Shut Down the Title Transfer Facility to Bring Energy Prices under Control
So far, very few sources, other than this newsletter, have exposed the real mechanism of energy price inflation: the gambling casino called the Title Transfer Facility, also known as the gas exchange market in Amsterdam (cf. SAS 27/22). European governments have kept a mafia-like omertà on the issue, only addressing secondary aspects of it, when discussing energy costs.
A crack in the silence, however, was opened by the Italian daily Il Fatto Quotidiano, considered by many to be the house organ of the Five Stars party, in an Aug. 10 article by journalist Andrea di Stefano, otherwise an anti-hydrocarbons activist.
Di Stefano wrote: “The TTF is a legalized gambling den where a very few operators … determine the fate of millions of companies and hundreds of millions of European citizens. By all observers’ own admission, the Amsterdam market is highly volatile, that is, extremely sensitive to price fluctuations, and scarcely liquid. Suffice it to consider that altogether the forward contracts that are traded can be worth about 250 million MW-hours per month, i.e., only the average value of real consumption in the entire EU, while normally a forward hedging system is a few multiples of the underlying product (e.g., oil).” (In other words, very few players are involved.)
“The first speculative jump in prices occurred after the end of the pandemic, precisely as a result of the bearish positions of large traders (Trafigura, Gunvor and Glencore, first and foremost): when the recovery became clear, prices moved upward and, therefore, they were forced to close deals by buying back gas contracts. This fueled demand for the futures securities that had been sold short earlier, driving the price up further. The episode provoked heavy protests from different categories of operators, from network operators to some big players such as Shell, without the European Commission or other authorities intervening in any way or investigating the dynamics that produced the price distortion.”
In the current phase “characterized by a war economy”, di Stefano explains, some are gaining a lot of money from from the enormous volatility of the TTF. Among them are energy traders and major companies, but also countries such as Norway, which has become the number one supplier in Europe, with 25% of the market, followed by U.S. liquefied gas and in third position, by Russian gas.
The article stops short of suggesting the easiest way to stop the gambling casino: applying the principles of the Glass-Steagall Act to the TTF. That would force all long positions to close, regardless of the losses incurred by traders; and would withdraw the licenses from non-commercial traders. This would deflate the artificial demand for energy, bringing it more in phase with real demand, and automatically reduce the price.