The long road to a functioning and reliable gas market


Update Gas Target Model

On January 16 this year, the European market regulator ACER in Brussels published its long-awaited update of the Gas Target Model (GTM). This model has influenced how national and European market regulators think about the development of the European gas markets and the necessary reforms in regulation and legislation to enable further integration of these markets.

Over the last decade, the Dutch and European gas markets have changed fundamentally. With the implementation of the so-called 'Third Package' by the European Commission, the formerly individual European gas markets have been increasingly liberalized and integrated. In 2011, this started a debate about when the liberalization of the Pan-European gas market will be complete and what it should look like.

To give direction to this debate, the 'Council of European Energy Regulators' (CEER) published the first Gas Target Model (GTM) in 2011. The GTM described five criteria a gas market would have to fulfil to be considered as a functioning and reliable[1]. An important conclusion was that in 2011 hardly any of the gas markets had (yet) managed to meet the CEER criteria.

An important criticism of the 2011 GTM was that these criteria were too rigid, and that hardly any market in Europe would be able to fulfil them. In 2015, by far not all European wholesale parties have direct access to a virtual trading point, because this simply doesn't exist yet or because it cannot yet be classed as 'liquid'. Key markets such as NBP, TTF and NCG have been developed and new marketplaces have been set up.

In response to the criticism of the GTM and the further development of the European wholesale markets, the European market regulator ACER has updated the model. The most important ambitions of the GTM remain::

  • Full implementation of the Third Package and the resulting network codes;
  • Each European wholesale party (and ultimately the consumer) has direct access to a liquid and well-functioning 'virtual marketplace'.

Compared to the limited criteria of the original GTM, two new concepts were introduced, which together determine the 'functioning' of a market.

  • Firstly, a functioning market will meet the demands placed on the market by the market participants (ACER: Meets Market Participant Needs). The products available in the market and the liquidity are sufficient to enable market participants to hedge their risks effectively.
  • The market is also 'healthy' (ACER: Market Health), i.e. the market is demonstrably competitive, robust and has a high level of security of supply.


A separate set of parameters applies to both concepts.[2] Key changes compared to the first GTM are that the European spot and forward markets are compared to the best-performing markets in the EU, instead of a set of rigid parameters all markets have to comply with. The British NBP and the Dutch TTF are hereby introduced as a reference, since they already have a proven track record with regard to  'Market Health' and 'Market Participants Needs'

An important addition is the request to national market regulators (in the Netherlands, the ACM) to check the state of affairs in the national market every three years, starting from 2017. If this situation is deemed unsatisfactory, the GTM proposes measures to improve the functioning of the market. This provides the necessary input in the debate with regard to the progress of market integration in Europe.

GasTerra is therefore pleased that ACER acknowledges that the Dutch marketplace TTF is a fully functioning marketplace and is seen as an example for Europe. The new approach by ACER with regard to  setting criteria is a significant reflection of the fact that gas trade participants determine whether a market is functioning or not, and not the parameters. GasTerra considers the tri-annual 'progress report' an important step in the debate on the completion of the European internal energy market.

The complete GTM update, including supporting presentations, can be downloaded here te downloaden.


[1] The (indicative) criteria established in the GTM were: a Churn Rate of 8, a Herfindahl Hirschmann Index (HHI) lower than 2000, it has to offer gas from at least 3 different sources, the total gas demand within the entry-exit zone is at least 20 billion m3 and the Residual Supply Index (RSI) has to be more than 110% during 95% of all days in the year.

[2] With regard to 'Market Participants Needs' this refers to: 1. Order book volumes, 2. Bid-offer spread, 3. Order book price sensitivity, 4. Number of trades. With regard to 'Market Health' this refers to: 6. Herfindahl-Hirschmann Index, 5. Number of supply sources, 7. Residual Supply Index, 8. Market concentration for bid & offer activities, 9. Market concentration for trading activities.