European natural gas trading more attractive than power - E.ON

Tue Nov 26, 2013 12:03pm EST

Related Topics

* Europe's gas hubs allow regional arbitrage

* Power and carbon markets need reform

* E.ON also eyes oil and LNG markets for growth

By Michael Kahn

BERLIN, Nov 26 (Reuters) - European natural gas trading has become more attractive than power as the rise of regional hubs offers arbitrage opportunities while renewable subsidies and regulatory risks make power less appealing, German utility E.ON said on Tuesday.

Several gas trading hubs such as Britain's National Balancing Point (NBP), the Dutch Title Transfer Facility (TTF) or Net Connect Germany (NCG) have emerged during the past decade, as a result of free gas trading across Europe, allowing trading houses to take advantage of differing regional prices.

"There are a lot of different regional bottlenecks where, if you have the right trading view, you can still arbitrage between different regions," said Christopher Delbrueck, head of E.ON's commodities division. "This helps make it more attractive than power."

Europe's power markets, by contrast, need reform before becoming attractive again, Delbrueck said, adding that this included significant changes to its Emissions Trading Scheme (ETS) and reforms to subsidies that created a renewable power glut.

"The structure of European power markets and renewables has not fundamentally changed," Delbrueck said on the sidelines of an energy conference in Berlin. "There would have to be significant changes in the ETS scheme."

In a drive to make investment into cleaner power fuels more attractive, such as switching from coal to gas-fired electricity generation, Europe's ETS obliges energy users to pay for each tonne of carbon dioxide they emit.

But analysts say carbon prices would have to rise above 40 euros per tonne, up from around 5 euros currently, to make such a switch attractive.

To further boost clean power generation, the German government pays out generous renewable subsidies, lifting renewable energy's share of electricity production in Germany from under 7 percent in 2000 to almost 20 percent in 2012.

This subsidised renewable boom has created a glut in capacity that has pulled down German wholesale forward power prices by almost 60 percent from a 2008 peak and back to levels last seen in 2005, reducing utility revenues.

E.ON Global Commodities emerged from E.ON's gas branch E.ON Ruhrgas and its trading arm E.ON Energy Trading, and Delbrueck took over as its chief executive in October.

He said a key for E.ON Global Commodities was to push into different regions to diversify away from risk in its home European market.

This push would also target what he called niche oil trading opportunities around Amsterdam, Rotterdam and the Mediterranean.

"Diversification is the answer," he said, adding E.ON had also recently opened a U.S. trading platform. "We have a clear reach to go global. We are having growth areas in terms of coal, oil and liquefied natural gas."

E.ON signed a 5-year LNG supply contract from Qatar in October for a maximum of 10 billion cubic metres of the fuel. (Editing by Henning Gloystein and Pravin Char)

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