The supply crisis is real, but let’s avoid inflicting further avoidable damage on ourselves. The value of the TTF (the Amsterdam stock exchange) above 300 € / MWh is essentially the result of gigantic speculations. We can get rid of this anomaly of the gas price formation system in a simple and immediate way with an ARERA circular introducing 1) transparency on the purchase cost of imported gas and 2) maximum ceiling based on the value of Henry Hub.
While the value of the TTF (gas price on the Amsterdam stock exchange) exceeds the value of 300 € / MWh, everyone is wondering what is happening and what will happen in the coming months.
The demand for gas is almost constant, indeed perhaps slightly decreasing. In terms of supply, while the need to start the process of independence from Russia was reaffirmed, the supply flows from Moscow were almost constant, except for some moments of crisis, due to temporary stops of the Nord Stream 1 gas pipeline due to technical problems .
The summer re-storage campaign was slow and contradictory (operators have often exported gas rather than stockpiling it, to profit from high prices).
We have been bombarded with reassuring messages about the new sources of gas supply, alternative to the Russian one, coming from Africa (Algeria and Libya, Nigeria) and from the USA.
In this context, the value of the TTF above 300 € / MWh appears absolutely devoid of reference to the real gas market and therefore essentially the result of gigantic speculations.
Is it the gas crisis or its price?
Perhaps the time has come to tell us clearly that the real anomalous, diseased element of the gas price formation system is precisely the TTF generated on the Amsterdam stock exchange. If we do not get rid of this parameter, we will end up suffering a crisis artificially generated by a handful of international speculators playing in a kind of village fair, which usurps the name of the European gas exchange.
It is as if we wanted to measure body temperature with a broken thermometer. I read 42 ° C and call the ambulance, but actually I just need to buy a new thermometer.
Let’s clarify some important elements. In London there is the Brent exchange, where every day oil purchase and sale contracts are exchanged for a value of approximately 2 trillion dollars. Any oil operator is able, at any time, to make purchases and sales as well as risk hedging operations by finding the necessary liquidity.
Differences between the British Brent and Amsterdam gas exchanges
Although the physical volumes of gas consumed are comparable to those of oil, the so-called Amsterdam gas exchange sees contracts traded for around 1-2 billion euros per day, which is thousands of times less than the oil exchange.
There is no possibility for operators to use the typical tools of risk management on the Amsterdam Stock Exchange. There is not enough liquidity and there are no physical volumes to support the financial contracts traded. With each additional request to the normal routine (made up of a few volumes) there is a crazy price. Not a bag, therefore, but a village market.
We will certainly face a difficult autumn-winter, where a deficit in the supply of gas may occur, but certainly we do not need to punish ourselves by adopting a bogus indicator as a reference price for consumption that amplifies every reduction in supply by 100/200 times, creating situations of dramatic suffering for consumers and businesses and opportunities for immeasurable profits for speculators.
The supply crisis is real, but let’s avoid inflicting further avoidable damage on ourselves
In Italy we have the way to intervene with simple and immediate administrative measures.
First of all, have full transparency of gas purchase prices relating to long-term contracts, which are decidedly orders of magnitude lower than the FTT. We have two large national operators listed on the stock exchange, the majority shareholder of which is the Ministry of Economy. The Government therefore has the full right to know the purchase price of gas by these two companies. In the US, the model country of the free market, the state demands transparency from all companies operating in the country. Why do we invoke the free market but do not accept the principles that govern it?
It cannot happen that the Minister of Transition, Cingolani, declares that he has requested the purchase price of gas from the companies in which the State is the majority shareholder and that he has received a clear refusal. It is necessary that the Prime Minister governs the triangulation with the two Ministers of Economy (shareholder) and of Transition (energy) in order for transparency to be ensured and consumer rights guaranteed.
The full transparency of purchase prices would allow the fair setting of the price of gas for consumption and the verification of the real size of any possible crisis.
Simple and immediate solutions
There has been a lot of talk about the gas price ceiling, but in an abstract and sometimes smoky way. There is a very simple solution that could be adopted in the morning.
The most expensive gas we import is liquid gas from the USA. This is a price, called Henry Hub, which is established through transactions that are made at the export terminal in Florida for all volumes exported to all over the world. It can therefore be considered a transparent global indicator accepted in all world markets. Just to be clear, in this phase of crisis, the Henry Hub price is about 1/3 or 1/4 of the TTF, despite being liquid gas, which is more expensive.
If we adopted the Henry Hub value like maximum limit of the price of gas we would have undisputed advantages:
- There is no risk that the price is artificially too low, discouraging some international suppliers from selling gas to Italian operators;
- We would have eliminated the TTF from our reference basket, giving a heavy blow to the international speculation operating on the Amsterdam stock exchange;
- We would avoid that the speculation developed in the fake Amsterdam market continues to negatively influence the other world markets (Henry Hub, various Asian indicators);
- The upward pressure of the price on long-term contracts that also refer to the TTF will decrease.
The solution could be adopted immediately with an administrative measure implemented with an ARERA circular, based on the two cornerstones:
to. transparency on the purchase cost of imported gas
b. cap based on Henry Hub value
Salvatore Carollo is Oil and Energy Analyst and Trader
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