Danske Commodities & Equinor fined EUR 8 Million for Gas Capacity Market Manipulation

On 10 October 2022, the CRE officially documented its findings in report no. CRE-03-2021-BD on its investigation into Danske and Equinor's trading activities.

The report laid out the full investigative process, detailing the market mechanics and company actions that triggered regulatory scrutiny.

At its core, the report zeroes in on questionable trading patterns observed during the 2019 and 2020 gas capacity auctions at the Pirineos interconnection point between France and Spain.

Among the key concerns raised:

• Unusual bidding behaviour in the first round of auctions;
• A sharp drop in subsequent bids, despite minimal price increases; and
• Potential coordination between Danske and Equinor to manipulate auction outcomes.

Specific observations included in the report were as follows:

• Market Disruption and Congestion Pricing. During the 2019-2020 and 2020-2021 gas years, the amount of annual capacity sold at the Pirineos PIR was nearly zero, despite demand exceeding the available quantity in the first round of auctions. This artificial congestion activated the congestion tariff, allowing users to acquire intra-annual capacity at reduced rates, in line with existing tariff rules.
• Bid Manipulation Patterns. Danske and Equinor were the only two participants in these auctions and initially submitted bids exceeding the total available capacity of 82,286 kWh/h in the first round. However, in subsequent rounds, their bids plummeted to less than 2 kWh/h, despite auction prices increasing by only 1% between the first and second rounds and 0.2% between the second and third rounds - a discrepancy CRE found highly suspicious.
• Questionable Market Incentives. The opportunity indicator, a measure of capacity reservation profitability and defined as “the profitability of a capacity reservation operation determined by the difference between, on the one hand, the price differential between the Punto Virtual de Balance ("PVB") and the Title Transfer Point ("PEG) and, on the other hand, the capacity acquisition price”, was slightly positive before the 1 July 2019 auction but negative before the 6 July 2020 auction. Given these weak incentives, other market players avoided these auctions, yet Danske and Equinor still participated - raising questions about whether their bidding strategy was driven by genuine market fundamentals or something else.
• Suspected Collusion and Ownership Links. Authorities suspect Danske and Equinor acted in concert, strategically manipulating their combined bid volumes to artificially exceed available capacity in the first round. The suspicion was further fuelled by Equinor’s 2019 acquisition of Danske, creating direct ownership links between the two companies. CRE argued this relationship may have facilitated coordinated trading behaviour.
• Lack of Satisfactory Explanations. Danske and Equinor did not provide convincing justifications for their irregular bidding patterns. Internal documents indicated that Danske intentionally aimed to over-bid in the first round of auctions, a move the CRE saw as clear evidence of a premeditated strategy.
• Benefiting from the Manipulated Market. Following the congestion, Danske acquired a significant volume of intra-annual capacity at reduced rates for the 2019-2020 and 2020-2021 gas years - a direct financial gain from the tariff adjustments caused by their bidding actions.

The CRE provided additional detailed findings and evidence against both firms further in the report supporting arguments that both firms colluded to manipulate capacity markets.

[1] Primary Objective: Eliminate Tariff Multipliers.

• As a reminder, Tariff multipliers in the intra-annual capacity market are adjustment factors applied to capacity charges to reflect seasonal, monthly, or daily variations in demand and system constraints. These multipliers ensure that capacity pricing aligns with grid usage patterns and incentivizes efficient allocation of network resources.
• The investigation found that there was no commercial or operational justification for the companies' capacity reservations other than to remove tariff multipliers on intra-annual capacity, which reduced their costs when selling gas in the Spanish market.
• Danske’s own documents confirm that it sought to congest the market to trigger tariff changes, proving its reservations were not genuine.

[2] Coordinated Market Disruption.

• Danske bid for the maximum available capacity (82,286 kWh/h) in the first round of auctions, while Equinor bid the minimum (1 kWh/h) - ensuring the auction was over-bid from the outset.
• CRE determined that Equinor’s bid had no physical need or commercial justification, reinforcing the existence of a coordinated strategy between the two companies.
• The low volume of capacity eventually sold demonstrated that the auction was manipulated purely to trigger tariff benefits.

The CRE found Equinor’s justifications for its capacity acquisitions inconsistent and unconvincing, concluding that its bids did not reflect a real physical need and were therefore non-authentic.

• Equinor's explanation for its minimum capacity reservations lacked consistency, and its requests in the auctions were not aligned with any legitimate operational requirement.
• The claim that Equinor needed to reserve capacity at the Pirineos PIR to maintain shipper status in Spain was invalid, as Enagas had already informed Equinor on 16 April 2018, that such a requirement no longer existed.
• Equinor did not use the volumes allocated to it, and given the insignificant amount of gas transported, the CRE determined that its bids could not have served any genuine commercial or logistical purpose.

