Europe's main gas benchmark is heading for multi-year highs even after a reported Russia-Ukraine energy ceasefire. Storage is filling faster than expected, but it remains well below seasonal norms.
Dutch TTF futures trade around 83 euros per megawatt-hour, the highest level since early 2023. The September pullback to around 70 euros per megawatt-hour was short-lived.
Europe is entering winter without Qatari LNG exports and with storage levels well below 15-year lows. The rally comes despite improving Strait of Hormuz energy flows.
Storage fills faster than expected
Citi analyst Maggie Xueting Lin wrote in a note: "Even without Qatari LNG exports, Europe is injecting gas into storage at a faster-than-expected pace." Storage reached 73.1% on Oct. 7, above earlier expectations that Europe might not reach 70% before winter.
Still, EU storage remains well below seasonal norms, with the 15-year average around 90%. In late August, when TTF traded around 67 euros per megawatt-hour, Goldman's Samantha Dart said prices would need to rise near 100 euros to discourage Asia LNG demand and free cargoes for Europe.
Citi sees three factors easing the balance
Lin identified three factors easing Europe's natural gas balance ahead of winter: industrial demand destruction, warm weather and an unexpected shift in Ukraine's role from net importer to net exporter.
First, industrial gas demand fell about 8% year over year in September and stayed nearly 30% below pre-2022 levels in Citi's six-country sample. The weakness persists after adjusting for warm weather, and Citi sees evidence of additional price-driven demand curtailment.
Next, Ukraine could re-export as much as 1 billion cubic meters this winter, which could loosen Europe's winter balance by 4.5 billion cubic meters versus last year.
Citi stays bearish
Lin is bearish on EU gas prices and maintains a fourth-quarter TTF base case forecast of 56 euros. She believes industrial demand destruction is easing the shortage amid continued disruptions to Qatari LNG exports.
Source: Oilprice.com
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