Transpower

Winner
2015
emsTradepoint – Advancing physical energy markets

The emsTradepoint gas market has transformed the New Zealand gas industry and provided a valuable new tool to help participants manage their supply risk.

Approximately 1.4 petajoules of gas, with a face value of about $8 million, has traded on the platform since the market commenced trading in late 2013.

Peak deliveries in March and April this year saw approximately 5 per cent of all transported gas in New Zealand traded via the emsTradepoint market.

emsTradepoint was developed by Transpower and provides the first exchange-traded natural gas contract in the Asia-Pacific region. Its success, where previous efforts to start a gas market in New Zealand have failed, was due to a range of commercial and technical innovations.

New Zealand’s gas market is small, with relatively few players and a history of bilaterally negotiated contracts. Historically much of the volume was committed through long-term take-or-pay contracts.

The company opted to develop its own relatively simple proprietary web-access trading system to fit with existing practice in the New Zealand industry and to avoid the “extremely high” on-going cost of licensing an off-the-shelf system. It says the advanced functionality of existing systems would have probably impeded trading.

emsTradepoint says that choice has allowed the trading platform to evolve with changes in the market and to pipeline codes, and as new products have been developed.

The design of emsTradepoint’s market rules, specifically the use of a central counterparty model, was also key to its success.

Not only does that structure lower credit risk and reduce barriers to participation, it also helps provide the end-to-end anonymity crucial in a small market.

emsTradepoint says gaining the support of an industry coalition was also crucial to getting the market started.

Gas producer OMV, wholesaler Vector Gas Contracts and major user Methanex became sponsors of the new market as well as an important focus group for the company’s early work on the trading system and market rules. They also underwrote the first product in the market – the Frankley Road physical supply contract.

New products, including weekly and monthly strips, were introduced at the end of January. They enable participants to contract more volume over an extended delivery period and look set to replace a portion of the mid- to long-term bilateral contracts in the market.

The new products also helped emsTradepoint lift its traded volumes by more than 400 per cent in February and March.

The firm’s indices have now been adopted as the reference price for New Zealand gas futures ASX introduced in April. The emsTradepoint market price will also be used to set the daily cash-out price for balancing gas on the Maui pipeline later this year.

emsTradepoint says access to a tradeable price for gas means organisations can hedge their gas portfolio risk in a way that was previously not possible.

For upstream players that provides greater certainty of oil production levels. Electricity generators have more options to manage their long-term supply obligations and commercial and industrial users have greater ability to access competitive gas prices.

Pipeline operators also benefit from access to a transparent, competitive market for gas for their own use and for balancing.

emsTradepoint says that should “greatly reduce” the cost of pipeline management on the gas industry and ultimately place sustained downward pressure on the price of gas to consumers.

The Innovation in Energy award category is sponsored by Gentrack