Europe Cannot Fill Storage and Replace Russian Gas Imports

The European gas market has experienced significant volatility in recent weeks as low liquidity has intersected with increased margin requirements and exhausted credit facilities to produce disorderly short liquidations. Volatility has largely burnt itself out , although TTF remains elevated. The front of the TTF curve has settled at the upper boundary of the coal-gas switching channel, which has risen significantly over the past two weeks following the sharp increase in coal prices. The move back to the top of the fuel switching range represents a return to “fundamentals-based” pricing, implying that the TTF curve is currently pricing minimal risk of disruption to Russian gas flows . We consider this move largely justified, given the limited ability for self-sanctioning to take hold in the natural gas market. Looking forward, a ttempting to align the two targets recently outlined by the European Commission (refilling storage levels by 90% on one hand and cutting Russian gas imports by two thi rds on the other) will be immensely challenging . On aggregate, the current EU natural gas storage level is around 27bcm, compared to a 90% fill target of 96bcm. This implies a storage build of around 69bcm through the summer . Considering typical build levels, (the five-year average i s around 60bcm), the targeted storage fill of 90% is feasible. However, this assumes Russian imports are held at long-term contracted levels. Cutting Russian imports by two thirds (~62bcm) would be impossible without major curtailment of industrial and commercial demand across Europe, which would likely only be triggered via enforced industrial shut downs and energy rationing.