European Gas Market Update – Premium Priced Out

European gas prices have moved in line with our views explored in our last note, with Sum-24 now pricing at our prior forecast. We see Europe an gas storage ending the current withdrawal season with 50bcm, or 48%. We also expect a looser balance year-on-year across Sum-24, with the market having a greater capacity to build stocks given more aggressive Norwegian supply and strong solar generation, which will continue to erode the thermal gap. Indeed, o ur fundamental views imply the requirement to pay for overspill storage (Ukraine, floating LNG) towards the end of the injection season once again, with late-Sum-24 contracts likely to discount significantly relative to Win24-25 to clear . However, the contango required to access overspill storage (between €12-17/MWh based on insurance costs to store gas in Ukraine) is likely to be priced off a much lower forward curve on a year-on-year basis, given the wider trend of risk premium being priced out of the longer-dated TTF curve over the past month. Win24-25 is currently priced at €40.3/MWh, compared to Win23-24 pricing at €50.1/MWh in Aug-23. We currently see a floor for the Win24-25 contract around €35/MWh, as we do not see the market re-rating its long-term view of TTF fair value in the context of risks to Ukrainian transit expiry. However, even at €40/MWh, paying for Ukrainian storage at the higher estimate of storage costs would imply a Sep and Oct-2 4 price at €23/MWh in to make the temporal arbitrage work. As such, Sum-24 is likely to follow the Sum-23 playbook with the inability to create demand at lower prices likely to see TTF pricing towards the bottom of the coal-gas switching range, before eventually shifting to price supply reductions to incentivise marginal LNG demand in competitor markets and price off Norwegian supply. W e expect TTF to average €31.5/MWh over Sum-24, although issues surrounding Ukrainian transit are expected to support the curve further out. As such, we have made limited change to our Win-24-5 forecast (€43/MWh vs €45/MWh previously) and leave Sum-25 unchanged at €33/MWh. …