How natural gas is traded in Europe | Popgen Tech


LONDON – European Union energy ministers agreed a petrol price cap to try to lower gas prices that have sent energy bills higher and fueled record high inflation this year after Russia cut off most of its gas supplies to Europe.

Some market participants fear the cap, which would be triggered if prices exceed 180 euros per megawatt-hour for three days on the Dutch Title Transfer Facility’s (TTF) gas hub front-month contract, could drive trading to the over-the-counter (OTC) ) market

It could also reduce liquidity on European exchanges and discourage much-needed liquefied gas exports to Europe from the United States and other regions.

Here is a summary of how gas trading works in Europe and the main trading centres.


Trading takes place on exchanges or OTC. Exchanges are more accessible to all market participants and provide transparency. They are also subject to financial and market regulations to prevent market abuse.


Over the past two decades, gas prices in Europe have moved toward pivot pricing, where natural gas is priced based on supply and demand, and away from oil indexation, which uses crude oil as a price indicator.

Pivot prices accounted for 77% of gas volumes in 2021, according to a study by Oxera Consulting this month. In Northwest Europe, pivot prices tend to dominate, while Mediterranean gas trading tends to use more oil indexation.


There are about 30 gas trading hubs in Europe, but not all are very active, according to the Oxford Institute for Energy Studies. The Dutch Title Transfer Facility and Britain’s National Balancing Point (NBP) are classified as the two most mature, meaning the most liquid and transparent.

Other active hubs include the Italian Punto di Scambio Virtuale (PSV), Austrian hub Virtual Trading Point (VTP), Belgian hubs Zeebrugge Beach (ZEE) and ZTP, Spanish hub PVB, French hub Point Exchange Gaz (PEG) and Czech hub VOB .

Last year, Germany launched a nationwide gas trading hub, Trading Hub Europe (THE), after merging two existing hubs to boost liquidity and simplify administration.

Previously, Gaspool and NetConnect Germany (NCG) operated in separate regions, cutting Germany into two gas markets. They renamed their order books to THE to continue spot and futures trading.

There are also plans for more gas trading hubs in Eastern Europe and the Mediterranean, as well as Turkey.

In 2019, volumes traded on the TTF accounted for 79% of total volumes traded in Europe. The TTF price is classified as the European gas price benchmark with LNG cargoes and other hubs priced against it.


There is no single price at the TTF or other gas hubs. There are different gas contracts – some for immediate or near-term delivery (known as the spot or fast market) and some for hours, months, years or seasons ahead.

There are various financial instruments used in gas markets such as futures contracts, futures contracts, options and swaps.

Futures contracts are agreements to buy or sell gas for delivery to the TTF at a certain future time for a pre-agreed price and are traded on exchanges.

Forwards are also agreements to buy or sell TTF for delivery in the future, but they tend to be benchmark agreements, are traded in OTC markets and are not formally classified as derivative contracts under EU stock trading rules.

Options give the holder a right, but not the obligation, to buy or sell the underlying TTF futures contract on a certain date at a certain price.

Swaps are OTC financial-settled contracts that allow two parties to exchange payments linked to the market gas price.


Trading in gas derivatives can take place on regulated markets or exchanges and OTC markets. It typically consists of a network of buyers and sellers and brokers who act as intermediaries in the trading activity.

OTC trading can also take place bilaterally, whereby the counterparties have direct relationships with each other.

But bartering takes place on a single centralized order book and where all buyers and sellers can communicate with each other simultaneously.

This year, the share of exchange-traded trading on European gas hubs was around 62%, according to data from the European Commission.

Sources: Oxford Institute of Energy Studies, Oxera Consulting, Reuters news

(Reporting by Nina Chestney; Editing by Barbara Lewis)


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