The price of TTF natural gas continued to decline this week. The one-month futures contract is currently trading at less than 27 euros per megawatt hour, a 20-month low, notes Carsten Fritsch, commodities analyst at Commerzbank.
Gas storage levels in the EU remain very low
“Gas storage levels in the EU are well below last year and below normal for this time of year, at 74%. The situation is even more serious in Germany, where gas storage levels are only 65.6%. The reason given for the satisfaction of market participants is the milder temperatures expected next week and abundant LNG imports.”
“However, this is a very short-sighted view, as winter has only just begun and is likely to bring more cold spells. BNEF estimates that, based on average withdrawals over the last 10 winters, gas levels in the EU will fall to around 30% by the end of winter. However, a cold snap at the end of December will be enough to cause levels to fall to 28% by the end of March.”
“With the recent rise in US natural gas prices to a three-year high of €14.8 per MWh, the price differential between TTF and the US Henry Hub price has reached a three-year low, making US LNG shipments to Europe less attractive. This is because liquefaction, cooling and transportation costs must also be taken into account, which are likely to consume most of the current price gap. Thus, the lax stance of market participants could be deceptive when the next cold snap comes. LNG shipments to Europe is less.”
