Germany overtakes Britain as Europe's biggest gas user

Wed Oct 2, 2013 2:34pm BST

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* German H1 2013 gas demand above 50 bcm, UK use at 46 bcm

* Dutch hub benefits from sitting between UK and Germany

* Germany, Britain to stay neck-and-neck in gas demand

By Karolin Schaps and Vera Eckert

LONDON/FRANKFURT, Oct 2 (Reuters) - Britain has lost its long-standing position as Europe's leading gas consumer to Germany, and the shift could threaten the UK's ranking as the continent's biggest gas trading hub.

Britain's natural gas demand has plunged 22 percent over two years due to a weak economy and because cheap coal imports have made coal more profitable for generating electricity than gas.

Although German gas demand has also been affected by cheap coal, its economy has fared better than Britain's, supporting industrial use.

Most data suggests the switch happened between 2012 and 2013, and it is almost certain that Germany will have overtaken Britain as Europe's biggest gas user by the end of this year.

German gas consumption was above 50 billion cubic metres (bcm) in the first half of this year, while Britain's demand lingered around 46 bcm, according to government data.

Whether Germany will remain Europe's biggest gas user is unclear. Germany's developing position as a gas import hub thanks to Baltic Sea pipelines and signs of economic recovery in Britain make it difficult to predict.

"In the medium term, the two countries will be within 5 percent of each other. We don't consider the UK going much higher than Germany again," said Laszlo Varro, the International Energy Agency's head of gas, coal and power markets.

Germany's jump in the table is partly due to a rise in Russian gas sales to Europe, where Germany is its single largest buyer, after offering lower prices more closely linked to spot prices instead of expensive oil.

Russian export monopoly Gazprom shipped 14 percent more gas to Europe between January and August compared with a year earlier.

UK GAS TRADING STILL TOP?

Germany's new position also benefits its traded gas markets in continental Europe.

"German markets are ... still growing; Gaspool in particular has been benefitting from being the main destination for Russian gas supplies via Nord Stream," UK analyst Nigel Harris said.

Yet German gas trading remains much lower than in Britain and the Netherlands, which have Europe's two biggest gas trading hubs.

Data from consultancy Prospex showed that the German gas churn rate of 2.8 percent - a liquidity measure that indicates the amount of gas traded over national usage - is dwarfed by those of Britain and the Netherlands, at 25 and 20 percent respectively.

The main benefactor of the switch between Britain and Germany is the Netherlands, which has a large domestic gas market, is well connected to Europe's two biggest users, and has access to the global liquefied natural gas market through a terminal at Rotterdam and one nearby in Zeebrugge, Belgium.

"The (Dutch) TTF market continues to consolidate its position as the leading continental market, particularly for forward trading," Prospex said.

Trading at Britain's National Balancing Point, by contrast, is much more focused on the short-term spot market.

German traders who seek futures trading for hedging purposes, to shield themselves against future price swings, typically turn to the neighbouring Dutch market.

Germany's energy exchange EEX, which started gas contracts in 2007, traded 75 terawatt-hours of spot and futures gas mainly for Germany in 2012, equivalent to just 8 percent of national consumption.

By contrast, 20 out of 100 gas shippers listed as trading on the Dutch market are based in Germany.

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