ICIS: Ukraine gas bourse to expand services as liquidity grows

LONDON (ICIS) - Natural gas liquidity at Ukrainian energy exchange UEEX reached 1,879MWh in April and the company recently held talks with NASDAQ Nordic for possible cooperation on expanding its offering.

Aleksey Dubovskiy, chairman of the exchange committee of UEEX, told ICIS that representatives of the bourse visited NASDAQ in Stockholm last week and said it was open to talking to other platform operators to discuss best practice as it looks to expand.

Although only 2% of sales in the commercial segment of the Ukrainian gas market currently trades on UEEX, liquidity has been soaring since it launched in January 2017.

For example, 1,879MWh changed hands in April, up from 198MWh in the first month of operation.

The number of participants registered to trade has increased from 28 in January last year to 130 in April 2018.

Dubovskiy said: “There are about 350 companies that can supply natural gas in Ukraine. We have accredited local gas producers, international traders and local players. We have also made small lots of 10MWh available for participants, which allowed us to attract a large number of companies [on the buy side].’

The exchange holds trading sessions twice daily and Dubovskiy said between 10 and 40 companies participate each day.

He added: "Some companies in the high winter season work on arbitration between markets, buy gas on European hubs and resell it in Ukraine."

Expansion plans

Ukraine is expected to launch a daily balancing market from 1 August 2018 and the exchange is getting ready to introduce intra-day and day-ahead products.

UEEX also plans to introduce instruments allowing companies to take advantage of Ukraine’s vast storage capacity.

These include swaps, repurchase contracts or other products.

UEEX currently offers monthly forward trades linked to the Austrian VTP, gas in storage, as well as long-term contracts of up to six months.

Nominations and re-nominations are also traded, mainly because the transmission system operator still operates monthly ex-post balancing.

UEEX manages risk by establishing a guarantee of security ahead of the conclusion of trades.

This guarantee represents 3% of the proposed transaction amount and if a counterparty does not meet its obligation the injured party receives compensation.

Dubovskiy said: "For the past year there were more than 180 trading sessions during which 775 deals were concluded. All transactions ended in delivery and there was not a single default."

Future prospects

Dubovskiy is confident that once Ukraine establishes daily balancing operations, the market will align with EU norms and start to develop a reference price.

He said: "We foresee the emergence of a large number of various trading and banking instruments on the market, in order to manage risks associated with the supply of gas.

"Another important aspect is the development of underground storage facilities and the provision to international companies of convenient services and tools, which will [eventually] turn Ukraine into a gas hub."

Dubovskiy said the bourse was also considering launching spread deals between gas and electricity contracts, once the new power market model starts next year.

By : Aura Sabadus