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Market Dynamics Report

NOVEMBER 13 2013

October 2013

TTF migrates, broker bilateral breaks market share threshold in NBP, API4 continues to grow

October saw the transition of TTF volumes to a major exchange group, with effect from Monday October 7. Using LEBA figure for broker cleared volumes, October saw broker bilateral market share in TTF increase. Exchange executions fell while broker clearing also dropped.

Volumes in NBP increased in October, while broker bilateral had its strongest month of the year so far in terms of share. NBP volume this month broke a key market share threshold for only the second time this year (the other time was July 2013). October 2013 was in fact the highest month for broker bilateral share since June 2011. It is a marked difference from 12 months ago, when broker bilateral held just over half of the NBP market. What has driven share back towards the brokers? Is it a result of steadily declining volumes in NBP? Are exchanges more focused on growing European Gas Hubs like TTF?

Last month we spoke of the growing importance of the two German Gas hubs; Gaspool and NCG. In September 2013 Gaspool had grown to almost the same size as NCG. Both markets saw volumes fall back from September's highs. Both markets remain nearly all broker bilaterally traded, with the remaining minor share executed on exchange.

The key European Coal contracts of API2 and API4 continue to provide interesting dynamics and trends in 2013. In API2, total market volumes were down MoM while cleared market share remained relatively static. Prices also remained relatively static, with minimal month on month variance across the curve. Broker clearing share increased in October, at the expense of broker bilateral. API4 also showed a shift towards clearing, with broker clearing increasing. The remaining share of the market was traded broker bilateral. Volumes in API4 also increased this month to record levels. Prices also went up this month in API4. The shift to block futures execution in these markets is well entrenched now, with the majority of the cleared API2 & API4 market executed as blocks during October. This is the highest level of block execution we have seen. Is this shift to clearing, and block futures, in the European coal markets a result of regulatory conditions? What is driving the growth in API4 compared to API2? Is the divergence in prices a temporary adjustment, or symptomatic of an underlying trend?