The Tankard European natural gas indexes started this week are an improvement on those published by price-reporting agencies because they are harder to manipulate, according to the Oxford Institute of Energy Studies.
Gas brokers ICAP Plc, Marex Spectron Group Ltd. and Tullett Prebon Plc started a range of indexes on Feb. 6 that use the thousands of daily trades they execute every day to derive prices, instead of the dozen or so prices collected by price reporters for companies such as ICIS Heren and Platts. The more trades used in the calculation, the less likely that any single trader, or group of traders, can affect the price, said Jonathan Stern, founder of the Oxford Institute of Energy Studies.
“PRAs are getting their information from brokers, so it makes sense that the brokers, who do thousands of trades a day, come up with a composite price over the entire day,” Stern said in a telephone interview from London yesterday. “These prices from the PRAs are OK, but they’re all over the place and what are they really based on?”
Methodologies at so-called PRAs have been under scrutiny since ICIS reported irregular trades in the U.K. natural gas market to regulators in September. Tankard, whose members brokered 450 billion euros ($602 billion) of natural gas last year, said Feb. 6 it began its indexes to increase the level of transparency in the European gas market. They compliment existing benchmarks and were not created as a response to the ICIS investigation, the company said yesterday.
“ICAP, Marex Spectron and Tullett Prebon have been working collectively on the initiative for around a year,” Tankard said in an e-mailed statement. “Client demand drove the decision to make Tankard happen.”
Tankard publishes day-ahead and month-ahead prices for the U.K.’s National Balancing Point, the Dutch Title Transfer Facility and Germany’s Gaspool and Net Connect Germany hubs as well as a Tankard 15:30 index for NBP trades from 3:25 p.m. to 3:29.59 p.m. London time. It calculates the prices based on a volume-weighted average of all the trades that are handled by the brokers until 5:29.59 p.m. London time.
Volume was almost 347 million therms on the month-ahead NBP contract, the most liquid, and zero on the month-ahead Gaspool contract, according to data published on its website.
Price assessments at ICIS are based on the responses of about a dozen traders and brokers contacted at 4:30 p.m. The agency also provides prices for hubs in other European countries, including France and Austria, and for contracts for delivery as much as five years ahead.
The three brokers handle about 4,000 trades a day between them across all the hubs, Tankard said today in response to questions, declining to give a breakdown.
“In thinly traded markets the reliance upon transactions alone will produce an unreliable benchmark, which could be prone to manipulation,” ICIS, a unit of Reed Elsevier Plc, said in an e-mailed statement yesterday.
The price for month-ahead U.K. gas published by Tankard for yesterday was 66.045 pence a therm. The average next-month price on the Bloomberg, also based on broker data, was 66.033 pence a therm.