TTF Gas Prices Fall to Pre-Ukraine War Levels— But Will it Last?

MAIN TAKEAWAYS

• The recent decline in Europe’s natural gas prices was weather-related and they are expected to rebound.

• China’s reopening might prove costly for European countries as they both compete for LNG shipments.

2022 was a remarkable year for the gas markets due to several reasons, including the highly volatile gas prices, especially in the European market. Following Russia’s invasion of Ukraine last February, the prices of the Dutch TTF (the European benchmark for gas contracts) hit all-time highs, reaching 346 euros/ megawatt hour in August. This was triggered by European concerns about cuts in Russian gas supplies as Moscow continued its war in Ukraine amid Western condemnation.

To survive the heating season without gas shortages, and bolster the European Union’s security of gas supply, the European Commission embraced a course of measures, including a voluntary reduction of natural gas demand in EU member states by 15%. Furthermore, EU member states quickly managed to ramp up the filling of natural gas stockpiles last summer to meet the 80% target for November set by the European Commission. As a result, concerns about possible gas shortages during the heating season ebbed by early November when European gas stockpiles were almost full.

Additionally, European countries imported record quantities of LNG, mainly from the US, with US LNG exports to Europe accounting for more than 40% of overall shipments to the bloc as shown in Figure (1) below.  According to the Independent Commodity Intelligence Services (ICIS), Europe imported over 111 million tons of LNG in 2022 compared to 64 million tons in 2021, with a more than 70% year-over-year (YoY) growth rate.  

Figure (1)

TTF Falls Rapidly to Pre-Ukraine War Levels