ESMA finds natural gas futures markets functioned appropriately during the August 2022 price surge

ESMA conducted a study on the behavior of European natural gas futures markets during the price surge in August 2022. This surge in prices was triggered by the Russian invasion of Ukraine, which introduced geopolitical uncertainty and disrupted the supply of Russian natural gas to Europe.
The study’s key findings indicate that despite the record-high prices, the markets continued to function appropriately. CCP margins, which are used to manage risk in derivatives trading, rose and fell in line with price and volatility fluctuations, and margin calls were met on time. There were no signs of reductions in derivative positions, and traded volumes remained relatively stable, with only slight decreases compared to the previous year. This suggests that there was strong demand among end-clients.
The focus of this high demand was on contracts delivering natural gas in the autumn and winter months, as European end-clients sought to secure winter reserves due to the decline in Russian pipeline supplies. Different market participants, such as natural gas producers, electricity utilities, and banks, exhibited varying trading patterns. Some gas producers were net sellers across most maturities, indicative of their role in supplying the market. Electricity utilities showed two primary patterns, with some buying contracts for winter delivery while selling others, and another group accumulating long positions across different maturities.
The study also examined the potential drivers of the price surge, including market manipulation, higher CCP margins, and increased demand. However, the data available did not allow for a conclusive assessment of market manipulation. The study focused on the Dutch TTF natural gas futures market, which is the largest and most liquid in the EU, and briefly touched on the OTC market. While the OTC share did not significantly change during the March and August 2022 market events, it increased in September 2022 after prices fell.