As usual, when I'm on deck, I try and get a few far more intelligent people than me, who owe me favours, to give you guys some writeups..

So here is my friend, and Nat Gas expert, Andrea Paltry of with a great note:

TTF and European natural gas Supply/Demand balance

Finally, we’ve overtaken the 80% level of storage at EU level. In some countries, like Germany, we are close to 88% (see the chart below). Yes, we are talking about natural gas and this stock level has not been reached in the cheapest way possible. Indeed, assessing TTF front contracts movement over the past month or so, we can easily see the highest volatility ever. Indeed, September contract price touched euro 350 per MwH in the last day of trading before collapsing up to reach euro 200 per MwH after the rollover into the actual most traded October’22 one. Why this movement? Speculation like most of the people think? Actually, there is an explanation related to Supply/Demand balance and to the level of stocks we’ve reached. Indeed, all the operators (private, quasi-government etc), in order to get this 80% threshold level, massively buy every marginal physical molecule in the spot market to store it, exploiting the spot-first forward contract contango shape. If we buy every single marginal unit of gas, in a non-coordinated way, both the spot price and the forward curve spike. What I mean is that we reached what people define a ‘safe level’ of natural gas European storage, but it was expensive and, in any case, is within the five year average.


Now, what’s next? Are we in a safe condition to go through the winter time? Here several points need to be analyzed.

First of all, even if reach the 100% level of storage, we need flows. Indeed, the storage level in different countries are around 20-30% of total consumptions and we usually use them to tackle the peak of heating demand. The flows, along with the production, are needful. Right now, Russian pipeline gas amounts to 9% of total EU imports. Someone can think it’s a very thin level compared to 40%, and it’s true, however, this marginal gas is pretty important and very difficult to substitute since LNG imports is almost maxed out. With Nord Stream 1 pipeline indefinitely closed, Sudzha pipeline will be primary important. If we reduce also this import, TTF price can indefinitely jump until demand is reduced. We just talk about pipeline because we are getting Russian LNG imports in Spain (and it has increased over the last months).

Second, LNG imports. Right now, we blame TTF price and volatility , but the same TTF is what allowed us to fill the storage. If we assess below charts, we can easily see the top US LNG destinations in June 2022 versus the period 2016-2022. The spread TTF-JKM allowed us to get most of the LNG exports and to fill the storage. We need this spread for all the winter, we need high prices in order to get flows, waiting for Freeport resuming (likely in November, and we will get 2.2 bcf/day more).


Third, weather. Even if we keep all the flows from Russia via pipeline and even if we maximize the flows from other important countries like Norway and Algeria (Transmed) and even if we keep this LNG imports all the winter, we need at least normal weather. If we experience heating degrees 2 or 3 standard deviation higher than 10 year average, the situation will not be pretty down the road and we would need a huge amount of rationing. Therefore, closely watch weather and heating degrees from mid October.


Andrea Paltrinieri
Associate Professor of Banking and Finance, Università Cattolica del Sacro Cuore
Natgasweather and Energy Working analyst