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04 April 2019

Opening new pathways for Portfolio Optimisation and Transport Savings

In the past decade the European Gas Market has seen significant efforts by trading bodies, market participants, TSOs and regulators towards opening up transport routes and improving the way transport is booked and released. The Prisma platform has proven instrumental in ensuring as many transport routes as possible are offered on a transparent basis to all market participants. TSOs have increased collaboration and are continuing to work towards a truly open and transparent European Gas Market.

However opportunities for improving portfolio management and reducing transport costs remain. For the mature markets in North-Western Europe, booking short-term transport instead of buying and selling the cheaper spread is still often preferred. This is based on several factors, including companies sometimes preferring to hold transport capacity instead of increasing their credit risk with counterparties for the spreads trading.

Furthermore there are limited opportunities for moving gas between liquid and illiquid markets and traders seek various routes including Prisma (limited capacity offered in many cases) and virtual transport (limited availability due to time taken for searching for and agreeing with counterparties). In addition, many companies who had booked transport on a medium to long term basis are struggling to recapture the initial cost of their investment due to lower price spreads and much of these capacity positions thus remaining underutilised.

Moving towards the East and South of Europe, a different series of challenges has arisen. The number of counterparties has remained fairly stable, liquidity has not built up as once was hoped by many. Transport between these markets is primarily booked for moving volumes towards customers. This means that transport is still booked on a fairly medium term basis to ensure that suppliers can meet the delivery obligations in their customer sales contracts. The nature of capacity bookings means that it remains challenging for newcomers and spread traders to gain easy access to transport.

However sometimes overcoming a challenge is as simple as changing the way you think about it. Quote by anonymous
And Alexey Mileev has done exactly that. With a background in Mathematics and Refinery Optimization, the longstanding entrepreneur with Russian and Latvian roots, likes to look at the big picture and sees solutions which many fail to perceive.

2 years ago Mr Mileev founded Route4Gas, a new company headquartered in The Hague, Netherlands. What Route4Gas offers is continuing to amaze every trader that sees it. A way to leverage off of existing European Hub infrastructure and create opportunities to swap with 2-8 counterparties simultaneously at short and long-term intervals.

The innovative coding behind the Route4Gas platform calculates the cheapest way for every market participant to move their gas to their desired locations – even through multiple markets. Simplification and an anonymous credit matrix ensure counterparties, who have pre-agreed legal agreements to transact with each other, have access to each other in the optimization process. Historical projections of the past 2 years have shown an overall market optimization of Eur 200-300 mln per annum.  “The elegance of the solution”, explains Mr Mileev, “is that we as Route4Gas do not charge any upfront fees. We see ourselves as helpers and partners to the market and will only receive a modest participation in the overall optimisation results of our system.”

After an ambitious and smooth development phase, Route4Gas is positioned for the go-live phase in 2019. The functionality has been significantly expanded in the past months and a clear efficiency factor on the daily optimization process was achieved.  Route4Gas has signed several cooperation agreements with key European Energy Players, who will take part in a trial starting in April. The aim of this trial is for clients to see at first hand the power of the complex mathematical algorithm that belays the platform and market access as well as transport savings brought to their own unique portfolio. Route4Gas´ team of experts projects that the platform will commence live status at the end of this year and be a truly disruptive technology in creating more liquidity in the transport and swaps market for European Gas.

Do you wish to be part of the trial or receive more information about the platform? We look forward to hearing from you! Contact us now