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MET Croatia advises all buyers to lock in their gas prices, at least partially

MET Croatia advises all buyers to lock in their gas prices, at least partially

March 13, 2024
Mario Matković, CEO of MET Croatia, talks about the ten years of this highly successful company’s business in Croatia. Although it seems that the most severe rise in gas prices is now history, the company still advises customers to take a cautious approach to gas price negotiations since there is an abundance of global disruptions to which the market is more sensitive than it was before.

Original article in Croatian:

Last year you marked the tenth anniversary of your business on the Croatian market. Can you say something about the beginnings of the company and the results so far?

On its tenth anniversary, MET Croatia Energy Trade is one of the companies with the highest revenues in Croatia, and we supply some of the largest industrial gas consumers. In previous years, we had to adapt to many changes, from a significant drop in demand and prices to a sharp increase in prices and volatility, and now back to the former scenario.

MET Croatia Energy Trade started its operations in 2013. In the beginning, we were focused on trading and wholesale, while the end-customer supply was introduced after several years. At the time, Croatia was a newly liberalized market, making the process of building a client portfolio notably demanding. The key challenge was gaining the trust of local buyers and adequately educating them, since the market consisted of suppliers with very similar products. Today, most of our clients are familiar with different price indices, as well as the costs related to their consumption profile and the lease of transport capacities. In other words, we have products of higher complexity and more informed customers.

The gas market has gone through some very challenging times. What happened and what are the consequences?

Looking back, the Croatian gas market forcibly changed after several ‘slow’ years and became more sophisticated. This transformation was dominantly influenced by the turbulent consolidation during the COVID-19 pandemic and the Ukraine war. Firstly, we witnessed an extreme decline in consumption because the coronavirus crisis forced customers to close plants or reduce production almost overnight due to reduced orders. This also affected the gas price, which in May 2020 plummeted below 4 EUR/MWh at the TTF, the reference trading point in the Netherlands. After the outbreak of the war in Ukraine, we saw a new extreme in March 2022, where the price at the TTF amounted to 340 EUR/MWh. As a result, many distributors were forced to change owners or hand over management due to their inability to survive in such a market.

In such a dynamic environment, we found extreme value in the support, knowledge and comprehensive view of the global energy market, that we had received as part of the Swiss-based MET Group active in many countries across Europe.

You ended the 2022 business year extremely successfully, with revenues that positioned you among the top 10 companies in Croatia. How was your last business year and what circumstances do you consider crucial for the business result? What is your market share on the Croatian market and how much gas did you sell overall?

I am proud that MET Croatia reached such a high position and great results. This achievement stems from the dedicated work of our entire team, as they are the foundation and driving force of the entire company. I am glad that even in the challenging gas seasons we remained a professional, honest and reliable partner to our customers in Croatia. We rank amongst the top 10 of all companies in Croatia by revenue, while keeping in mind that MET Croatia Energy Trade is not active in household supply and public procurement.

The year 2023 was also successful. Given the general drop in gas prices, revenues are proportionally lower.

What kind of services can you offer your customers and what role does the synergistic power of the group you belong to hold?

MET Croatia Energy Trade primarily deals with the supply of natural gas to end-customers in the industrial market segment. We provide our Croatian customers with the entire spectrum of products with an index price, and the possibility of locking partial or total quantities in one or more tranches. This year, we also started supplying power to companies in Croatia and are preparing various packages for consumers. The long-term goal is to offer a complete energy mix with associated energy savings.

I must proudly accentuate that many of our clients have been with us since the very beginning of MET's operations in Croatia. Among other things, we can thank the transparency of our business for it: we always try to timely inform the buyers and create long-term partner relationships.

The high security of supply, which is made possible by the leased capacity at the Krk LNG terminal and in the Okoli underground gas storage also plays a big role in maintaining strong ties with our clients. Their importance was further confirmed by the period of uncertainty surrounding the gas supply due to sanctions against Russia. The synergistic strength of MET Group is an additional factor of success, predominantly through support of the trading floor in Switzerland, thanks to which we carry out transactions quickly and efficiently.

You are a lessee of capacity at the Krk LNG terminal. What does that mean for you and how do you view the increase in capacity, which will be present as early as 2025/2026 in terms of synergy of your portfolio?

