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Financials

German gas trading grows in 2014, Europe hubs expand

* Volumes in H1 up to a third higher than last year

* Germany’s huge gas storage sites benefit trading

* German gas demand also boosts role of Dutch trading hub

FRANKFURT, Sept 23 (Reuters) - Gas trade is growing in Germany in line with a continental European trend which has also boosted growth in the bigger Dutch market, challenging Britain’s dominance of the sector.

Wholesale natural gas trading volumes in continental Europe have risen sharply in the past years, bolstered by the common euro currency and a large industrial and residential client base.

“We estimate the (German) market size as between 1,750 and 2,000 terawatt hours (TWh) in first half 2014, compared with a full-year total for 2013 of just over 3,000 TWh,” said Nigel Harris of British consultancy Prospex in its annual European gas report on Tuesday.

German volumes could further rise as it is the European Union’s main location to store gas imported from Russia, which meets a third of the region’s demand.

Should exports from Russia via Ukraine be disrupted this winter due to the crisis there, Germany’s storage sites would play a big role in helping to safeguard supplies during winter.

Despite its growth, Prospex said the German market would likely remain smaller than Europe’s leading gas hubs in the Netherlands and Britain, where 2013 volumes stood at 8,433 and 17,989 TWh respectively, although market data suggests that Dutch volumes overtook British ones this summer.

While forecasts for overall European gas use are weak due to sluggish economic growth, improved energy efficiency, rising alternative fuels such as renewable power generation, and because of unprofitable gas-to-power generation, the threat of Russian supply shortfalls has provided an incentive for hedging and forward trade, Prospex said.

“Physical trading volumes at German hubs could grow strongly on this,” Harris said.

At well over 20 billion cubic metres (bcm) capacity, Germany has Europe’s biggest gas storage capacity ahead of Italy (16.5 bcm) and France (12 bcm).

Russia halted gas supplies to Ukraine in June because of a dispute over unpaid bills and shipped less gas than requested to eastern European countries in recent weeks.

Russia usually sends almost half of its gas supplies to Europe via Ukraine, but its state-controlled gas exporter Gazprom has recently sent more flows via Nord Stream, a pipeline via the Baltic Sea that bypasses Ukraine.

Germany is Russia’s biggest gas customer, and Gazprom is keen to keep up supplies despite the clash between Russia and the West over the conflict in Ukraine.

German gas network operators trade spot gas at the Dutch Title Transfer Facility (TTF) as well as on Germany’s two trading hubs, Gaspool and NCG, in order to hedge their gas and power production assets in the region and to balance gas flows and ensure network stability.

Short-term gas trading has also ballooned as more long-term gas contracts are priced off spot gas prices instead of the oil market, a method that was introduced before gas markets were liberalised and traded on a daily basis.

In overall trading volumes, Germany ranks third behind the Dutch and British gas markets, but ahead of Belgium, France and Italy which are each around half the size of either of Germany’s two markets. (Editing by Henning Gloystein)

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