Gas prices for September futures at the Amsterdam TTF spot market have closed at 321 Euro per Mwh on Thursday. The price was about 50 Euro just a year ago. Household and business electricity and gas customers are receiving bills up to ten times higher throughout Europe, and it is only a question of time before the situation explodes.
While governments and the EU Commission are doing absolutely nothing to tackle the problem, more voices point to the root of the problem: the TTF speculative market. Former Italian Finance Minister Giulio Tremonti is one prominent figure to do so. Even some financial traders are exposing the folly behind the energy-price inflation, like author Sergio Giraldo in an article published in the daily La Verità on Aug. 23.
“While energy prices in Europe are dancing at hyperbolic levels, silence from the European Commission, top authority on energy and markets, is striking. In reality, such a silence is not accidental, given that a large part of responsibility for the disaster we are in, can be found exactly there. We are talking, for instance, about the Title Transfer Facility (TTF), the Dutch market where physical volumes of gas are traded. This small market, created in 2003, has meantime become the reference for the entire European continent. The price determined at the TTF is today the benchmark which all wholesale and final customers supply contracts are pegged to. All European markets (the French, German and Italian ones) proceed in parallel to the TTF, with small differences. Even contracts traded outside of the Netherlands at a fixed price, for instance in Italy, are priced on the basis of current quotations on that market. The influence of the TTF on the various national gas markets is virtually a total one. The physical market is accompanied by a financial market, run by the American giant ICE [intercontinental Exchange, the over-the-counter derivatives market founded in 2000 with the backing of Goldman Sachs, Morgan Stanley, BP, Total, Shell, Deutsche Bank, and Société Générale—ed,] , where futures with TTF-traded gas as underlying assets are traded and where prices are similar but volumes are much bigger. In these years the EU, in its quarterly reports on energy market trends, has always praised the creation and the development of the TTF, considered as a pride. The European idea was in fact to gradually replace old, oil-indexed long-term import contracts, considered to be ‘contrary to the implementation of a full market competition', with intensively traded short-term contracts in the name of free competition.”
The author, himself a financial risk-manager, points to the TTF problems: first, the small volume of trading. Last monday the September future at the TTF was 23 million cubic meters, a really small thing as compared to the daily consumption in Europe. Such volumes are “ridiculous,” but this means that “prices can be altered even with small capitals and therefore the market is espoused to the action of pure financial speculators.” Two European guidelines oblige traders to communicate every day details of every single trade to regulators, but apparently regulators have found that everything is okay. Another problem is that contrary to stock markets, there is no system for suspending trading in case of high volatility.
The author insists that “it is serious and absurd that such a commodity on whose price a very large section of continental economy depends (electricity production, chemical and metal mechanic industry as well as steel, paper, glass and many others) is traded in such a way, without rules, without control and without brakes. European GDP and household purses are hanging on a toy-market, an ideological construction wanted by the Brussels oligarchy.”
However, he comes short of proposing a solution that goes at the root of the problem, i.e., banning financial derivatives from the TTF (as well as from other commodity markets). He proposes to introduce regulations to volatility, an investigation of speculative activities, and a market-making group of traders, but his conclusion is that the problem will be solved only when the energy supply physically increases.
This conclusion is not acceptable. The so-called supply-demand balance can be instantly re-established if traders on the TTF are ordered to close their positions and consequently a charter for commercial-only traders is introduced. Any EU member government can do this, threatening to veto the next EU budget – or even to leave the EU – if this measure is not urgently introduced.
