European policy makers need to create a stable environment if they want gas trading firms to make long-term commitments, Swiss trading firm MET International's senior structured gas trader, Jozsef Vincze, said.
Source: Argus
Long-term supply or capacity contracts are required to incentivise infrastructure investments, but in an energy transition environment, market participants need to consider the duration of those commitments, Vincze told Argus on the sidelines of the ETCSEE conference in Vienna last week.
Incremental capacity auctions are for commitments of 10-15 years, and some firms could be hesitant to commit for such a long period of time, Vincze said.
But trading firms can be part of the solution to this problem as long as the regulatory circumstances are favourable, Vincze said. For example, a trading firm considering booking long-term capacity at an LNG terminal needs to weigh up whether there is available supply and at what pace it can sell this gas.
Some of the recent regulatory interventions in European markets could have permanent repercussions for countries such as Romania, where there is a windfall tax on earnings from trading activities on gas and power effective until August. "Even if this solidarity tax is removed, traders will not return to the Romanian market to the same extent as before," Vincze said.
Romania is "lucky" because it has its own production, but liquidity is much lower particularly in the forward market, and this could lead to higher prices for consumers, he said.
No overnight ramp-up of industrial demand
Industrial demand has its own momentum to respond to prices, as already seen in the build-up to the energy crisis, MET International's head of power trading, Balint Vass, told Argus.
Demand erosion appeared some time after prices peaked. This mechanism is driven by multiple factors, such as existing forward hedges of clients which make them less sensitive to spot prices, some complex industrial processes that cannot be switched on and off constantly owing to staffing requirements, production commitments and the supply chain's own lag or inertia, Vass said.
In a similar vein, Vincze said the rebound in industrial demand is not only a question of gas prices but also of the operations and margins of different industries.