Winter TTF gas trades at record €352/MWh, Goldman says market overshoots
Quantum Commodity Intelligence - European natural gas prices surged to record highs Friday as the market maintained its firm upwards momentum, with upcoming maintenance on the Nord Stream 1 pipeline seen as a potential precursor for ongoing Russian supply shortfalls.
Dutch TTF futures for Oct22 traded at a high of €348.785/MWh, an oil equivalent of around $600/b, before settling at €346.522/MWh, while the Nov22 and Dec22 contracts both traded above €350/MWh, over 6% higher on the day.
The front-line Sep22 contract traded at a high of €342/MWh before easing to €339/MWh, still up 5% on the day and the equivalent of around $100/mmBtu, or more than 10x times current US natural gas prices.
However, Goldman Sachs cautioned in an investor note Friday that the latest TTF rally has overshot fundamentals.
The US investment bank noted that European gas prices have rallied around 60% over the past three weeks, driven by a renewed heat wave across Europe and, more recently, by the Gazprom announcement that it would bring NS1 to zero for three days for maintenance at the end of this month, raising supply uncertainty in the region.
"Even taking these events into account, we believe gas prices have overshot fundamentals helped by poor market liquidity and that European gas markets can balance with TTF well below current levels."
Storage
The bank said it still expected Northwest European storage to end the summer at 90% full, even if 3Q22 TTF prices return to their "expected" €170-190/MWh range.
"Even if the upcoming NS1 outage becomes permanent, requiring higher demand destruction, we estimate the region can manage storage levels with 3Q22 TTF at €215-230/MWh, well below current price levels."
On Thursday, Morgan Stanley said European inventories of natural gas are likely enough to last through winter even if flows of gas from Russia's main pipeline to Europe fall to zero.
The summer TTF price surge was triggered in mid-June by the initial row over the return of a turbine from Canada that Russia said was essential for NS1, coinciding with the blast at the Freeport LNG terminal.
At the time, front-month TTF was trading at around €80/MWh
Asian LNG futures also soared to fresh highs this week, with North Asian benchmark JKM futures for Oct22 closing Thursday at $69.955/mmBtu, while Jan23 settled at $76.275/mmBtu.
The previous record high for TTF came in early March as the then front-month April contract skyrocketed to €345/MWh.
Meanwhile, The French 1-year forward electricity contract traded above €1,000/MWh on Friday, up from the 2010-2020 average of €45 per MWh, reported Bloomberg.
