The creation of a single gas market area in France

By David Lamoulie

By David Lamoulie on 29/08/2017

There’s a big change coming up for the French energy markets, more in specific the French gas market. Below you can find an interview with David Lamoulie, French consultant at E&C Consultants.

 

Why is there a need to establish a single gas market in France?

In the first place, creating a single gas market in France would help harmonizing prices. Right now, there’s two indexes: one in the north called Peg Nord and one in the south called TRS. In the past we’ve seen less competitive prices in the southern region. Secondly, having a single index in France would help decreasing price volatility. Last winter we saw spot prices above 40 €/MWh in the southern region due to a lack of arrivals of LNG and congestions in the southern network. To end with, getting a single gas market in France would help increase price liquidity in the southern region because the TRS index now has no quarter or calendar products. It’s forcing clients in this region to go for another index such as Peg Nord or TTF.

How will the single gas market area in France be established?

According to the French Regulatory Commission of Energy, the new single gas market should be operational as of November 1st, 2018. As of then only one gas index will exist, the TRF tariff which stands for Trading Region France. Right now, extra gas pipelines are being constructed to achieve the single gas market area. It will make suppliers’ life easier because thanks to the single gas market, energy suppliers won’t need to buy capacities anymore to exchange between regions.

How will this impact the market?

Thanks to the creation of this single gas market, we could expect better prices as liquidity will be improved this way, we can expect a better bid-ask spread and thus better OTC quotations. Clients in the southern region could expect a lower add-on on the price formula when negotiating gas contracts because the risk premium on the spread with other indexes will no longer exist. Finally, as the liquidity would improve, we could expect lower volatility in the winter period.


Keep up to date with E&C