The construction of the LNG terminal was the best decision, as Croatia became one of the few European countries that did not have to worry about the security of pipeline market supply. Accordingly, we welcome the increase in the capacity of the Krk LNG terminal which will undoubtedly spark high interest. In MET, decisions are made on a market basis, therefore the timing of the availability of rental capacity will play a big role. When making such a decision, it is necessary to consider the situation in the global LNG market and evaluate the profitability, as well as the risk of entering into new long-term leases.

Regarding the supply of the Croatian market, additional quantities of gas are not necessary because there are already surpluses in the system that are being exported. All additional capacities will primarily be intended for the surrounding markets, thus creating greater competition.

How do you view the measures that the state has applied so far to control energy prices and which, by all accounts, will continue to be applied after April? How do you see the role that HEP plays in the gas market and is the time ripe for a different approach?

In times of the extremes that we experienced in the energy market, state intervention may be unavoidable, but it carries the risk of market distortion. It is enough to look at the financial statements of certain market players to understand the seriousness of the situation and the losses they experienced. However, these decisions limited the cost of energy for households, which was necessary considering inflation and price increases. Although the daily price of gas has currently stabilized at 25-30 EUR/MWh, we must remember the previous period of volatility. Regardless of the current stability, there is always a possibility of price disruption in the form of a significant increase. This is why I believe that most customers, who have such a contractual option, should aim for either fixing the price of gas or at least partially locking it.

What challenges are your customers facing - do you feel the effects of the decline in industrial production and do you have difficulties with billing?

The decrease in industrial production certainly had a big impact on our clients, mainly influencing their decision-making processes and contracts duration. Users now deeply analyze all decisions, considering parameters and extremes that were previously irrelevant. They want to prepare for upcoming expenses. From the supplier's perspective, it may seem like the customer is indecisive, but, understandably, gas is just one of the input costs that they want to control as much as possible. Also, the industrial segment of the market, in which MET Croatia operates, is sensitive to events in Germany, so the consumers are cautious due to the current instability. Nonetheless, MET Croatia Energy Trade has no difficulties with billing. We have a healthy portfolio of customers towards whom we act responsibly, and they reciprocate in kind.

Gas prices have fallen several times compared to the period following the Russian invasion of Ukraine and the consequent sanctions as well as changes in gas flows in Europe. How challenging was it for you to do business in an environment of high prices, how is it today and what trends do you expect in the coming years?

Doing business in extreme conditions was immensely challenging. When the price of the product increases more than ten times, the earnings do not necessarily follow. In that critical period, we focused our attention on risk management and securing financing for all liabilities, which I am extremely proud of. When gas prices peaked above 300 EUR/MWh, we had clients paying 20 EUR/MWh. This success was ensured by adhering to internal risk protection measures according to which all transactions must be hedged. The profit in this situation may be lower, but so is the risk, for the betterment of all parties involved. Most importantly, we maintained the trust of our customers and together overcame the period of extremes.

Do you think it would make sense to establish a Gas Exchange in Croatia, even though it is not a large and liquid market?

The launch of the Gas Exchange has been a topical issue for some time. I believe that we first need qualified people who can implement the project and later manage it. Since Croatia gained access to global LNG, the country significantly improved its position in the energy market. We now have better opportunities to both import additional quantities and export surpluses.

MET Group invests in renewable energy sources in some markets. Do you have such plans in Croatia and will you start trading electricity?

MET Group has a dynamic corporate strategy and is no longer just a trading company. It is present in 14 European countries through its subsidiaries, with an Asian branch in Singapore. Global LNG business is strengthened by trading activities, while in sales, infrastructure and power production, an increasing emphasis is placed on renewable energy sources.

MET Group is developing in accordance with the energy transition and, in addition to the existing projects of renewable energy sources, the goal is to build a substantial portfolio of renewables in the coming years. We have made good progress: Currently, we have solar plants and wind farms with an installed capacity of around 400 MW in operation and around 800 MW under development. Going forward, Croatia might become one of the markets that play a role in this growth strategy. This year's start of power trading in Croatia is a great way to expand business and further diversify our services in the upcoming period.