* Dutch hub closing in on British rival
* No currency risk for European traders to hedge in euros
* Europe's biggest utilities are from Eurozone
* Waning British dominance in output
By Henning Gloystein and Jason Neely
LONDON, Aug 19 (Reuters) - Britain's dominance in European natural gas trading is under threat from a Dutch trading hub where volumes are soaring, buoyed in part by Europe's utility companies who prefer to hedge their deals in euros.
Britain has been the region's leading gas trading hub since North Sea oil and gas discoveries in the 1970s made it Europe's main producer. This position was cemented when it liberalised its energy markets in the 1990s, meaning much of its gas was sold and exported in pounds.
However, gas trading now faces similar challenges to the ones Britain faces in finance: London is at odds with the European Union over banking and financial markets regulation and some foreign banks are concerned about the UK leaving the union.
While the City of London looks to retain its role as Europe's leading banking hub, Britain's role in the region's utility sector is small. Traders have started to look beyond the National Balancing Point (NBP) virtual trading hub to alternatives such as the Dutch Title Transfer Facility (TTF).
"The problem is NBP trades in sterling," said Derek Willis, a spokesman for the London Energy Brokers Association which represents wholesale markets broking firms active in the UK and liberalised European energy markets.
Declining production means that Britain has become a net importer of gas, often via shipments of liquefied natural gas (LNG) paid for in U.S. dollars, while its own sales in pound sterling have declined.
Additionally, the development of the gas hub in Eurozone member Netherlands with its own gas reserves and proximity to Germany, Europe's biggest gas consumer, means that Britain's may lose its role as the continent's biggest gas hub.
"We've been debating when the TTF market might catch up to NBP in total volume," trading platform Trayport said in its latest market update.
A record month in July and surge this year means TTF is rapidly catching the NBP. "July 2014 saw a record month in TTF since our volumes began in 2011, with this market growing to just under 78 percent of NBP," Trayport said.
"Total TTF volumes are up 61 percent YTD (year to date)2014," Trayport added, while noting those on NBP advanced by 27 percent.
The Dutch TTF offers euro-based hedging, attracting traders to more liquid futures contracts than at other continental hubs such as Gaspool and NCG in Germany or Zeebrugge in Belgium and who do not want to take the currency risk of hedging on the sterling-based NBP.
There is also no British power provider among Europe's biggest utilities, which are France's EDF and GDF Suez , Germany's E.ON and RWE, or Italy's Enel and Spain's Iberdrola.
That is important because natural gas is largely used for power generation, and it is much more convenient for utilities to trade gas in their home currency, the euro, and in units compatible with their main product, electricity.
European power and gas trades in euros per megawatt-hour (MWh) while in Britain gas is dealt in pence per therm (p/th).
In August, the daily currency swing between NBP spot gas prices in euros per megawatt-hour (Eur/MWh) and pence per therm (p/th) has topped 1 percent, adding unnecessary risk for would-be traders.
Dutch bilaterally brokered volumes, which are not traded through electronic exchanges, had already surpassed such deals on Britain's NBP, Trayport said last month.
(Editing by Anna Willard)