[3] Evidence of Collaboration.

• The CRE found regular exchanges of information between Danske and Equinor employees regarding market supply and demand, trading strategies, and gas flows - including during bi-weekly "Gas Analysis Network" meetings attended by decision-makers from both companies.
• Internal compliance rules failed to explicitly prohibit the sharing of auction strategies, creating an environment where confidential information could be exchanged.
• CRE highlighted that Danske’s shift in strategy coincided with Equinor’s acquisition of the company, suggesting that its altered bidding behaviour was directly influenced by Equinor’s involvement.

[4] Artificial Price Setting.

• The investigation concluded that the market congestion caused by Danske and Equinor led to an artificial reduction in intra-annual capacity prices.
• CRE rejected Danske’s argument that these price changes were a natural outcome of the market structure, stating that they were the direct result of coordinated, deliberate, and repeated actions by both companies.
• Equinor’s claim that its 1 kWh/h bid was too small to influence market prices was dismissed by the CRE who reminded readers that market manipulation can still occur even when the action is disproportionate to the advantage gained.

Danske Commodities Pushes Back: “Our Strategy Was Legitimate”

Danske strongly disputed the allegations, maintaining that its bidding behaviour was fully aligned with market rules and driven by economic fundamentals rather than manipulation.

In a written response to CRE’s findings, Danske made the following arguments:

• Their capacity requests were genuine. Danske asserts that all reservation requests in auctions are real by nature, and if they had won 100% of the capacity in round one, they would have paid for it and used it.
• They did not mislead the market. The company insisted that its bids reflected a real willingness to purchase at the set price, and market players should not have assumed these bids would be repeated in subsequent rounds.
• Their decision to change bidding behaviour was rational. The demand for reservations for the entire annual capacity in the first round was rational because it was in line with market fundamentals, as analysed and modelled by Danske in its "Auction Strategy" document. The decision not to submit a request for the entire capacity in the second auction round reflected a change in market fundamentals - specifically the increased auction price between rounds and the abolition of tariff multipliers for intra-annual capacity making intra-annual capacity a better option and prompting Danske to shift its strategy.
• Each auction round was independent. Danske argued that bidding rounds are autonomous, and its decision not to submit the same bid in later rounds does not equate to price manipulation.
• Collusion was not proven and would not constitute market manipulation. Even if a relationship between Equinor and Danske were proven, the company insists that this does not automatically constitute market manipulation under REMIT regulations and the CRE needed to prove, with evidence, that collusion occurred.
• Market rules - not Danske - set pricing mechanisms. According to Danske, the price of intra-annual capacity was determined by regulator-approved market rules, and their trading simply followed these rules without external interference.

Danske maintained that it acted in accordance with the market’s structure and regulations and requested CRE to drop the case entirely.

Equinor’s Defence: “No Signs of Collusion”

Equinor also rejected the allegations, arguing that its bidding activity was entirely legal and justified by operational requirements.

In a written response to CRE, Equinor stated:

• Its capacity requests were genuine. Equinor insists that its small bids of 1 kWh/h were legitimate orders and did not influence market pricing.
• It needed capacity access for operational reasons. Equinor claimed its bids were necessary to maintain access to the Enagas "SL-ATR" nomination platform, which was essential for its gas sales in the Spanish market.
• Its bidding strategy was consistent over four years. Equinor argued that it followed the same reservation strategy in previous years, making its behaviour predictable, not manipulative.
• Its bids were too small to impact market pricing. Equinor noted that its 1 kWh/h reservation was 10 times less than the annual consumption of a French household, and worth less than EUR €20 per year - an amount insufficient to influence market rates.
• There was no collusion with Danske. Equinor maintained that its compliance procedures, internal REMIT e-learning training, and code of conduct ensured full regulatory adherence. Furthermore, there is no evidence that employees from both companies discussed bidding strategies.
• End consumers were not affected. Equinor argued that there is no proof that its actions led to higher costs for end consumers or market participants.

CRE Finds Danske and Equinor Guilty of Market Manipulation

After an extensive investigation, CRE’s Dispute Settlement and Sanctions Committee (CoRDS) officially ruled on 27 September 2024, that Danske and Equinor violated Article 5 of the REMIT Regulation, which prohibits engaging in or attempting to engage in market manipulation on wholesale energy markets.

CRE points out that Danske and Equinor, which were the only companies to take part in the contested auctions, caused congestion in the annual capacity auctions through their requests to reserve transmission capacity and, as a result, eliminated the tariff multipliers on intra-annual capacity, which these companies were then able to acquire at a reduced price, a fact that Danske does not dispute.

