Fundamentals: Rare Iberian Gas Price Arbitrage Opens Up with French Market

Spain’s relative insulation from the current European cold snap has upturned the usual European gas hub price hierarchy and opened up new arbitrage opportunities between Iberia and the rest of the continent.

The Spanish Day-ahead was assessed as the lowest-priced spot price in Europe on Tuesday – the first time since ICIS began quoting the product in October ’16 that this has happened.

As Spanish spot prices are usually among Europe’s most expensive, the trend is unlikely to last. However, with prices continuing to surge across Europe on Wednesday, the PVB Day-ahead remained below counterparts at the benchmark Dutch TTF, France’s PEG Nord and Italy’s PSV.

On Wednesday morning, the PVB Day-ahead traded over the counter at €36.50/MWh, a rise of €6.50/MWh from where it had last traded on Tuesday, according to ICIS trade data. But with the TTF equivalent dealing at €39.50/MWh and PEG Nord at €40/MWh early on, the Spanish discount looked set to continue into Wednesday.

Flow data suggests the relatively cheap PVB has attracted French exports away from Spain and into Italy.

Exports from France’s southern TRS zone to the PVB plummeted to 5 million cubic metres (mcm) on Tuesday, their lowest so far this winter and far lower than the winter average of over 11mcm/day, according to grid operator TIGF. As of 13:00 London time on Wednesday, initial within-day nominations were at zero.

French exports at the interconnector with Switzerland which then travel to Italy soared, hitting winter highs of 25mcm/day this week and forecast to remain high. The PSV Day-ahead traded at €44.50/MWh around 13:00 London time on Wednesday, while the PEG Nord product dealt at €42.00/MWh.

Obstacles to arbitrage

On Wednesday, there was little sign of Spanish shippers capitalising on the unusual situation. Despite the attractive spreads, shippers had nominated just 3mcm of flows in the Spain-to-France direction, according to data from Spanish transmission system operator Enagas.