Who and why wants to gas the Dutch gas market
Minister Giorgetti blames the Ttf market in Amsterdam for high gas prices in Europe. But is it really all the fault of speculation? Here's what experts and economists think
Interviewed by Corriere della Sera , the Minister of Economic Development Giancarlo Giorgetti spoke about the crisis in energy prices and criticized the operation of the TTF, or Title Transfer Facility : it is the exchange point for natural gas that acts as a hub for Continental Europe; is located in Amsterdam, the Netherlands.
WHAT GIORGETTI SAID
Giorgetti, deputy secretary of the League, said that “we have declared a trade war on Russia with sanctions, using economic mechanisms with a sacrosanct political objective: to defend freedom. In the meantime, however, in the face of the Russian response to our sanctions, we continue to use strictly market mechanisms. We do not understand that those mechanisms are useful in peacetime, but fail in wartime ”.
“Today the price of gas”, continued the minister, “is linked to the TTF in Amsterdam, a small speculative market that Vladimir Putin likes to drive crazy. This is a fake market system, as is the obstinacy in Europe to keep the price of electricity linked to that of gas, even though a lot of electricity is produced from other sources that are much cheaper ”.
THE REQUESTS OF ITALY
“These are systems designed to work in peacetime, not war. Therefore ”, he concluded,“ Italy is asking for a European ceiling on the price of gas and to release the latter from electricity tariffs ”.
In his speech at the Rimini Meeting, Prime Minister Mario Draghi had already anticipated that the European Commission is working precisely on the introduction of a gas price cap and the decoupling of the price of electricity from that of gas.
THE CRITICISM OF THE TTF BY LETTIERI E RAIMONDI
In an article on Startmag , economists Paolo Raimondi and Mario Lettieri (former undersecretary for the economy) argue that the TTF is "one of the main causes of energy price inflation": those of gas have exceeded over 300 euros per megawatt hour at the Dutch hub.
The two write that "hedge fund bets on the TTF exchange created an artificial shortage of gas and brought prices to an unsustainable level, well before the war in Ukraine".
“It is not tolerable”, they add, “that speculation dictates the laws to governments. In this regard, there are two possible moves: futures contracts are fine but must be concluded with an effective exchange of the traded goods and, secondly, only traders who actually have the financial coverage of the contracts they sign should be admitted and not those who operate with a 'financial leverage' built on debt ".
CAROLLO'S PROPOSAL
On Energia Salvatore Carollo, former Eni executive, wrote that "the value of the TTF above 300 € / MWh appears absolutely devoid of reference to the real gas market and therefore essentially the result of gigantic speculations".
According to him, Italy can protect itself from high prices by having “full transparency of gas purchase prices relating to long-term contracts, which are decidedly orders of magnitude lower than the TTF. We have two large national operators listed on the stock exchange, the majority shareholder of which is the Ministry of the Economy. The Government therefore has the full right to know the purchase price of gas by these two companies ": by doing so," it would allow the fair setting of the price of gas for consumption and the verification of the real size of any possible crisis ".
Carollo also proposes the detachment from the TTF to adopt the value of the Henry Hub (the gas exchange hub in the United States, the first exporters of LNG in the world) "as a ceiling on the price of gas".
THE OPINION OF GIRALDO
Sergio Giraldo, manager of the energy sector, thinks that one of the main problems of the TTF lies in the low volumes of transactions handled in the hub.
"Last Monday, the contract relating to deliveries for the month of September to the TTF reached the price of 285 € / MWh (+ 25%) with 24 deals (exchanges) for volumes equal to 244,800 MWh, ie about 23 million cubic meters […] These are ridiculous quantities ”, he explains,“ and yet, by moving so little, it is possible to influence all the markets of Europe. The lack of liquidity is a problem because it allows prices to be altered even with small capital and therefore exposes the market to the action of pure financial speculators ”.
On the TTF market, “there is no trading suspension system in the presence of high volatility. If any stock on the Milan stock exchange shows price fluctuations greater than 10%, it is suspended until the market returns to balance ”; on the TTF it does not happen.
Beyond the possible reforms – concludes Giraldo – "the truth is that until Europe is flooded with a sea of gas, prices will remain high".
DOES SPECULATION REALLY HAVE TO DO WITH HIGH PRICES?
In an article published last March in the Gazette , the economists Giampaolo Galli and Carlo Stagnaro explained that speculators exist, but they have little to do with rising energy prices.
“The speculator”, they write, “is one who buys cheaply (when a good is abundant) with the hope of reselling for a lot (when it is scarce): in this way, he reduces scarcity in times of need. But there is more: in this phase of high volatility and high prices, traders themselves are faced with enormous and unpredictable financial burdens. So much so that – reports the Financial Times – the European Federation of Energy Traders has asked for emergency support, invoking the intervention of central banks ”.
Galli and Stagnaro give the example of oil, whose high prices are due to the fact that “war causes uncertainty and uncertainty costs. Furthermore, many Western operators have stopped buying from Russia for fear of running into some trouble: this has produced scarcity and greater competition to grab the other crude oils ”. This scenario is generally applicable to gas as well: Russia is the largest supplier to the European Union but has been limiting sales to the continent, even before the invasion of Ukraine, helping to create a feeling of uncertainty on the market.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/energia/ttf-prezzo-gas-speculazione/ on Mon, 29 Aug 2022 07:57:39 +0000.