Following the development of natural gas trading hubs in Europe, forward products have become a response to the higher exposure to price risk faced by energy companies. Yet, a significant share of trade occurs over-the-counter (OTC), where inter-dealer brokers act as intermediaries and deals may be customized. Hence, there are concerns about transparency and market quality, of which liquidity is a main indicator. Drawing on the microstructure perspective of financial markets, this study investigates liquidity in the largest one-month-ahead European forward market for natural gas using asynchronous high-frequency data. Co-movements between measures of trading activity, price changes and liquidity are assessed, which have implications for energy markets quality and risk management. Since liquidity affects trading costs and represents an additional risk for market participants, this study has implications for further developments of natural gas hubs and, overall, for the process towards the EU’s energy markets integration.

This seminar has been jointly organized by FEEM and IEFE, Bocconi University.