14. 3. 2023

Terminal in Netherlands, LNG in United States and Asia and More: ČEZ Trading Has Started to Operate in a Number of New Markets to Strengthen Energy Security

The most important strategic task for the ČEZ Group’s Trading Department last year was to acquire capacity at the first ever LNG terminal opened in the EU after the start of the war in Ukraine. The next task was to obtain a sufficient quantity of liquefied natural gas at an acceptable price. But these were far from the only goals. To strengthen energy security, ČEZ traders have ventured into other markets and started trading completely new products. They have also discovered a number of opportunities that they have been able to turn into excellent business results.

ČEZ’s trading department employs nearly 130 people, including traders, analysts, IT and controlling staff, accountants and meteorologists. Their task is to sell the electricity generated by ČEZ power plants, as well as to trade various commodities and look for other business opportunities that bring additional profit to ČEZ Group shareholders. Due to the European energy crisis and gas shortages, this team of ČEZ specialists has recently focused on this commodity in particular.

“Clearly the biggest new strategic challenge for our Trading Department was and still is to secure sufficient gas for the Czech Republic. In cooperation with the Czech government, we thus acquired a share in the capacity of the new LNG terminal in the Netherlands and secured gas for it. It was a completely new field for us, the Czech Republic had never had any share in LNG and ČEZ had previously traded commodities mainly in Europe. Now we have embarked on a completely new discipline and also had to start looking for business partners on other continents - in the United States and in Asia. Thanks to these activities, we also encountered new trading opportunities and learned a lot, which contributed to our trading department’s very good results and significant additional profit for our shareholders,” said Pavel Cyrani, Deputy Chairman of the ČEZ Board of Directors, under whom the trading department falls.

For example, ČEZ started trading gas in Spain and Lithuania and also entered the LNG market in Asia, where it made a number of trades on the JKM (Japan Korea Market) hub. ČEZ also actively targeted the most important gas hub in the United States - the Henry Hub in Louisiana. Traders also expanded their know-how by trading gas storage capacity abroad. Last but not least, traders started to make more use of algorithmic trading, which is done automatically based on predefined instructions and mathematical models for individual situations. These transactions also focused mainly on the gas market.

“We have always traded gas to a relatively large extent, but with our entry into the LNG market and also in the context of the whole energy crisis, we had to move up several levels. We redeployed some of our staff specifically to LNG operations and hired a number of new specialists for other tasks. Trading is a specific and very stressful job that is not suitable for everyone. It is often necessary to react instantly within seconds to rapidly changing conditions and good traders are now in great demand on the market. Our employees are made up of people of various nationalities. We have Czechs and Slovaks, as well as Germans, French, Italians, Poles, Romanians, Hungarians and Ukrainians,” said Luděk Horn, ČEZ Trading Director.

Although the energy markets have recently focused mainly on the sufficiency of gas supplies, ČEZ traders are, of course, equally focused on electricity. These specialists have also come up with a number of innovations for electricity. For example, they significantly increased the trading of electricity transmission capacity between Europe and the UK and also started trading electricity directly in the UK. Another new feature is trading in weather derivatives, a financial instrument that allows hedging against significant weather fluctuations that increasingly affect the wholesale price of electricity. The traders also further expanded their business with different types of certificates of origin.

About ČEZ trading:

The ČEZ Group’s Trading Department began operating in its current form in 2007. Since then, it has managed to become one of the most important commodity traders in Central and Eastern Europe, contributing significantly to ČEZ’s good financial results every year. Trading performs various functions in the ČEZ Group. In particular, it places electricity produced by the ČEZ Group on the market, but it also trades on its own account for profit (proprietary trading) and performs active dispatching (optimising the deployment of ČEZ resources shortly before delivery). In addition to the traders themselves, the unit of almost 130 employees includes analysts, meteorologists and support staff: back office (confirmation and settlement of trades, contract management), middle office (reporting and monitoring of market and credit risk), IT (management and development of trading systems) and scheduling (reporting of deliveries to transmission grid operators). Although the vast majority of the trades take place during normal daytime hours, part of the team works 24/7. As part of proprietary trading, ČEZ is engaged in trading electricity, gas, coal, oil, emission permits, environmental certificates and a wide range of financial assets. All trading and business activities are subject to specific risk frameworks that define the permitted products, time horizon, counterparties and, in particular, market and credit limits and thresholds. Compliance with these limits is monitored daily.