While Europe braces for the winter-ahead with a comfortable amount of gas in storages, market participants are already eyeing the next summer season.
However, the main consensus is that the current summer to winter 2025 spreads on the Dutch TTF are too narrow to incentivize injections into the Continent’s storages over the next summer season.
According to data from Platts, part of S&P Global Commodity Insights, the summer 2025 contract of the Dutch TTF has been hovering around a discount of around Eur1/MWh to the winter 2025 contract since the start of August, leaving it at an average discount of Eur1.42/MWh for the period between April 1-Sept.10
A year earlier, over the summer season of 2023, the Summer 2024 TTF instrument was valued Eur3.16/MWh below its winter 2024 counterpart on average. This is compared with a Summer 2023 average premium of Eur7.9/MWh over the Winter 2023 product during the summer of 2022.
“The Summer 2025 vs. Winter 2025 spread is super weak on the TTF, which renders the gas storage spread unprofitable for storage operators,” a portfolio manager based in France said.
“People can now speculate on the widening of this spread now: either the summer 2025 will have to drop, or the winter 2025 will have to grow.”
The same source argued that, for injections to become worthwhile, the seasonal spreads will have to widen to at least Eur2/MWh.
Another market analyst observed that the tight spreads were reflecting an “over-relaxed” market. By betting on a mild upcoming winter, market sources seem to expect that the European gas market will start the next summer season with a comfortable amount of gas in stocks.
However, regardless of the state of the spreads, EU storages will still have to be filled by 90% before Nov. 1.
“The problem is that we will still have the 90% filling constraints, regardless of what the prices look like” a Spain-based trader said.
“It is possible that European storage operators will invoke the emergency mechanism next summer to encourage injections, if the average spread continues to trend around Eur1.5/MWh” the first source added.
The EU adopted a new regulation in June 2022 on gas storage filling obligations, requiring member states to meet fullness targets for the first time at the EU-level.
Member states were required to fill their storage sites to 80% of capacity by Nov. 1, 2022 and to 90% of capacity by Nov. 1 in subsequent years.
Between April 1-Sept. 9, net injections into the EU’s storages have averaged 2.45 TWh, leaving Europe’s inventories to be 93.09% full as of Sept. 9, with 1066 TWh of gas stored, the latest data from Gas Infrastructure Europe showed. This is compared with average net injections of 2.55 TWh in the summer of 2023, and 3.78 TWh in the summer of 2022.
Nonetheless, a UK-based gas trading analyst said that the economics of injections next summer under the current spread levels would depend on the individual storages and their churn costs.
“It would be a site-by-site, market-by-market basis,” the analyst said.
“I think Austrian CEGH VTP will be in the money but the French PEG probably won’t.”
While the trading analyst believed that these differences in storage functionality would allow for spread differences between these hubs, he thought that those differences should adjust to allow for injections, or the TTF Summer-Winter spread would widen.
“[The storages’ injection] speed [is] also very important as slower ones will be less economic,” the source added.
Germany’s INES
German gas storage industry group INES has also questioned whether current market signals would provide enough incentive to ensure filling targets are met in the coming two storage years.
INES Managing Director Sebastian Heinermann said Sept. 5 that the group would monitor price spreads in the coming weeks and months to gauge the potential impact on filling rates.
“With a view to the price spreads of the next two storage years, the question arises as to whether the market signals will continue to provide sufficient incentives for the market to fill in accordance with the law in the future,” Heinermann said.
Germany — which has the EU’s biggest gas storage capacity at some 250 TWh (24 Bcm) — set itself strict storage filling targets in summer 2022, going beyond those set at the EU level.
The country’s Gas Storage Act, which is in effect until April 2027, requires sites to be filled to 85% by Oct. 1 and 95% by Nov. 1 and to have stocks built to at least 30% Feb. 1 each year.
LNG supply delays
Platts assessed the Summer-2025 contract for Northwest European LNG at $11.642/MMBtu Sept. 10, while the Winter-2025 contract was assessed at $12.11/MMBtu for NWE LNG.
The 47 cents/MMBtu discount for Summer 2025 versus Winter 2025 was the lowest seasonal spread for LNG since Feb. 15.
Prices for Summer and Winter also remain relatively lower than last year. In comparison, Summer-24 was assessed at $14.870/MMBtu Sept. 10, 2023, while Winter-2024 was assessed at $16.145/MMBtu. The $1.275/MMBtu spread was much wider than the current spread of 47 cents/MMBtu with the market uncertainty pressuring sentiment.
The narrow summer-winter spread for LNG exemplified the market uneasiness for next year, because of the delayed startups for LNG infrastructure as well as expected demand growth and expansion in regasification capacity in the global market.
Traders expect 2025 to be tighter than previously expected given the delays for the US projects. Although these projects might provide the needed additional supply in the latter half of 2025, some players expect this tightness to continue until 2027.
“Beyond 2025 the market should be looser, but I am convinced 2025 will be tight most of the year,” an LNG trader said, adding that the race for LNG cargoes next year and delayed supply projects is causing uncertainty over next year’s injection season. Hence the narrow summer-winter spreads.
Another trader added that this uncertainty and tightness may carry through next year.
“The delays in US projects seems like a structural issue given the tight labour market, high interest rates and inflation… The tightness could be until 2026 to 2027.”
Source: Platts
