European Energy Exchange’s New Gas Contracts May Reduce Prices

The European Energy Exchange AG, continental Europe’s second-biggest natural-gas bourse, plans to introduce German gas products in October that may reduce network-management costs and prices for end-users of the fuel.

The exchange’s new contracts will allow for trading in Dutch and German gas with unique technical specifications and is likely to boost trading by Germany’s two market area managers, Eileen Hieke, an EEX spokeswoman based in Leipzig, Germany, said Feb. 26 by e-mail.

The products will enable NetConnect Germany GmbH in Ratingen, Germany, and its Berlin-based counterpart Gaspool GmbH to buy more gas on the exchange to balance their networks, which entails maintaining proper pressure levels in pipelines with the correct class of fuel. A larger number of buyers and sellers means better prices, and the specific qualities of gas traded will eliminate fees to convert gas.

“It is a simple question of supply and demand,” Ina Domin, a spokeswoman for NetConnect Germany based in Ratingen, said Feb. 4 by phone. “On the exchange, there is just more of both, which means we can get better prices.”

Lower balancing costs benefit users of the gas infrastructure, such as utilities, which can then pass on lower prices to their customers, according to the rules of German regulator Federal Networks Agency. NetConnect Germany has cut its gas-balancing costs by increasing the share of balancing gas bought on exchanges to 81 percent in the second half of 2012, from 54 percent in the second half of 2011.

Methane Content

Germany’s gas networks comprise two different types of pipelines. Grids in the northwest are designed to transport gas produced in fields in the Netherlands and Germany, which contains about 80 percent methane. The rest of the nation’s pipes ship gas produced elsewhere, with a methane content of as much as 99 percent. Higher methane content increases the fuel’s calorific, or energy, value.

Gaspool and NetConnect Germany, some of whose pipelines only transport low-calorific gas, now have to pay a conversion fee for high-calorific fuel on the EEX, or they turn to the less liquid bilateral market, according to the market balancing rules set by the Federal Networks Agency. EEX is in discussions with NetConnect and Gaspool about the details of the new contracts, Hieke said.

Gaspool bought 632,880 megawatt-hours of low-calorific day- ahead balancing gas via its bilateral market so far this year at an average price of 27.63 euros ($35.97) a megawatt-hour, according to data published on the company’s website. That compares with an average day-ahead price of 26.70 euros a megawatt-hour this year so far on the EEX’s German day-ahead gas market, according to EEX data on Bloomberg.

EEX ranks second to APX-Endex Holding BV, continental Europe’s biggest natural-gas exchange.

To contact the reporter on this story: Julia Mengewein in Frankfurt at jmengewein@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net

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