The ICIS gas methodology consultation Louise Boddy – Director, Global Energy Markets Richard Street – Head of Regulation and Compliance 28 February 2013.

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Presentation transcript:

The ICIS gas methodology consultation Louise Boddy – Director, Global Energy Markets Richard Street – Head of Regulation and Compliance 28 February 2013

Contents 1.About the consultation 2.Our current methodology 3.Alternative options for gas pricing 4.How to respond to the consultation

Why a formal consultation? ICIS launched a new formal process to comply with the IPRO Code as of 15 February It ensures regular consultation on all methodology documents. We have a commitment to follow this process for all commodities we assess and will be externally audited on our compliance. We are starting with gas because this is the most widely used of our energy services.

Content of the consultation and timeline General questions about how well the ICIS methodology works as a reliable measure of physical market value. Scope for comments on any aspect of our methodology. Specific questions around an alternative methodology for measuring closing market value for Day-ahead gas. 15 February Publish the consultation. 15 March Close the consultation. 22 March (latest) Publish all public responses. 29 March Publish the summary of all responses and our decision. The consultation paper is available at

Current methodology for the NBP Day-ahead 1.Assessment Reporters find and verify the highest firm bid and the lowest firm offer at 16:30 UK time. It is published as a bid-offer spread. 2.Index Reporters find and verify all transactions done through the day, taking out non-standard or “off-market” deals. The index is a single figure, weighted average of these deals.

Proposed alternative methodology Closing index for NBP and TTF Day-ahead General description: a weighted average of transactions done in a limited time window at the end of the trading day. If you agree with the principle, further questions are: 1.What time window should be used? 2.Will your company directly or indirectly submit deals? 3.Can an existing data capture system be used to submit deals? 4.Should ICIS publish this closing index as well as the closing assessment or instead of it? 5.Should this methodology be applied to any other gas markets? 6.Within what timeframe should any change take place?

Some pros and cons for discussion There is an obvious tension between the need for a benchmark which measures physical market value at a particular moment in time, and a desire for a transaction-based index which can capture a large number of deals. Some potential disadvantages of a deals-based closing index: 1.The number will be an abstract mathematical value that may not have been tradable. 2.In low liquidity, a calculated index could be prone to manipulation. 3.A wider time window allows more liquidity to be pooled but supply/demand fundamentals can shift quickly in gas. Some potential advantages: 1.In a liquid market, transactions are a reliable indicator of value and are easily verified. 2.A longer time window than 16:30 on the dot can dilute volatility. 3.An index generated by an independent price reporting organisation can take into account all trading venues and objectively apply rules on suitability of deals.

How to respond In writing, in electronic format to the following address, before 15 March 2013: In case of further questions, please contact: Louise Boddy Richard Street