European gas, LNG markets ease after spiking from Russian attack on Ukraine storage

Recent Russian attacks on a Ukrainian underground gas storage site had sparked higher European gas and LNG prices, however, ample stocks outweighed supply concerns ahead of injection season and prices fell back.

The Dutch TTF front-month contract had opened the week at Eur28.055/MWh on March 25, quickly rising to a high of Eur29.07/MWh by 1134 GMT according to Intercontinental Exchange data. On March 26, the Dutch TTF front-month contract opened the day at Eur27.700/MWh and fell to a trough of Eur26.980/MWh by 1517 GMT according to Intercontinental Exchange data. Platts, part of S&P Global Commodity Insights, last assessed the TTF month-ahead price on March 25 at Eur28.44/MWh.

Meanwhile, the Platts DES Northwest Europe LNG Marker for May was assessed at $8.766/MMBtu on March 25, up 38.20 cents/MMBtu on the day before falling 33.4 cents/MMBtu to land at $8.432/MMBtu on March 26.

Prices eased as supply remains comfortable with gas storage levels in the EU at 59.18% of capacity as of March 24, above the 55.83% seen this time last year, according to Aggregated Gas Storage Inventory data. Meanwhile, EU LNG inventories were at 4.860 million cu m, above the 4.346 million cu m seen March 24 last year.
But the attack did get natural gas market participants to turn their attention to the economic and practical viability of using Ukraine’s storage facilities as the summer injection season fast approaches.

“There is about 10 Bcm of spare capacity in storage facilities located in western Ukraine close to the Slovakian-Ukrainian border, relatively distant from ongoing hostilities,” according to a report from S&P Global. “EU gas suppliers and traders storing gas in Ukraine is not a new idea. In 2020, during a summer of low gas demand caused by the COVID-19 pandemic and the ensuing lockdowns, European companies injected around 10 Bcm into Ukrainian storage.”

The report added that in 2023, the early fill of European storage once again drew attention to the potential use of Ukraine’s sizable storage capacity. Very wide summer-winter spreads gave a strong incentive for traders to inject gas into Ukrainian storage. Flows into Ukrainian storage facilities by traders using Ukraine’s CW rule peaked at about 30 MMcm/d in August–September 2023.

So far in 2024, the incentives to store gas in Ukraine have not resurfaced as the Summer 2024 and Winter 2024 spread on the Dutch TTF — Europe’s benchmark natural gas hub — was at a narrow discount of Eur3.96/MWh on March 25, compared with a discount of Eur8.175/MWh March on 22, 2023, for the Summer 2023 and Winter 2023 contracts.

Although current summer-winter spreads were too narrow to incentivize storage, the cushion Ukraine had provided Europe was no longer a given due to the ongoing Russia-Ukraine war.

Increased risk market risk

“This risk has now materialized, this definitely has something to do with bullish momentum today,” a Netherlands-based trader said. “Traders are afraid of preventing injections/withdrawals and flows from these facilities, losing the possibility of access to the gas stored at any point.”

A Switzerland based trader added that there was no relevant damage and “from a geopolitical perspective this is nothing new… but it generates uncertainty.”

Another trader reiterated that while the attacks may have contributed to the intraday price rise that they were “not convinced if Ukrainian storages play such [a] strategic role for Europe to affect TTF…. I think [it] is more about that another time the energy infrastructure has been a target.”

“It´s just the risk we evaluated last year on these facilities,” a Germany-based trader said. “The big discussion is the extension of the Russia-Ukraine capacity contract beyond 2024, in a colder winter scenario the flows via Ukraine will be a highly critical factor… if Ukrainian storage facilities work and gas flows from there into Europe, the ball is on the EU’s side.”
Source: Platts