Overall observations by the CRE in support of both firms’ REMIT violations include:

[1] Failure to Prove Legitimacy of Actions.

• Both companies were required to demonstrate that their bidding behaviour was legitimate and compliant with accepted market practices (AMPs) in wholesale energy market rules.
• Danske was unable to prove that its capacity reservations were genuine, reinforcing the CRE’s finding that Danske’s bids were strategic rather than operational.

[2] Equinor’s Shifting Justifications.

• Equinor initially claimed it had to reserve a minimum capacity to maintain access to the Spanish gas market, but evidence showed this requirement no longer existed at the time of the auctions.
• Despite receiving a clarification email from Enagas in 2018, Equinor did not verify whether its minimum reservation practice was still necessary and continued the practice without seeking further confirmation.
• Internal Equinor communications revealed that the real motivation for maintaining minimum capacity reservations was to protect the confidentiality of a third-party contract, contradicting its formal justification.
• Notably, Equinor abandoned this practice immediately after the investigation began, further undermining its claims.

[3] Lack of Compliance with AMPs.

• Neither Danske nor Equinor provided evidence that their actions complied with AMPs, instead asserting compliance without substantiating it.

Danske Commodities’ Violations

The designated member of CoRDS concluded that Danske’s strategy was intentional and directly contributed to market manipulation, citing the following evidence:

[1] Deliberate Auction Over-nomination.

• CRE determined that Danske deliberately over-nominated the first round of auctions, ensuring that Equinor’s minimal 1 kWh/h bid would not trigger competition, and ultimately leading to an artificial congestion event.

[2] False or Misleading Market Signals.

• Danske’s capacity reservations at 82,286 kWh/h did not reflect a real intent to acquire capacity.
• The company’s actions misled market participants by creating the illusion of high demand, when in reality, the goal was to manipulate pricing structures for intra-annual capacity.

[3] Manipulative Pricing Tactics.

• Danske structured its strategy around the removal of tariff multipliers in the intra-annual capacity market and thus making intra-annual capacity prices more favourable.
• CRE’s ruling emphasised that Danske’s preparation for these auctions was minimal compared to its previous auction strategies, reinforcing suspicions that the primary objective was to alter market pricing, not secure capacity.

[4] Economic Justification Was Absent.

• Danske’s own response to regulators (22 April 2021) admitted that its trading behaviour did not follow standard economic rationale.
• The company failed to provide any reasonable explanation for why it chose not to follow over-nomination procedures to access the Spanish system, as it had done in previous years.

[5] Artificial Price Fixing.

• Market price analysis before and after the auctions demonstrated that intra-annual capacity pricing was artificially altered due to Danske’s intervention.
• Without these large-scale, misleading bids, other traders would have faced completely different pricing conditions.

[6] Coordination with Equinor.

• CRE investigators found strong and corroborative evidence that Danske and Equinor engaged in concerted action to manipulate the auctions including sharing of information and documents on natural supply and demand estimates as well as feedback during meetings. In their evidence they noted:

In the light of Article 2(2)(a)(ii) of the REMIT Regulation, it is possible to establish a body of specific and corroborative evidence of concerted action between Danske and Equinor since the rules of engagement established between these companies to govern their relationship are insufficient to rule out the possibility of the existence of a strong informal closeness between the two companies, which regularly share information and documents dedicated to estimating the supply and demand of natural gas, as well as feedback during meetings entitled "Gas Analysis Network".

• Regulators noted that Danske’s confidence in placing excessive bids suggests it knew in advance that Equinor would not introduce real competition in the auction.

[7] Continued Manipulation Until the Investigation Began.

• The over nomination behaviour persisted even after Equinor’s acquisition of Danske in 2019.
• Regulators pointed out that market manipulation only ceased once CRE launched its formal investigation.

The CRE provided further detail on page 24 outlining its determination that Danske’s capacity reservations in the 2019 and 2020 auctions were not genuine and conclude that the company’s true objective was market manipulation rather than securing capacity.

• Internal documents from Danske (including its Yearly Auction Strategy 2019 and Strategy 2020) explicitly state that its goal was to create congestion in the first auction rounds to trigger tariff changes - not to acquire capacity.
• Danske admitted it was willing to take a small financial loss in the process to ensure price increases and eliminate tariff multipliers for intra-annual capacity.
• After over nominating in the first round with a maximum bid of 82,286 kWh/h, Danske failed to follow through in later rounds, reinforcing the argument that its initial bid was purely strategic and not based on real demand.
• CRE found that Danske could not provide a convincing explanation for why it did not continue bidding at the same volume in subsequent rounds, further supporting the conclusion that its reservations were artificial.

