European Gas Update – Priced for (Im)perfection

T wo narratives are currently supporting the TTF near-curve around €40/MWh, with the market effectively pricing for marginal demand destruction around this level . First, is an underlying modelling assumption of weather normalisation which is expected to drive incremental consumption growth . Secon d is a market perception of heightened geopolitical risk, with the associated risk of gas supply loss . This is driven by consensus expectations for the eventual shut-off of gas flow via Ukraine and the potential second-order impacts of escalation between Iran and Israel. In our base-case balance (assuming year-on-year demand increases ~13.5bcm, flat LNG availability and the loss of ~42mcm/d of Ukrainian gas from 1 st Jan), we model end-Mar inventory at ~41bcm (42% fullness), ~17.5bcm tighter year-on-year. This storage level, whilst above pre-crisis averages, justifies pricing to conserve stocks through the withdrawal period, with TTF near the top of the coal-gas switching channel and above LPG parity to drive marginal demand savings. We subsequently forecast TTF at €44/MWh through the withdrawal season, with Sum-25 at €38/MWh . However, the curve will lose significant value if colder temperatures do not materialise – if temperatures actualise in-line with Win-23, we see fair value for Sum-25 at €28/MWh.