A recent conference attended by the demand side of the gas business has stated that they expect Winter 2006 to be similar to Winter 2005 in terms of European gas supply not meeting UK demand. They have stated that nothing has changed and that in effect the market broke down, in Winter 2005 as European players kept gas in their own backyards rather than sell it at a premium in the Uk market. In short the market did not work.

They have stated that there needs to be greater transparency in cross border trading, a lower European reliance on long-term contracts, and the need to break up the few companies that dominate the markets. Whilst these are all reasonable claims, the truth is that the auctioning of NBP capacity prior to delivery does not work well, because players realise that what they make on the gas switch away from Europe to the UK, they will lose on the auctioning process, plus they have to pre-empt the market, this risk does not need to be taken it is a pure punt. In short, it is easy for regulators and commentators to say with hindsight what should have happened but in reality  traders did not have hindsight to trade with and so they used their limited capital at risk, playing in an already wild and volatile fowards market. Many players profited enough from this they did not need to worry about small volume physical trades when the market could have switched at any time. The way to solve this apart from the suggestions above is to create a gas physical flexible market, with both suppliers and producers capable of playing in a wild day ahead or shorter market.