Twin supply shocks force European gas market back to demand destruction

The double supply loss associated with Nord Stream 1 flow curtailments and the extended Freeport LNG outage have resulted in the loss of ~10bcm from our end-October NW Europe inventory est imates, holding other aspects of the balance static. This implies that the legally binding 80% storage fill targets will not be met. TTF will therefore be forced to price around the upper fuel switch trigger to force additional demand destruction from the industrial sector to free up demand . The forward winter upper switch trigger is currently trading around € 102/MWh. Technical issues aside, we view the Russian flow curtailments as another action aimed at keeping upside pressure on TTF , as outlined in Russia Keeping the Pressure on European Gas Prices . T he cut in supply significantly tightens the European gas balance at a time storage injections were running far above the five-year average and a tentative bearish mood was falling over the market. Russia’s option on weaponising gas flow has significant time decay and limiting storage builds over summer will provide Russia with more leverage entering the winter. The reluctance so far to offset losses with additional Ukrainian transit supports this interpretation.