Global gas – key pre-winter themes as market struggles to find equilibrium

European gas prices (TTF) appreciating 31% (at the time of publication) from Friday’s close is a clear signal of a market struggling to balance. Across the three global gas hubs, the combination of unresponsive supply and inflexible demand has driven prices higher. With European supply triggers essentially rendered ineffective, TTF must balance via demand destruction. With heating demand lacking elasticity to gas prices, industrial consumers are likely to be the first to free up additional gas as we move through winter . Given heightened uncertainty on the supply side, lack of information on the exact volumes of gas that could be freed up at various price levels via demand destruction and the resultant persistent inventory deficit ahead of winter, the market is likely to be prone to upside spikes on any bullish newsflow with TTF essentially unmoored from the traditional levels that would dictate price formation. In our base case assuming a normal winter, we forecast TTF between the forward 20% - 25% coal-gas switching triggers (€57/MWh or $19.4/MMBtu), essentially the top of the switching channel. We expect the JKM premium to TTF to remain over winter as structurally supply-short Asia keeps the arb for flexible gas o pen. Henry Hub is forecast moderately below current forwards. In an extreme scenario, we see Henry Hub capping out before LNG exports are threatened by arb closure.