As a result, Danske was found guilty of violating Article 5 of the REMIT Regulation, specifically Article 2(2)(a)(ii), for sending false and misleading market signals through non-authentic capacity reservations.

Equinor’s Violations

The designated member of CoRDIS concluded that Equinor was an active participant in the manipulation scheme, highlighting the following violations:

[1] Concerted Action with Danske.

• Investigators found specific and corroborative evidence that Equinor coordinated its bidding with Danske, ensuring market congestion at the disputed auctions.
• Equinor’s justification for its bidding behaviour was inconsistent, and its low-capacity bids (1 kWh/h) did not align with any genuine physical need.

[2] False Economic Justifications.

• Equinor initially argued that its minimal capacity requests were necessary for regulatory compliance in Spain, but evidence revealed that Enagas had informed Equinor in 2018 that no such obligation existed.
• Moreover, the capacities Equinor acquired at these auctions were not even used, reinforcing the claim that its bids were designed to support Danske’s strategy rather than serve any operational need.

[3] Market Price Manipulation.

• The CRE determined that the pricing of intra-annual capacity was artificially fixed due to the combined actions of Danske and Equinor.
• Without their intervention, other market participants would have faced different pricing conditions, proving the market had been distorted.

[4] Corporate Ties & Strategy Sharing.

• The decision noted that Equinor and Danske shared information on supply-demand forecasts and auction strategies, further indicating a coordinated approach to manipulating the market.
• Despite Equinor's internal compliance policies, the CRE ruled that the companies’ close operational relationship allowed for informal coordination.

The CRE, after an extensive investigation, found both Danske and Equinor guilty of market manipulation under Article 5 of the REMIT Regulation, concluding that they intentionally caused market congestion to artificially lower intra-annual capacity prices.

This case is a reminder to energy traders, commodity firms, and financial institutions operating in wholesale energy markets that aggressive trading strategies that manipulate market mechanisms - no matter how sophisticated and how small may not go unnoticed.

Impact on Market Participants

The Danske-Equinor market manipulation case has far-reaching consequences for firms operating in wholesale energy markets.

Key takeaways from this case include:

[1] Regulatory Scrutiny In Capacity Auctions Has Intensified.

• The case sets a precedent for closer oversight of capacity auctions, reinforcing that wholesale energy markets must reflect genuine supply and demand dynamics rather than price distortions that manipulate markets.

[2] Bidding Strategies Must Be Justifiable & Transparent.

• Danske’s use of misleading capacity reservations and Equinor’s minimum capacity bids without operational justification were flagged as manipulative indicators tactics.
• Firms must ensure that their bidding behaviour is rooted in legitimate market needs and can withstand regulatory scrutiny.

[3] Collusion Risks in Mergers & Acquisitions (M&A).

• The investigation found that Danske’s trading behaviour changed significantly after Equinor’s acquisition, reinforcing concerns that corporate ties can enable, or be perceived to enable, anti-competitive coordination.
• Firms engaged in M&A activity must establish robust information barriers and compliance controls to prevent the perception - or reality - of collusive behaviour.

[4] Internal Compliance Policies Need Strengthening.

• CRE determined that Danske and Equinor’s internal compliance frameworks lacked explicit prohibitions on sharing auction strategies, creating an environment conducive to information exchange.
• Firms must ensure that internal compliance rules are not just broad principles but provide clear, enforceable guidelines on market conduct and trading ethics.

Compliance Considerations & Learnings for Market Participants

The case provides several lessons for Compliance teams operating in capacity markets as follows:

[1] Legitimate Market Participation and Documentation of Trading Strategies.

• Ensure that all bids reflect genuine commercial intent rather than being designed to manipulate pricing structures.
• If capacity reservations or other trading strategies are challenged, firms must be able to provide clear economic justifications. Documentation of trading strategies are a must.

[2] Robust Internal Compliance Controls.

• Establish explicit prohibitions against information sharing related to trading strategies between affiliated entities.
• Strengthen internal monitoring and reporting mechanisms to identify potential market manipulation risks before regulators intervene.

[3] M&A and Information Sharing Risk Mitigation.

• Implement strict information barriers when firms with overlapping market interests merge or form strategic partnerships.
• Conduct post-acquisition compliance audits to assess any changes in trading behaviour that could indicate unlawful coordination.

[4] Regulatory Awareness & Proactive Engagement via Updated Training.

• Firm must stay ahead of evolving regulatory expectations and be proactive in engaging with regulators on market conduct policies.
• Training programmes should be updated to align with this latest regulatory enforcement action.