Record end of year European stock level underpins TTF price retreat

The TTF MA contract has fallen over 30% since the end of October. Prices are being pressured by the combination of a mild start to winter, which is exacerbating existing demand side weakness, and a robust supply side, underpinned by a strengthening of LNG & NCS imports. Further, declining EUA carbon prices (see recent snapshot) have pulled the key European power switching anchor lower.

The intricacies of European gas fundamentals become evident when examining underground stock levels for the current winter, which have consistently tracked along the upper bounds of the 5-year range. This is in large part thanks to an unseasonably late start to withdrawal season, owing to mild weather and the unloading of floating LNG vessels in early November.

Despite heading into 2024 with several bullish risks, such as geopolitical tensions (including the Red Sea transit risk), infrastructure challenges (notably the risk of delayed start-up of new liquefaction projects) and weather-related uncertainties surrounding the temperature outlook in Q1’24, the near-record level of gas in storage approaching the new year is mitigating the risk premium in the 2024 curve. This buffer alleviates concerns that prices will need to undergo aggressive increases to incentivise further demand destruction before the new wave of LNG liquefaction capacity begins to hit the market in 2025.