European Gas Update – Russian Gas Here to Stay?

A growing year-on-year inventory deficit (currently running ~9bcm) has supported front-month TTF near annual highs and driven an inversion of the typical forward seasonal spread, with Sum-25 flipping to a premium to Win-25, averaging €3.5/MWh over the past 10 sessions. T he market is pricing a re-run of 2022 (albeit at significantly lower price levels), signalling concern regarding the ability to refill storage over Sum-25. Whilst triggered by expectations for a significantly lower year-on-year end-Mar storage carryout given the current deficit, ultimately this dynamic is driven by the distortionary impact of EU Commission storage mandates . Both pricing dynamics (elevated front-month pricing, curve inversion) depend on expectations for low end winter storage levels, which further depends on a continuation of elevated inventory withdrawal rates, and the halt of residual Russian gas flow via Ukraine. On the demand side, we maintain our full season demand forecast with actuals largely in line with our prior expectation for a ~13.5bcm year-on-year consumption increase. On the supply side, we are taking a hedged position and including residual gas supply via Ukraine to Slovakia in our balances, which implies additional supply (in our analysis perimeter) around 1.-1.5bcm over Q1-25. This is due to the fact negotiations between parties involved in Russian gas transit via Ukraine are clearly continuing, most parties have a clear incentive for flow to continue and that Gazprom flows to Austria have effectively continued via a third party despite the long-term contract between OMV and Gazprom being halted. With other supply assumptions held constant, this loosens our balances very slightly, but the price impact may be greater given the influence of speculative market participants on TTF price formation, and the role of supply loss narratives on spec behaviour.