End of TTF’s dominance?

Over the past two decades, gas pricing in Europe has moved away from oil indexation towards hubs as the preferred price formation mechanism driven by supply and demand, with gas-on-gas pricing making up 77% of gas volumes in 2021.[1] This pricing model is observed mostly in Northwestern Europe, while oil indexation is prevalent in the Mediterranean region.

There are around 30 gas hubs in Europe,[2] with the Dutch Title Transfer Facility (TTF) ranking first after it overtook Britain’s National Balancing Point (NBP) in 2015-19 as the long-standing leader in terms of liquidity. While TTF accounted for around 80% of total traded volumes in Europe in 2021 (see Fig. 1),[3] its exponential growth abated in the following year, with trading activity taking a nosedive not just in the Netherlands but across key gas markets.

Traded volumes at TTF fell 25% from a year earlier (see Fig. 2), partly in response to a 13% decrease in EU gas consumption, while in Asia they declined by as much as 40% amidst the reduced interest of local buyers to procure LNG on the spot market (see Fig. 3). In the US, gas trading at Henry Hub tumbled 6%[4] (see Fig. 4), while the churn rate, a key measure of a hub’s liquidity, plummeted to its lowest level since 2012.

The year 2023 opened a new chapter in the TTF’s history, after the EU adopted the price cap on natural gas, which we discussed in one of our earlier publications. The world’s most liquid trading venue for TTF futures and options is the ICE Endex exchange, while on 20 February the exchange operator ICE launched a new market for these contracts on ICE Futures Europe, its London-based exchange.[5]

New players are also coming on the trading scene as more countries aspire for their own gas hubs after Russia cut gas supplies to Europe, with its total pipeline exports this January dropping 36% MoM and 79% YoY.[6] The most talked about is a Turkish hub. The idea of having a hub there came to mind over twenty years ago, but started to take shape only last October. Turkey is poised to become a trading point not just for Russian gas, but also for supplies originating from Azerbaijan, Iran (see Fig. 5) and, possibly, the Mediterranean. In fact, the hub already exists, as Turkey is home to seven international natural gas pipelines, as well as four LNG land-based terminals and floating storage units.[7] However, to make a transition from de facto to de jure, the hub needs to be legalized.

Italy is also keen on becoming a gas hub for Europe, though its plans are yet facing some regulatory roadblocks.[8]

If all of the above ambitions come true, TTF’s role as the leading European gas hub could be greatly undermined.