Intercontinental Exchange Inc. will open a parallel natural gas market in London to help traders avoid potential disruptions from new European Union rules to cap energy prices.
(Bloomberg) — Intercontinental Exchange Inc. will open a parallel natural gas market in London to help traders avoid potential disruptions from new European Union rules to cap energy prices.
The new market will offer benchmark Dutch Title Transfer Facility futures and options on the ICE Futures Europe exchange starting Feb. 20. That’s five days after the EU imposes a temporary price cap as one remedy for runaway energy costs.
The ICE’s decision could lure trading away from the EU, damaging the bloc’s market. The London market won’t be subject to the cap.
“Why would you like traders to take a political risk?” said Thierry Bros, a former energy analyst who’s now a professor at the Paris Institute of Political Studies. “There is a risk the cap is lowered later.”
If the rival hub in London does prove successful, it would be an exception to the post-Brexit trend that’s seen stocks trading move from London to continental Europe.
Once traders register in London, it could boost the incentive to stay there, highlighting a similar shift in power trading to Nord Pool from European Energy Exchange earlier this century, said Hanns Koenig, managing director for Central Europe at Aurora Energy Research.
“If another disruption happens and prices approach the cap: do traders suddenly flock to London?” he said. “Or do they even register there preemptively to be prepared for a disruption?”
The EU last month reached a deal to cap gas prices at €180 per megawatt-hour as a region-wide energy crisis contributes to historic inflation. Markets saw significant volatility as Russia curbed supplies following its invasion of Ukraine, and EU officials have sought to tame prices while avoiding any unintended consequences of market intervention.
But gas prices have fallen considerably below that limit. Dutch futures settled Thursday at €54.82 per megawatt-hour, the lowest since September 2021.
“ICE’s purpose is to create markets to allow our customers to manage their risk and we have a duty to our customers to provide solutions to the problems they face,” Trabue Bland, ICE’s senior vice president for futures exchanges, said in the statement Friday.
The cap requires several triggers before it can take effect. The London market will be an “insurance option for customers” if the EU rules prevent them from trading and adequately managing exposure to risk.
–With assistance from Todd Gillespie and Elena Mazneva.
(Updates with context, analyst comments starting in third paragraph.)
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