Given the complex nature of energy markets, a good chart can be worth a thousand words. Animating a series of charts and turning them into a movie can be even more valuable. In our article today we apply this approach to illustrate the evolution of TTF prices over the last two years.
Chart 1 is an animated view of the evolution of front month TTF prices (the blue line) and the liquid front two years of the TTF forward curve (the black line). To give a clearer view of shifts in the forward curve we also show the position of the forward curve for the two previous months (the grey lines). As you can see TTF has been on quite a wild ride since 2016.
The spot price story
A brief recap of TTF spot price evolution across the 2016-19 horizon shown in the chart:
- The bottom: TTF prices formed a major bottom in 2016 (along with other global commodity markets e.g. oil, coal & base metals), above 10 €/MWh.
- Seasonal recovery: In 2016 and 2017, prices exhibited classic seasonal behaviour, rising across Winter 16-17 (strong gas demand given French nuclear outages) and falling into Summer 17 (inducing power sector switching).
- The top: Prices rose again into Winter 17-18, but shirking the seasonal trend, remained elevated in 2018 around 20 €/MWh, before rising again across Summer 18 to almost 30 €/MWh (as European switching levels rose with carbon and LNG was diverted to satisfy strong Asian demand).
- Big retracement: Price action across Winter 18-19 has been one way (as surplus LNG has flooded back into Europe and economic growth expectations have slowed). TTF again ignoring seasonal trends has plunged back below 18 €/MWh. More here on the drivers of this fall in TTF prices.
Across the 2016-19 period you can think of the European gas market having been through a mini-cycle which begun in Summer 2016 (~10 €/MWh) and peaked in Summer 2018 (~30 €/MWh), with prices retracing more than 60% of this rally in the last 6 months.
The forward price story
Within this mini-cycle there have also been some major shifts in the shape and behaviour of the forward curve:
- Flat & rising: During the recovery stage of the move up in TTF prices across 2017, there was a virtually parallel shift up in forward prices (which retained a relatively flat curve shape across the front two years).
- Surge to backwardation: In 2018, forward prices continued to move higher with spot, but this time with the front of the curve rising faster and opening up a pronounced backwardation by the end of Summer 2018 (an unusual condition in gas markets).
- Slump to contango: Across Winter 18-19, not only have spot prices plunged, but the shape of the TTF curve has undergone a major shift from backwardation to contango. This reflects a huge shift across the last 6 months in the market’s expectations of the nearer term availability of gas (from drought to flood).
The change in curve price shape has been most pronounced over the first two months of 2019 as we set out in our Snapshot column chart last Friday, which shows 2019 summer/winter spreads blowing out to 3.6 €/MWh, their highest level since 2012.
Across the swings of 2018-19, particularly the recent steep decline, prices in the tail of the TTF curve (two years forward and beyond) have been more stable than the front of the curve. This differentiation in forward price movements is consistent with market players more actively managing positions across the curve. This is a good indication of a maturing forward market at TTF.
