Traders eye bullish summer conditions as European gas markets heat up

As healthy storage and muted demand for natural gas exerted bearish pressure on European prices over the beginning of 2024, market participants believe that prices should remain above Eur25/MWh to support LNG imports, market participants said in discussing recent market dynamics.

Despite a recent uptick in prices, sources believed that the trend for natural gas prices is weak but they would have to remain above their recent lows in the summer season to attract enough LNG into Europe.

Given current fundamentals and lack of significant bullish factors, market players think Dutch TTF prices will remain constrained within a normal volatility range of Eur22/MWh-Eur28/MWh ($24/MWh-$25/MWh), with some sources putting the floor slightly lower at Eur20/MWh.

Over 2024 so far, the TTF month-ahead contract has averaged Eur27.74/MWh, data from S&P Global Commodity Insights showed March. 6. The instrument started to trend lower, below Eur25/MWh on Feb.14, then hovered above Eur23/MWh starting Feb.19, to average 23.58/MWh between Feb.19-26.

Recent news of the prolonged outage at the Texas LNG Freeport Train 3 however, sparked bullish sentiment, that market participants saw as a correction from the previous lows. During this uptick, TTF prices rose again to around Eur25/MWh on Feb. 28

“Some correction from the previous lows was needed. But the general trend is bearish yes, the picture has not really change at the end, but volatility remains” a Spain-based trader said.

Prices continued increase with Platts most recently assessing the front-month TTF contract at Eur27.555/MWh March 5, 2.97% higher on the day, according to S&P Global data.

“I don’t see high 20s [for TTF] over summer either… To sell stocks at these levels for next winter does not make sense. I don’t see any reason for prices to stay at [the current] level.” an LNG trader added.

A year earlier, the TTF month-ahead price averaged Eur57.73/MWh over the first two months of 2023 and continued to fall until the beginning of June. Sources believed this same trend would repeat itself in 2024.

Despite the current bearish sentiment, some market participants don’t seem to think that prices in the summer will fall back to the Eur23/MWh level seen in February.

“Prices below €25 were not sustainable in summer 2023 – that’s when you start triggering a lot of LNG flexible demand from everywhere, limiting what is left for Europe. So even if high prices were not supported by fundamentals last summer, the market stayed high last Q3 as well. And it seems that we still have the same risk perception that we had last year, we can see it now, with more unexpected summer maintenance and nuclear unavailability,” a UK-based gas trading analyst commented.

Another Swiss-based trader added that bullish days should persist until LNG buyers secure their “2024 needs”, with this bullish impact potentially slowing down as the JKM prices approach $10/MMBtu.

The current price for April deliveries into Northwest Europe is at $8.034/MMBtu March 6, according to Platts assessments. Prices for the Mediterranean and East Mediterranean were assessed at $7.894/MMBtu and $8.284/MMBtu, respectively.

Other market participants priced the floor for LNG to range between Eur-18-Eur20/MWh, as sources added that if prices fell by a sizeable level, chances of cancellations of cargoes coming from the US would increase.

Indeed, despite the bulls of the market recently emerging from the sidelines, with spells of bullish news pushing up LNG prices, the market still remains structurally weak. Ample supply from high gas and LNG inventories, as well as a strong LNG import trend has battled the depressed demand from the residential and commercial sectors this heating season. A weak economic and industrial outlook across most parts of Europe has also subdued demand in the last few months.

For now, LNG and gas inventories remain healthy. EU gas stocks were 61.91% full as of March 4 higher than the 59.52% seen on March 4 in 2023, according to Aggregated Gas Storage Inventory data from the GIE. Meanwhile, EU LNG inventories stood at 4.909 million cu m, which was again higher than the 4.298 million cu m seen this time last year, Aggregated LNG System Inventory data showed.

Platts is part of S&P Global Commodity Insights
Source: Platts