The increasingly global nature of natural gas, with the rise of liquefied natural gas (LNG) supply and trade, is making one of Europe’s key natural gas trading hubs into an even more important global benchmark for gas pricing and trading. The Dutch Title Transfer Facility (TTF) trading hub in the Netherlands has seen this year more open interest in gas contracts—the total number of outstanding positions held by market participants—than the open interest in the U.S. Henry Hub benchmark, data from exchange operators show.
Open interest in gas contracts on TTF exceeded for the first time open interest on the Henry Hub in 2020, as traders hold a record number of more than 1.6 million open positions across futures and options traded on the Dutch hub.
On the other hand, the number of open contracts on Henry Hub has declined from a 2018 record of over 1.6 million contracts to 1.2 million open positions now, according to data from exchange operators CME Group and Intercontinental Exchange (ICE) compiled by Bloomberg.
The TTF hub has been one of the most important trading hubs in the world, and the top in Europe for years. The boom in LNG supply in recent years and the growing imports of LNG into Europe have reinforced the leading role of the Dutch gas market in the global gas trade. Analysts expect TTF to continue gaining global prominence as a market on which customers will hedge their price risks.
Open interest across TTF futures and options was up by 73 percent year over year in December 2019, Intercontinental Exchange said, noting that “TTF is becoming increasingly internationalized and embedded across financial markets, cementing its status as a global benchmark for natural gas.”
The record continued into this year, with open interest in ICE TTF futures and options at a record 3.1 million contracts as of June 25, 2020, up by more than 70 percent on the year, due to the globalization of natural gas.
“The momentum behind the ICE TTF contract is driven by Europe’s unique role as the global balancing market for LNG which is cementing the contract’s utility as an important tool for customers to hedge their natural gas price risk. This trend is leading TTF to become increasingly internationalized, while the record growth in the use of JKM futures reflects its growing prominence as Asia’s natural gas benchmark,” Intercontinental Exchange said in July.
TTF has replaced the UK National Balance Point (NBP) as Europe’s main gas hub and benchmark price in terms of liquidity due to gas-on-gas indexation in northwest Europe, Gordon Bennett, Managing Director, Utility Markets at Intercontinental Exchange, wrote earlier this year. In 2019, TTF’s trading volumes surged by 42 percent year-on-year, likely driven by its role as the global balancing market for LNG, Bennett noted.
“Amid market upheaval — the liberalization of LNG, a shift towards gas-on-gas pricing, and the decoupling of oil and natural gas markets — TTF and JKM are emerging as robust and distinct global benchmarks,” he added.
The TTF hub has seen a “phenomenal rise in activity since 2014” and is now by far the most liquid, most traded hub, with the greatest number of participants of all the European traded gas hubs, Patrick Heather, Senior Research Fellow at the Oxford Institute for Energy Studies, wrote in a comment in May 2020.
Last year, total traded volumes at TTF were more than three times greater than its nearest rival, the NBP in the UK, and eleven times higher than the two German hubs combined, Heather’s analysis showed. TTF’s traded volumes now account for 79 percent of the total European traded gas market.
On Intercontinental Exchange’s Q3 earnings call last week, chairman and chief executive Jeffrey Craig Sprecher said:
“In our global natural gas markets, revenues were up 27% through the first nine months of 2020 led by the continued growth of LNG and, in particular, our European TTF natural gas benchmark which continues to emerge as the Brent of natural gas.”
By Tsvetana Paraskova for Oilprice.com
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