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Argus Media Limited

10/08/2021 | News release | Distributed by Public on 10/08/2021 10:51

Summer-winter spread inverts at Dutch TTF

The summer 2022 contract at the Dutch TTF gas hub has moved to a premium to the winter 2022-23 price since the end of last month, with firms increasingly pricing in the risk of exceptionally low start-of-April stocks.

Northwest European gas storage inventories entered this winter at a substantial deficit to previous years. And while a rapid stockbuild in recent weeks has pushed German stocks above the threshold that would allow for a repeat of the highest stockdraw of the past five years - 160.3TWh in winter 2017-18 - they still lag well behind previous years.

Adding to low inventories, climate models hint at the potential for a colder than average winter in Europe and Asia. Early signals point to an increased likelihood of a sudden stratospheric warming event, which most recently happened in January. Such an event would bring freezing weather to the northern hemisphere. Several meteorological agencies are also predicting a higher-than-usual probability of a La Nina weather event, historically accompanied by below-average temperatures in the north Pacific and Atlantic basins.

And northeast Asian LNG prices have outpaced dramatic gains at the TTF this week, extending their premiums enough to comfortably offset the higher shipping costs of bringing an Atlantic basin cargo to Asia ahead of Europe. This development points to stalling European LNG receipts this winter.

Price signals point to a clear incentive for firms to withdraw considerably from storage throughout this winter. The TTF March price was €45.055/MWh above the April contract at yesterday's close.

If European gas inventories are exceptionally low at the start of next summer, Europe will have limited ability to deal with a cool spring or any unplanned supply disruptions, which could drive up the region's injection demand throughout the summer.

The TTF summer 2022-winter 2022-23 spread turned positive on 30 September and has expanded since then. And the second-quarter 2022 market has sharply extended its premium to the third-quarter 2022 contract. This means contracts for delivery in the first half of the summer are at a substantial premium to the winter 2022-23 price, but those delivering in July-September are still at a discount. The Dutch second-quarter 2022 market closed €2.30/MWh above the front-winter price yesterday, while the third-quarter 2022 price closed €0.95/MWh below it.

Prompt gas prices next summer holding at a premium to contracts delivering in winter 2022-23 could discourage an early start to the injection season, similar to the early months of last summer.

And if injections get off to a slow start, prices could continue rising from the front of the curve as firms compete to secure enough gas to add to storage, possibly keeping prompt prices above the front-winter contract.

This would be similar to this summer, when the TTF everyday market averaged a €0.376/MWh discount to the winter 2021-22 contract.

By Jacopo Casadei and Natasha Fielding

TTF summer 2022-winter 2022-23 spread€/MWh
TTF forward curve up to March 2023€/MWh