RWE Supply & Trading (RWEST) have developed a financially settled swap gas contract and will provide two-way liquidity in this contract. This contract is a response to the development of global gas markets and the requirement of non physical players in the continental European gas markets to participate in that market.
The contract enables counterparties to trade gas at the prices of the Dutch Title Transfer Facility (TTF) and comprises fixed price and floating price legs, with the floating price being settled against the London Energy Brokers Association (LEBA) day ahead and weekend window indices for the TTF. The LEBA index comprises the weighted average price of actual trades through the main gas market brokers (currently APX, GFI, ICAP, Spectron and Tullet Prebon) during a 10 minute window between 16:20 and 16:30 London time for the following business day or weekend as appropriate. The contract will be traded under ISDA terms and conditions.
The advantage of this financially settled contract is that it avoids the need for non physical players in the Dutch gas market to sign up to the physical balancing regime of Gas Transport Services, and avoids the need to have to make nominations to the pipeline operator, or be subject to any physical imbalances within the pipeline network, or be subject to cash-out prices on any residual physical position.
Graph: LEBA day ahead and weekend window index price
Three questions to Kevin Alger
For what reason have RWE Supply & Trading set up such a contract to the market?
RWE firmly believes in the strength of liberalised wholesale markets as the best way to offer counterparties bespoke tools to manage their risks. As the continental gas markets are showing increasing volumes of liquidity, there has been more appetite for tailor-made products. Swaps like the one we have developed have attracted more interest from existing and new maket participants. Thus, this contract developed by RWE is as a direct response to this market liberalisation.
Why has the design been focussed on non-physical players in paricular?
Essentially those parties - banks, hedge funds and further financial institutions - have an interest in trading such contracts without wanting to sign up to the physical balancing regime and the associated imbalance costs and nomination requirements to undertake this business.
What is meant with providing a "‘two way liquidity"?
This means simply that RWE is prepared to both buy and sell this contract.
Head of External Communications Supply & Trading, RWE AG
T: +49 201 12 17 220