As Summer Progresses, European Gas Market Moves Deeper Into Contango

The large injection gap has been reduced significantly since April, but that would not curtail the activities of shippers which need to further fill underground storages across the continent.

Injection demand gets additional support

This year’s injection demand in Europe has been supported additionally by the newly adopted rules on minimum gas storage obligations, which makes the current summer different from previous ones. In other words, in addition to players’ market-driven need to be prepared for another winter heating season, they should also keep in mind the EU Commission’s requirements.

As summer progresses, the combination of these two factors has contributed to the widening of the price difference between near-curve contracts and those for delivery later in Q3. If a month ago, the TTF September ’22 contract was assessed at a discount of about €0.20/MWh to the July ’22 product, the spread switched to a premium of more than €1.50/MWh in late May. With less time available for restocking, the intra-summer gas market has moved deeper into contango.

What could complicate process

In the current price environment, many shippers’ interest lies in maximizing injections of prompt volumes into the storages. However, there are things that may somehow complicate the task.

First, an increase in demand for cooling appliances should leave less gas for other uses in mid-summer. Second, the routine annual maintenance is scheduled on the Nord Stream pipeline, which can result in lower Russian gas flows. And finally, gas injection rates will largely depend on whether sufficient amount of LNG cargoes is delivered at the European terminals in coming months.

The opinions expressed in this blog are mine only and do not reflect the views of my employer

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