Last week, European gas prices continued to fall. The TTF front-month fell 15% in two days, closing at €130/MWh after the mid-October weekend compared to €155/MWh the previous week. German gas storage reached 95% of capacity last Wednesday, a target originally set for 1 November, providing an important sentiment for the market. However, it is still unclear how long the reserves will last once winter sets in, even if they are well-filled.
This week, European gas market prices have dipped further, below €100/MWh or half of the average level seen in September. On Tuesday, EU energy ministers will discuss the latest measures on the topic of energy prices. A ”dynamic” price cap is expected alongside limits to how much traded prices can fluctuate in a single day. The purpose of the proposal is to avoid volatility and price hikes. The outlook for this week is for the market to take a sideways view. Gas prices may also decline further, as the European Commission’s price cap drama continues. However, there is a risk that the price cap and ceiling price on the TTF will make us direct losers when it comes to bidding between Europe and Asia. As winter comes, Asian countries will start claiming back their contracted LNG purchases. In this case, the large flow of LNG to Europe decreases rapidly. If we are lucky with the weather we can escape a gas crisis this winter, but we may also be experiencing the calm before the storm.
In the week ahead, ELS will keep its eye on the European Council’s continued discussion on a temporary gas price cap on the 25th of October. Additionally, Ursula von der Leyen said in her State of the Union speech last month that the Commission will work on establishing a more representative benchmark for energy trading, as the current TTF benchmark no longer represents the market following dramatic changes recently. This is also something that ELS will continue to keep track of, as that in itself raises market uncertainty.
