Political Risks Spurred Record ICE European Gas Trading in 2014

Political Risks Spurred Record ICE European Gas Trading in 2014
Political Risks Spurred Record ICE European Gas Trading in 2014

European natural gas trading rose to a record on the Intercontinental Exchange Inc. last year as the continent faced the threat of supply disruptions from Russia.

Trading of UK gas gained 84 percent from a year earlier, while Dutch volumes almost tripled, according to data from ICE Futures Europe and ICE Endex. Price swings on the benchmark UK contract climbed to their highest since 2011 in September as a price and debt dispute between Ukraine and Russia threatened to disrupt flows to Europe for a third time since 2006.

“Geo-political events and production, which prompted market volatility, have had a positive effect on trading volume and liquidity as participants seek to hedge price risks,” David Peniket, president and chief operating officer at ICE Futures Europe in London, was quoted by Bloomberg as saying.

Traders bought and sold 11.94 million futures and options on the UK’s National Balancing Point, Europe’s biggest hub, exchange data showed. The volume of Dutch fuel on the Title Transfer Facility was 2.43 million contracts. The majority of the longer-dated trades in the UK now take place via the exchange and ICE’s TTF contract is now the most liquid futures benchmark in continental Europe, according to Peniket.

UK gas’s 60-day historical volatility climbed to 49 percent in September from a low of 13 percent in January as tensions between Russia and Ukraine escalated before dropping to about 22 percent today. Ukraine, which carries about 15 percent of Europe’s gas needs through pipelines from its eastern neighbor, settled its debt with Russia and prepaid for local supplies for this month. That reduced the risk of fuel shortages.

Exchange trading of European natural gas is gaining market share as over-the-counter transactions matched by brokers are declining. UK gas transactions executed by bourses accounted for 42 percent of total trading from January to November, compared with 29 percent a year earlier, according to data from Trayport Ltd. The share of mainland European gas on exchanges rose to 8 percent from 5 percent a year earlier, the data showed.