Britain risks losing its rank as Europe's dominant gas trading hub in the next decade as rivals in continental Europe enjoy rising trade volumes spurred by deregulated energy markets and a diversifying array of supply.
The UK's National Balancing Point (NBP) is currently by far the largest of Europe's gas hubs, with traded volumes of 1.3 trillion cubic meters (tcm) in 2009, International Energy Agency (IEA) figures show.
This dwarfs its nearest competitor, the Dutch Title Transfer Facility (TTF), which saw volumes of 76.1 billion cubic meters (bcm) in the same year.
But the NBP has seen its share of total traded volumes of European gas decline from about 94 percent in 2003 to 78 percent in 2009, according to the IEA.
The share of NBP of total trading volumes has been reduced over time ... This is one trend I am expecting will continue, Ingolf Hoven, director of gas and oil trading at Germany's E.ON Energy Trading, told Reuters. The NBP will lose in relative terms.
Hubs located in the Netherlands, Germany, and Austria all have a shot at becoming a top centre for European gas trading, experts believe, with each country making moves in recent years to boost traded volumes and merge their markets.
As continental Europe gradually moves from long-term, oil-linked gas supply contracts to freely trading the commodity across borders, gas demand levels will not justify more than one to three major trading hubs in all of Europe, experts said.
They can't all be big hubs. It's just not going to work, said Patrick Heather, an energy consultant and senior research fellow at the Oxford Institute for Energy Studies.
That means the next few years will see a major thinning in the ranks of the current eight major European hubs, with a handful emerging as winners.
TTF IS BEST POSITIONED
The Netherlands' TTF, either of two German hubs, but also Austria's Central European Gas Hub (CEGH) all enjoy advantages that could help them challenge the NBP in the long run.
Who will eventually win out depends factors including the availability of both physical and virtual storage, a commitment to transparency, and the willingness of hubs within a country to merge to create more liquid markets.
The future may belong to the TTF, which has seen double-digit leaps in volumes in recent years and is continental Europe's largest hub.
If you look at the one which could be the major competitor for the NBP, it is the TTF, said Thierry Bros, an analyst at Societe Generale. We've seen a lot more trades in the TTF over the past few months.
TTF's prime location between Germany, France and at the North Sea coast enables it to transfer gas from Norway to the German and French markets, and it is also connected to Britain's NBP hub.
Additionally, the brand-new Dutch liquefied natural gas (LNG) terminal opened last year gives TTF direct access to the global LNG market, an advantage that Germany and Austria both lack.
They (TTF) have loads of projects afoot to try to improve liquidity, Heather said, including a successful move to real-time balancing last year.
They really are very keen to continue developing their status, Heather said. They know they can do it, they want to do it, and they are doing it.
A recent survey by consultancy Baringa Partners and Energy Risk magazine found market participants expect TTF, Germany's NetConnect Germany (NCG), and NBP to have the greatest rise in liquidity in the next five years.
Germany, with its big gas market, Europe's biggest economy, its central location with nine land borders, and solid transit lines is also a strong contender for Europe's top gas trading spot, said Oliver Maibaum, managing director for the European Energy Exchange (EEX).
We (Germany) have the biggest storage capacity all across Europe, Maibaum said. Therefore it's almost a natural thing that the German market should be the reference market on the continent in the long run.
On Thursday, Poland's gas system operator said the country raised the capacity of its gas link with the German network by half to 1.5 bcm and plans to expand it further.
But the remaining German hubs, NCG and GasPool, are owned by several shareholders whose competing interests might make it difficult to combine them, Heather said.
From a trading perspective, we would appreciate if there was a merger, E.ON's Hoven said.
COULD AUSTRIA SURPRISE?
Austria's Central European Gas Hub's (CEGH) location allows it to provide German and Italian markets with Russian and central Asian gas supplies.
The Austrian government passed a law in 2011 that paves the way for a virtual gas trading hub and aims to eventually merge its three regional markets.
It's the only one across northwest Europe that is proposing this vision, within this decade anyway, to have a genuine central European virtual trading hub, the Oxford Institute's Heather said.
But landlocked Austria has no direct access to the growing LNG market, and still has much lower volumes than TTF or NBP. E.ON's Hoven said CEGH is far away from being recognised as a liquid hub for the time being. It is just one of the other hubs.
NBP REMAINS PIVOTAL
Although continental Europe is rising in importance relative to Britain in gas traded volumes, the NBP will remain pivotal. Experts said that the shift in influence was more one of continental Europe catching up rather than the UK shrinking.
Traders want to be in a transparent market, Bros said. This is why it's a competition against the best in class, the UK.
With its three major LNG terminals and established market, the NBP acts as a price benchmark for European spot LNG trading, something no other European hub is likely to achieve.
Its importance is also highlighted by the fact that EEX recently opened an office in London, and is planning on launching clearing services for NBP in February.
(Editing by Henning Gloystein and Jason Neely)