The American operator of the gas trading platform in Amsterdam, the Intercontinental Exchange (ICE), today opened an additional gas and commodities exchange in London. This allows traders to circumvent the European price cap on gas. ‘Amsterdam could be affected by this,’ thinks gas expert Jillis van den Beukel.
Just like the Netherlands Authority for the Financial Markets (AFM), ICE has been critical of the price cap for some time. It fears major disruptions in trade if the price is no longer determined by supply and demand. As a result, suppliers prefer to ignore Europe.
Now ICE itself is setting up a parallel trading platform in London, alongside the existing TTF market in Amsterdam. In doing so, ICE circumvents the European gas price cap. When the price in Amsterdam exceeds that ceiling, trading theoretically shifts to London where there are no price limits.
A shift of trade from Amsterdam to London is then obvious. ‘Not so much because they can earn more money in London, but mainly because of the better trade with lower margin calls,’ says Van den Beukel, an oil and gas expert affiliated with the The Hague Center for Strategic Studies.
The European price ceiling does not come into effect immediately if the gas price in Amsterdam briefly touches the agreed maximum price of 180 euros per megawatt hour. This only happens if the gas price exceeds the limit for three or more working days and, moreover, that price is at least 35 euros higher than the global target price for liquefied gas (LNG) for three days. Once the cap is in effect, it will remain in effect for at least 20 days.
For the time being, traders are not yet affected by that ceiling. The gas price is now around 50 euros per megawatt hour, less than a third of the set ceiling. ‘But if that price comes close to 180 euros, traders may experience problems,’ says Van den Beukel. Gas prices are expected to remain high. As high as in the summer of 2022 is not realistic, thinks Van den Beukel. “But let’s not rule it out completely.”
For traders, Brexit therefore seems to have a positive outcome. And actually for all of us, thinks Van den Beukel. ‘It is important that the market continues to work. And let’s face it, the market got us through the energy crisis. With the high prices as an annoying side effect.’
Whether the price cap will ever be necessary, however, remains to be seen. Well-filled gas storage facilities in the EU and relatively mild winter weather have caused European gas prices to fall sharply. For a megawatt hour of gas, about 55 euros are now paid, which is about one sixth of the peak of 345 euros that was reached in July.
The price ceiling agreed here is of greater importance to Dutch consumers. “That has really made a difference in the last few months. That European ceiling is much higher,’ says Van den Beukel.