TTF intraday volatility calms as gas market open remains hotly contested

The intraday volatility witnessed on the Dutch Title Transfer Facility gas contracts subsided this week, after having gone through some of the largest same-day movements on any commodity benchmark during October's opening week, an analysis of exchange data shows.

This week, on average, the TTF front-month (November) has traded in an intraday range of Eur 8.59/MWh ($2.90/MMBtu); compared with an average range of Eur 30.10 ($10.15/MMBtu) during the week of Oct. 4-8.

The single biggest range was on Oct. 6, when TTF moved from low-to-high by Eur 61.285/MWh ($20.66/MMBtu).

One notable aspect of the intraday volatility is a pattern for the highest intraday movement to be at the market open.

During the first two-and-a-half hours' trade, from 7 am to 9:30 am London time, since the start of October the high and low have been observed within this short time window 56% of the time. In other words, on those five days, the full range of intraday price movement was packed into just 2.5 hours.

Looking at the same time period, the daily high was reached 80% of the time. On Oct. 14, the situation was no different, with the daily low of Eur 96/MWh and the daily high of Eur 102.75/MWh having been hit during the market open.

Drilling down further, during the period between 9-9:30 am London time, which coincides with the close of Asia's LNG markets at 4:30 pm Singapore time, the daily high was hit on a third of the trading days in October so far. The biggest move on the TTF front-month during that 30-minute period was on Oct. 6, when it moved nearly $10/MMBtu from a low of the equivalent of $45.77/MMBtu to a high of $54.43/MMBtu, or a 19% gain.

On the same day, Intercontinental Exchange paused trading in the UK National Balancing Point Futures market at 9:32 am London time, or 4:32 pm Singapore time due to significant price movements in the contract. Similarly significant price movements were seen across Europe's screen-traded gas hubs at the time. An Interval Price Limit control was not triggered for the TTF contract at the time. S&P Global Platts had not received a response to emailed queries on this subject from an ICE spokesperson at the time of writing.

Analysis of the trade activity on the exchange during this 30-minute period highlights two trends: one is for smaller lot sized trades of five lots to be traded; the other is for a high proportion of the trade to be inter-month spread trades between front- and second-months. At times of heightened volatility spread trading as a proportion of total derivatives trade has been seen to increase in order to lower outright price risk. Market participants in gas and LNG derivatives markets have noted this trend over the last few months.

One London-based trader raised concerns though that the small volumes of TTF contracts traded, particularly near to the close of Asian LNG markets, might not represent sufficiently the financial exposure of physical LNG cargo trading.

"You need over 300 lots to hedge an LNG cargo, so all these European gas trades of a couple of lots are just too small and move too fast to properly reflect where the [LNG] market is," he said.

Market impact

LNG traders have struggled to cope with the significant intraday volatility of the TTF futures contracts, which was causing market sentiment to swing daily from bullish to bearish, then back to bullish in a matter of hours.

"TTF is the reason for (price) volatility in Asia and Atlantic (markets) as LNG fundamentals have remained quite stable this month," a Singapore-based LNG trader said. "It's impossible to say why prices are rising, or prices are falling."

Indeed, analysis of the JKM-TTF differential -- an increasingly followed metric for inter-regional arbitrage -- shows stability during the recent price rally, implying that TTF's movements are triggering moves in JKM. Accounting for intraday price changes by comparing Platts London-close JKM front-month (JKM December) derivatives with Platts TTF December price assessments in October the differential has ranged between $2.567-$4.02/MMBtu.

Comparatively, when the winter peak in JKM prices occurred in January 2021 due to surging North Asian demand and regional supply outages, the JKM-TTF differential widened to as much as $25.001/MMBtu on Jan. 14 versus a year-to-date average of $2.415/MMBtu.

Traders' view

Traders attributed recent TTF price movements to various factors such as weaker Russian gas flows into Europe, Nord Stream 2 operator's appeal against the German court ruling, changing temperature forecasts in Northwest Europe, carbon credit price movements, as well as speculative trading.

The recent market volatility has drained some spot cargo trading liquidity in the Asian market as buyers have taken to the sidelines to reassess the situation. Furthermore, those spot trades that have been taking place in Asian LNG this month have been concluded on a floating price basis, rather than on a flat price basis due to fast-moving daily outright prices.

The heightened market volatility was also creating uncertainty among sellers participating in Asian LNG tenders -- with recent ones by Thailand's PTT, Australia's BHP and Darwin LNG, and Russia's Sakhalin LNG -- all closing between 12 pm to 2 pm Singapore time, before the TTF market opens.