Tension is rising again in the European gas market. Once again, it is Russia that scares gas traders. In the meantime, the EU is insisting on building up sufficient stock to safeguard security of supply. This may play a major role in the extreme prices of the moment.
The European gas price continues to rise. On Monday, August 22, the top seemed to have been reached on the TTF at €276,75 per MWh. A day later, the market took a breath and took a small step back to €269,05 per MWh. Today, however, the TTF is on the rise again. While writing this article before the market closed, the rate stood at €287,65 per MWh.
One of the main causes for the sharp increase in the European gas price is maintenance of the Nord Stream. Russian state-owned company Gazprom announced on Friday that gas will not be transported via the Nord Stream for three days at the end of August due to work on the pipeline. In the already very tight gas market, this news immediately caused mild panic among traders. At the moment, the Nord Stream is only used for 20% of the available capacity. This supply has remained stable so far, according to the data from the network operators.
Stock versus price
While the TTF has taken a big step upwards after the news from Gazprom, the LNG market is reacting less nervously. According to Ciaran Roe, director of S&P Global Commodity Insights, the price of LNG contracts for October delivery ex ship in Northwest Europe has even fallen slightly. This means that European gas prices are out of step with each other. A possible explanation for this is the European goals with regard to filling gas storage facilities. The EU wants storages to be at least 80% full before the start of winter. Only a limited amount of gas is supplied and all Member States have to make do with that. The stock target stimulates mutual competition between the Member States, resulting in an upward price spiral. That has another negative side effect. Gas prices are usually lower in summer than in winter. It is therefore worthwhile for private parties to buy and store gas in the summer with associated costs for use in the winter. The highest quoted contract on the TTF yesterday was the December contract at €276,12 per MWh. That is a difference of only €7 with the September contract. That difference is too small and the risks are too great for many companies to build positions. Especially given the extreme volatility on the gas market.