New Opportunities are Provided by the Natural Gas Exchange

The changes of the face of natural gas market are obvious. The development of legal framework and other processes, such as the development of infrastructure, the entrance of new players into the market, lead to these changes. Today’s situation will be more advanced due to the deregulated price of natural gas, the implementation of the EU 3^rd Energy Package, the intensive development of the natural gas exchange, the business initiatives to develop competition in the household and other segments, the increasing number of the companies which have received the natural gas supply licenses, the launch operation of LNG terminal, which will be in the near future, and the introduces interconnection with Poland in further perspective.

For a long time market players had the only opportunity to acquire gas under annual purchase and sales contract and from January last year they have additional possibility to acquire gas on the natural gas exchange of GET Baltic. The results of previous periods show that this instrument was needed and useful for the gas market. The numbers speak louder than words, on the exchange the total traded volume was almost 60 million m³ of natural gas in the year of 2013. The majority of the total volume was traded at the end of the year and the prices of fulfilled deals were lower than the average natural gas import price published by NCECP.

According to the NCECP, in fourth quarter of 2013 the traded volume on the exchange was 9 per cent of the volume imported to Lithuania. The whole December of 2013, when the traded volume on the exchange was 55.83 million m³ of natural gas, the price on the exchange was lower than the average natural gas import price. In December the average price on the exchange was 1153.49 LTL/thou. m³, this was 11.41 LTL less than the average gas import price of December (data of NCECP) and it probably could be called as the precedent case in Lithuania. In 2014 the price level remains quite competitive. On February of 2014 the average price was 1144.88 LTL/thou. m³, the lowest price of realized deal in February was 1139 LTL/thou. m³, the highest price was 1160 LTL/thou. m³. In March of 2014 there were sales offers submitted for the price from 1158 LTL/thou. m³ to 1160 LTL/thou. m³. The trade on the natural gas exchange of GET Baltic has started on 21 January 2013. The exchange participants’ number from 7, which were registered in first month of activity, have grown almost 4 time up to 27 exchange participants currently. The picture below shows the characteristics of natural gas exchange participants: by the market share of the exchange participants in the import and supply segments and the share of total gas consumption (shipping). The information presented is based on data of NCECP of fourth quarter of 2013 and data of GET Baltic. All 5 importers have registered on the natural gas exchange of GET Baltic, as well as all natural gas wholesale market players, who supply natural gas. In the retail natural gas market, in fourth quarter of 2013, the natural gas was supplied to customers by 8 supply companies, 4 of them have registered on the natural gas exchange. These 4 companies supplied 99.53 per cent of all supplied volume in the retail natural gas market (data of NCECP, 4Q 2013). On the exchange have registered gas consuming companies such as heat and electricity producing, industrial companies, companies who supplies gas to small end-users and other companies, the total consumed (shipped) volume of these companies per year is 82 per cent of annually consumed (shipped) volume in Lithuania. All numbers indicate that the demand of the natural gas exchange is relevant for all market segments.

When there is such concentration of market players, the exchange becomes an important instrument providing new and for everyone easily accessible opportunities: to sell gas in spot deal just by clicking couple buttons; to purchase additional volumes at competitive prices not signing any new contracts with suppliers; to avoid the “take-or-pay” obligations; to trade for gas flows balancing purposes. The most important element of GET Baltic gas exchange business model is transparency, providing opportunities to act in same conditions to both large and small players, where the main principle is that the best price wins. This means, that on the exchange it is not so matter if the participant buys/sells a large or small volume, the most important is price. If participant wants to buy/sell a small volume, but for the best price, in this case the priority to fulfill a deal has this particular participant.

Today in Lithuania, natural gas market is rapidly developing; when the supply sources will be diversified and the LNG terminal will start its operations the need of opportunities provided by gas exchange will increase even more. The long term goal of GET Baltic is to create an integrated regional gas exchange for Baltics and Finland (when the interconnection between Finland and Estonia is implemented). This is the most important strategic direction and goal of GET Baltic. For implementing this goal GET Baltic is cooperating with the regional partners. GET Baltic is using the trading platform of Finnish Gas Exchange; it is planed that this year a similar trading instrument will start its operation in Estonia.