Oleksii Dubovskyi, Chairman of the Exchange Committee of the Ukrainian Energy Exchange, in his column for NV Business, spoke about what a gas hub is, how and why they work in Europe, and when Ukraine may have its own hub.
"A hub is a wholesale trading point for natural gas between a significant number of market participants. It can be based both on a certain physical object of the gas transportation infrastructure (storage, intersection of gas pipelines), and exist as a virtual trading point.
The hubs can conclude both transactions in relation to the physical supply of gas and transactions in financial derivatives (futures and options).
At the same time, trading is carried out for different periods - from days to several years" - explains Dubovskyi.
Despite the different implementation options, all successful hubs share two main characteristics - liquidity and transparency.
“The development of gas hubs in Europe was closely linked to the process of market liberalization. And both processes were stimulated by the EU gas directives, the first of which in 1998 guaranteed third-parties access to the market, effectively eliminating the monopoly status of individual companies.
At the same time, access to the market cannot be ensured without the existence of a reliable exchange that could provide a level playing field for participants and be influential enough to form a price benchmark, that is, an objective market price of a resource," - the Chairman of the Exchange Committee notes.
Thus, these two processes - the liberalization of European markets and the creation of hubs - mutually conditioned and accelerated each other.
As Dubovskyi mentioned in order to realize the potential to create a liquid gas hub, Ukraine needs appropriate regulatory and institutional support. Ukraine has already implemented some of this support. The independent GTS Operator was separated from the vertically integrated Naftogaz, and soon OGTSU will be able to access exchange trading in the direction of daily balancing.
However, now that market liberalization has already begun, the condition for accelerating it - as in the UK and the Netherlands - is the creation of a hub. And the main catalyst for its appearance is the development of the national gas exchange.
This process is already taking place at UEEX in cooperation with the Energy Community, the EBRD, the Ministry of Energy of Ukraine, OGTSU and NEURC, which have become signatories to the relevant memorandums. A short-term natural gas market is already functioning at the exchange, liquidity is growing, a clearing system and new market instruments are being introduced.
“Today the question is no longer whether Ukraine will have its own gas hub. It will definitely be. Its appearance is a natural stage in market liberalization and the result of many years of efforts to create a national gas exchange," - emphasized Oleksii Dubovskyi.