Brexit a Boost for Dutch in Battle With U.K. to Rule Gas Trading

  • Title Transfer Facility in Netherlands seen outpacing U.K.
  • CEO of Italy’s largest gas grid says NBP hurt by Brexit

Natural gas trading in the Netherlands may benefit from the U.K.’s exit from the European union as the region’s markets move closer to unity, according to the head of the bloc’s largest gas infrastructure company.

The Netherlands’s Title Transfer Facility is more likely to become the “Henry Hub” of Europe as regulators, producers and transmission system operators seek to unify markets, said Marco Alvera, CEO of Snam SpA, referring to the U.S. clearing facility that helped make the country’s gas market the most liquid in the world.

TTF’s potential ascendancy has been galvanized by the U.K.’s vote to exit the European Union. Activity in the Dutch market is already on par with the British during some months, according to data from Trayport Ltd. Separation from the 28-nation bloc means the once dominant National Balancing Point in the U.K. is less likely to stay as the center of European gas trading, said Alvera, a trading executive at Eni SpA until he joined Snam this year.

“Certainly post-Brexit the NBP is less of a candidate; the NBP already has its currency issues, being in pounds,” Alvera said in an interview at Bloomberg’s London office. “I think the TTF has done incredibly well.”

The Dutch trading hub already outpaced the U.K. by volume traded for the first time last year, receding back to second position again in May. Gas bought and sold on TTF is denominated in euros and the Netherlands is an EU member, which may add allure amid the pound’s slump and a possible recession in Britain, Alvera said.

“I substantially agree” that TTF will win this race, said Fabio Cedronio, a senior gas trader with Repower AG in Poschiavo, Switzerland. “NBP geographically was always an isolated market,” only linked to the continental markets via interconnectors, he said by e-mail.

TTF is also increasingly being used by mainland European traders to manage currency risk. Cheniere Energy Inc. is also linking some of its new U.S. liquefied natural gas contracts to the market.

While a Brexit is unlikely to halt the free flow of energy throughout the continent, long-term uncertainty over questions including additional referendums called by other countries and the details of British energy policy unconstrained by EU rules will have other impacts, Alvera said.

“If there’s protracted uncertainty in Europe and in the U.K., that will be at the detriment of investments, and some investments are urgent,” he said. “The prospect of meeting the COP21 targets without investments will just not happen,” referring to the global deal to limit carbon emissions struck in Paris in December.

Some Snam board members asked whether it was the right time for the company to move forward with a five-year investment plan worth 4.3 billion euros ($4.8 billion) in the wake of the U.K. referendum amid the impact it may have on the European economy, according to Alvera. The plan, announced on Wednesday, didn’t include investments in the U.K. market.

The company decided to move forward with its strategy, including a spin off of the gas distribution business Italgas, because interconnecting pipelines between countries, storage facilities to help balance the cyclical demand of the gas market and heating fuel itself won’t be be directly hurt by Brexit, Alvera said.

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