Maintaining a Constructive View on the European Gas Market

Volatility in the European gas market has continued into 2022, with persistently low Russian exports forcing TTF into a delicate balancing act – pricing high enough to both encourage demand destruction in the industrial segment and to keep Europe as the premium gas market targeted by spot LNG Whist the flood of spot LNG targeting NW Europe is likely t o be maintained throu gh the end of the first quarter based on forward export arbs, we expect a marginal Asian bid for spot LNG to re- emerge in the second quarter, largely on storage refill requirements from Japan and South Korea. Russian spot sales are unlikely to return in 2022 given Gazprom’s commercial incentives and the geopolitical leverage high gas prices provide Russia in an environment of escalating confrontation with NATO. As such, TTF will be required to price to keep the LNG arb open and to limit as much consumption as possible (by pricing above the coal switching range, at a minimum). We have maintained our previous forecast, outlined here . TTF is expected to average € 60/MWh over summer and € 71/MWh over 2022 as a whole. Our summer forecast tracks the top of the coal-gas switching channel, which we see as a solid floor given projected tightness across forward balances.