Volatility returns to European gas markets as cold snap hits

Quantum Commodity Intelligence - Volatility returned to European gas markets Thursday as the continent faced its first cold snap of the winter, while benchmark TTF prices traded in a near €30/MWh range over the day.

Prices had already rallied sharply this week, with the front-line Jan23 contract hitting a six-week high of €164.965/MWh early Thursday before slumping back to end the session at €139.258/MWh, just above the day's low of €136.225/MWh    

Continental Europe is set to record the first sub-zero readings of the season, with temperatures falling from an average of 2C over seasonal norms to 2C under by the weekend, according to forecasters.

"European gas prices extended gains as strong demand from colder than normal weather starts to eat into gas inventories. The frigid weather is the first test of the region's resilience amid the energy crisis this season," said ANZ commodity strategist Daniel Hynes, noting that a warm autumn had allowed storage facilities to be replenished.

Prices were also lifted this week on supply concerns after technical outages in both the UK and Norway.

Norway's Troll field was forced to reduce flows earlier this week due to "process problems", system operator Gassco said, while the UK's Barrow North port terminal also faced processing problems.

ANZ's Hynes also noted the threat of disruption to Russian gas flows via Ukraine continues to hang over the market.

The European Commission has proposed a cap of €275/MWh ($283) on TTF gas prices, but members remain divided on voting through the proposal.

Under the scheme, the cap will kick in from January if the TTF price exceeds €275/MWh for more than two weeks and if the TTF price is €58 higher than LNG prices for 10 days in a row.

The Commission has been working on proposals to place a price cap on prices after TTF surged to record highs of €350/MWh at the end of August, an oil equivalent of more than $500/b.