decline in October. Volumes moved in the opposite direction from 2012, where we saw month on month growth from September through to November. The German market is also interesting for the more intense competition in that market from multiple exchange and brokers. What happens to market share if lower volumes remain in place over a longer period of time? What is behind this decline in total market volumes? Are major players scaling back activity due to cost constraints? Has less severe weather than expected caused a fall in demand? We continue to track any movements and we will report on these in the coming months.